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Beny Steinmetz’ BSG Resources Starts Arbitration Process Against Guinea Government In Mining Dispute

 

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Beny Seinmetz’s African mining exploratory and development company, BSG Resources, yesterday announced it had taken what it termed was the first preparatory step to initiate arbitration proceedings, with the International Centre for Settlement of Investment Disputes, against President Alpha Conde and the Government of Guinea.

The notice of dispute relates to the Guinea government’s decision last month to revoke BSGR’s mining titles and agreements in the Zogota and Simandou regions of south-east Guinea. It also serves as a shot across the bows of anyone else who might seek to take early advantage of the dispute by seeking to take on the project, before the BSG Resources claim is adjudicated in this accepted international forum for such disputes.

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BSGR is seeking the restitution of its mining titles and agreements as well as damages arising out of the revocation of these interests, which it claims have been unlawfully expropriated through what it alleges to be illegal and dishonest practices on the part of President Alpha Condé’s government in Guinea.

Since the Government of Guinea revoked the mining concession awarded to Beny Steinmetz’s BSG Resources to develop a rich iron ore deposit in its remote Simandou region, recriminations have begun to fly around fast and furious.

First, the giant mining group Rio Tinto filed suit in New York against both BSG Resources and its joint venture partner in the project at Simandou, the Brazilian mining giant Vale, claiming it had been fraudulently dispossessed by BSG Resources and Vale, essentially though the alleged bribery and corruption of government officials, of its mining rights to the same land.

Rio Tinto had indeed been awarded a concession on these lands, together with an equally large concession on lands to the south, going back as far as 1997.

Then in early 2008 half of the concession was taken away from it, at the time for reasons the Guinea government stated had to do with to do with non-compliance by Rio Tinto with a reasonable development timetable for the project in the years after its award.

Later that year the same half of the Simandou concession was awarded to BSG Resources, based on the promise of a much speedier development priority, which indeed then took place with many holes being dug, rich ore deposits being defined and about US$160 million being spent by BSG Resources on preliminary development work.

Then, with the value of the resource more clearly delineated BSG Resources sold a 51% majority position in the concession in 2010 to Brazilian mining group Vale, to help finance and bring it to production. A new joint venture vehicle called VBG was set up to run the joint venture. At the time this was considered a major coup for the Israeli entrepreneur who hitherto had made his fortune mainly in the diamond business.

At the time Vale agreed to pay US$2.5 billion for the interest, of which so far only about US$500 million has actually been paid, before all the corruption allegations came to the surface and further payments were frozen.

However, Rio Tinto has now claimed in its suit, in New York, that the concession was taken away from it not for failing to meet its development promises, but instead by virtue of corruption and bribery by the plaintiffs in the dying days of the former dictator there, President Lansana Conté.

After a military coup in 2008, and an eventual return to civilian rule under new President Alpha Condé who was elected peacefully in December 2010 there later began to be signals of a new approach from the government Guinea, which sought to gain a greater state share in the development of its resource wealth.

Beny Steinmetz BSG Resources

Even so, initially the new government there seemed to continue to support the BSG Resources-Vale joint venture for the northern part of the Simandou concession. Later, though, in 2011 the Government of Guinea successfully persuaded Rio Tinto to pay it US$700 million to settle all the government’s outstanding issues with that mining company, including granting the State a 35% interest in its remaining southern half of the Simandou prospect.
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Subsequently allegations of corruption and bribery in the award of the Simandou concession to BSG Resources began to surface, leading to the Government of Guinea establishing an administrative board of enquiry to look into them. After duly concluding that there were indeed such corrupt practices the Guinea mining regulatory authorities finally revoked the northern Simandou concession, and took it back from BSG Resources and Vale, just last month when this recommendation was approved by the Cabinet of the Government of Guinea.

So, with yesterday’s announcement, now BSG Resources is forcing the Government of Guinea to try to substantiate its claims in a properly constituted international forum, where the rules of evidence apply. It remains to be seen, of course, whether, in the cold light of day, any of the allegations of corrupt behavior, which have even led to investigations in the United Sates and Switzerland as well, stand up to scrutiny and one should certainly not prejudge the outcome either way – presumably the chips will now fall where they may.

Not to be left out, moreover, Vale, BSG Resources’ joint venture partner in the Simandou project, is reported by Bloomberg to have yesterday officially launched arbitration proceedings of its own, this time in the London Court of International Arbitration. In this proceeding Vale is, however, not acting against the Government of Guinea, but rather against its own partner, BSG Resources, who had sold them the 51% majority position in the concession in 2010.

By appearing to take the Government of Guinea’s own administrative findings at face value for the moment, and only going after BSG Resources, Vale seems to be leaving the heavy lifting of disproving the allegations to their partner, as one would perhaps expect.

This way Vale does not make too many enemies within the Government in Guinea if the BSG Resources arbitration claim against the government should fail. Then, Vale would still remain eligible to be awarded the concession on its own instead when it is eventually reissued, as the Government of Guinea has so far been careful to point out.

Conversely, if BSG Resources should prevail with its arbitration against the Government of Guinea, then presumably its joint venture with Vale will simply be resuscitated and life goes on.

Looking past the current major downturn in the mining business, with falling prices and reduced demand, the Simandou iron ore deposits remain a major prize. Indeed, some commentators have claimed that the real nature of the whole dispute is a battle between the two mining giants, Rio Tinto and Vale, who together control a good deal of the world’s supplies of iron ore, for control of the Simandou resource, and that BSG Resources is simply a lesser player in this battle of giants.

It is certainly the case that Rio Tinto has claimed, in its New York court filings, that it held secret joint venture discussions with Vale for some years over Simandou, long before BSG Resources even entered the picture, and it has also alleged in the same court filings that Vale later took advantage of some of Rio Tinto’s confidential disclosures when it subsequently negotiated with, and entered into, its joint venture with BSG Resources.

So now it seems we have two sets of international arbitration proceedings going on, plus one lawsuit filed with a judge in New York. In the meantime, while there is lots to do for the lawyers no work is being done developing the mining prospect so that iron ore can be delivered to world markets, or gainful employment offered, directly or indirectly, to the many thousands of citizens of Guinea who might benefit from such a major project coming to fruition.

When you also stir in allegations made by Beny Steinmetz of interference by George Soros, and one of the NGO’s that he sponsors, Global Witness which is said to be opposed to much international mining development, you seem to have an international story full of twists and turns, and indeed almost worthy of a movie.

 

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