Guinea's New Dawn: After a Very Troubled 18 Months, Political Calm Appears to Have Returned to Guinea, Opening the Door to Very Extensive Mining and Infrastructure Activity. the West African Nation Could Well Be on Its Way to Becoming the World's Biggest Producer of Iron Ore: M J Morgan Reports

By Morgan, M. J. | African Business, July 2010 | Go to article overview

Guinea's New Dawn: After a Very Troubled 18 Months, Political Calm Appears to Have Returned to Guinea, Opening the Door to Very Extensive Mining and Infrastructure Activity. the West African Nation Could Well Be on Its Way to Becoming the World's Biggest Producer of Iron Ore: M J Morgan Reports


Morgan, M. J., African Business


The political upheavals in Guinea now seem to have calmed down, with a power-sharing agreement between junta leader General Sekouba Konate and Jean-Marie Dore, a respected opposition politician, incorporating representatives from the junta, the opposition, as well as regional figures.

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Presidential elections have now been scheduled for 27th June, with legislative elections to follow in December.

As reported in the last issue of African Business, Brazil's iron-ore giant Vale's $2.5bn majority investment (51%) in the division of BSG Resources, who own Block 1 and 2 of the Simandou high-grade iron ore deposit, is likely to expedite the development of the project and also represents a vote of confidence in the government.

The country is already the second-largest producer of bauxite ore, used to make aluminium, and the country also possesses around one third of all known bauxite reserves.

With the Vale and Bellzone deals in place, Guinea has the potential to become one of the world's biggest iron ore producers too -certainly if the ambitions of Guinea Mines Minister Mahmoud Thiam are to be realised.

China reached a $7bn deal with the junta back in October last year, to pay for infrastructure, exploration and oil prospecting. The China International Fund (CIF), Sonangol (Angola's state oil company) and the Guinean government signed a memorandum of understanding regarding oil prospecting.

It is thought possible that the oil found off the coast of Ghana, and more recently Sierra Leone, may spread as far as Guinea's waters.

This investment by China follows their recent pattern of providing finance for promising projects (the projects themselves often hampered by weak equity markets) in return for securing supplies of minerals - in particular, iron ore, to meet the country's insatiable appetite for steel. With shipping costs from Brazil around $3o/t compared to $27/t from Guinea, the cost efficiencies involved are tremendous.

Bellzone Mining, which owns 100% of the estimated 13bt iron ore project at Kalia, also reached a deal at the end of May with CIF, under the terms of which the latter would provide the necessary infrastructure spending required to bring the mine on line, in return for the right to purchase all the ore produced.

A memorandum of understanding was agreed, according to which CIF will provide $2.7bn in funding to Bellzone. The finds provide for a new infrastructure company, 10% of which will be owned by Bellzone and which will give them precedence over the use of the new infrastructure. The company's shares leapt on the news, from about 35p to about 52p. Analysts Canaccord Genuity had already issued a buy recommendation, with a 12-month target price of [pounds sterling]1.20.

The new infrastructure company is looking to put in a deepwater port south of Conakry and construct a 286km railway line. It may also be the gateway for the iron ore coming from Rio/China-lco/Vale's project in Simandou, due to come on line over a similar time frame.

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However, whether the Rio Tinto/ Chinalco portion of the Simandou ore will be transported this way or via Liberia, as previously planned, remains to be seen.

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The railway and port infrastructure will bring into play a number of deposits, and leasing its use to other miners may well prove a lucrative source of funding, hence Bellzone setting up a separate infrastructure division.

The Bellzone tonnage alone justifies the cost of the infrastructure but it could also prove a major money spinner in its own right, as it is almost unique that an infrastructure project like this could bring so many other additional projects on line.

The China Infrastructure Fund will provide the new infrastructure company with $4om to pay for a feasibility study to calculate the level of funding required to provide for the necessary railway lines, rolling stock, storage, port construction and power.

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Guinea's New Dawn: After a Very Troubled 18 Months, Political Calm Appears to Have Returned to Guinea, Opening the Door to Very Extensive Mining and Infrastructure Activity. the West African Nation Could Well Be on Its Way to Becoming the World's Biggest Producer of Iron Ore: M J Morgan Reports
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