No guts, no glory in Guinea

Rapidly evolving region challenges miners in search of great rewards

By Anna Reitman

Rio Tinto’s investment in the Simandou deposit is one of the most significant signs of the promise Guinea holds | Courtesy of Rio Tinto

The Republic of Guinea is a two-year-old democracy with a vast wealth of natural resources and an atmosphere of perpetual change. The country is now, more than ever, one of the most closely watched mining jurisdictions in the world.

Mining accounts for about 20 per cent of Guinea’s US$11.6 billion GDP and over 80 per cent of its exports. The sector also provides between 20 per cent and 25 per cent of government revenue and employment in direct and indirect jobs, according to the World Bank. Guinea is the world’s top exporter of bauxite, has massive underdeveloped iron ore reserves and is one of the top five gold producers in West Africa.

Observers agree that the resources are lucrative, but the government’s bumpy transition to democracy has added risk, as has a mining code review that began in earnest this year.

Guinean President Alpha Condé came to power in 2010 during the first democratic elections the country has known. Since then, the government has implemented new mining legislation, and subsequent contract renegotiations with companies were initiated earlier this year.

Included in the new legislation is a provision that would give the government a 15-per-cent non-contributing stake in all projects and the option to acquire a further 20 per cent at market value.

Roddy Barclay, West Africa analyst at advisory firm Control Risks, explains that the new mining legislation has increased investor uncertainty, and that even in a best-case scenario, a well-managed, transparent process will still pit the government against mining companies.

“The revised code was driven by market factors – such as the commodity price super-cycle and growing Asian interest – and domestic political factors, with the government keen to recalibrate its relationship with investors and increase its stake and take from the mining sector in order to begin to address the country’s pressing socio-economic challenges,” Barclay says.

Negotiations are anticipated to bring mining industry participants in line with the new mining code, which Barclay expects will be used as a guiding tool rather than as a fixed framework. However, he believes the government will stay firm on some conditions, such as the ownership provision.

It is difficult to assess how the contract revisions and the timeline for their implementation are going to affect individual miners. Diana Asonova, a spokesperson for Nordgold, which controls the Lefa gold mine near the Mali border, explains that the new mining code was recorded as having come into effect subsequent to its drafting in September 2011, although it was not made available to the public until February of this year.

Asonova adds that Nordgold’s property has been guaranteed by an agreement with the government, which pre-dates the new mining law and contains a number of stabilizing provisions, giving it priority over any newly implemented laws that negatively affect terms and conditions. “However, we understand that there are still discussions ongoing regarding possible amendments to the new mining code, in particular with respect to the tax regime,” she says.

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