HYDROMINE: AMERICAN DEAL-MAKER FOR CAMEROON'S

C O N F I D E N T I A L SECTION 01 OF 04 YAOUNDE 001428

SIPDIS

SIPDIS

DEPT PASS OPIC, EXIM, USTDA

E.O. 12958: DECL: 12/05/2017
TAGS: CM ECON EMIN ETRD EINV ECOM PGOV PINR
SUBJECT: HYDROMINE: AMERICAN DEAL-MAKER FOR CAMEROON'S
BAUXITE RESERVES

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Classified By: PolChief Scott Ticknor for reasons 1.4 (d) and (e)


1. (SBU) Summary: Hydromine, an American project developer
partnered with mining companies from the UAE and India, has
been working since 2004 to develop Cameroon's multi-billion
dollar bauxite resources and related infrastructure,
including a railroad and deep water port. While the Prime
Minister tells us he is supportive, the Ministry of Mines has
raised questions that could jeopardize concluding a broad
convention before the company's licenses expire in March

2008. Competition from an Anglo-Australian consortium (with
former French and Canadian ties) and possibly a Chinese firm
is also muddying the water for Hydromine. Given the
increasing complexity of this deal, the Embassy has asked
Hydromine to complete a Commercial Advocacy Questionnaire to
lay the groundwork for likely continued USG engagement. End
summary.

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Cameroon's Bauxite Saga
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2. (SBU) Prospective developers have battled over
Cameroon's bauxite deposits (reportedly among the largest
proven reserves in the world) for more than 15 years. In
2005 Massimo Campailla, an Italian national who was rumored
to be close to President Paul Biya, sued the GRC in
Luxembourg courts for $2 billion, alleging breach of contract
regarding his reported concession to identify partners and
exploit bauxite in the Minim-Martap and Ngaoundal regions of
Cameroon, deposits which have been known for at least 50
years. Press speculation suggested that French and
Cameroonian officials associated with Pechiney, a French
company reported to have very high level connections in
French business and government circles, had scuttled the deal
in order to retain their hegemony over aluminum production in
Cameroon. At the time, Pechiney was the major stake-holder
(with the Government of Cameroon) in ALUCAM, Cameroon's
aluminum smelting operation. Pechiney, ALUCAM and Canadian
company ALCAN have all been subsumed in Rio Tinto, an
Anglo-Australian mining giant. On November 12, 2007, BHP
Billiton, an Anglo-Australian company, announced its
intention to conduct a hostile takeover of Rio Tinto, but the
deal still faces industry opposition and regulatory hurdles.

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History of Hydromine in Cameroon
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3. (C) Hydromine was founded as a project development
company in Delaware in 2004 by Amcit Peter L. Briger, who
also heads Briger and Associates, a New York City law firm.
Hydromine first signed an agreement for mining exploration in
Cameroon with then-Minister of Mines Henry Kibuh Tume in

2004. The company received exploratory licenses for the
disputed tracts in Minim-Martap and Ngaoundal in agreements
signed on March 9, 2005, by then-Minister for Mines Charles
Sale (who replaced Kibuh Tume in a 2004 Cabinet shuffle and
was dismissed this year, reportedly for demanding shares in
the businesses with which he was dealing).


4. (SBU) In 2005 and 2006, according to documents Hydromine
submitted to the GRC, Hydromine and its partners spent nearly
$5 million doing initial exploration and consulting, and
lining up Dubai Aluminum Company (Dubal) and Indian company
Hidalco Industries as its partners for the aluminum project,
with the addition of Alminpro as a Canadian-based
geological/engineering consultant. Hydromine says it has
partnered with U.S. firm Parsons Brinkerhoff (for a port
project) and dozens of other international firms in a bid to
expand the overall project to include the mining facility,
conversion and transport facilities, a deep water port, and a
power plant. In 2006, Hydromine signed Cameroon's first-ever
BOT agreement for the eventual construction of the
Edea-Batanga rail line. Hydromine reports having been in
contact with USTDA, EXIM, OPIC, and the Departments of
Transportation and Energy about its project in Cameroon.

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The Convention
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5. (C) Hydromine's exploratory licenses will expire in
March 2008. Hydromine says it is prepared to invest $20-25
million over the next two years but only if the Government of
Cameroon (GRC) agrees to sign a Memorandum of Understanding
(MOU) and Convention of Establishment detailing the relevant
rights and obligations, not only for the mining venture but
for related infrastructure projects. According to senior
contacts in the Ministry of Mines, such a proposed convention
is unprecedented in Cameroon, in part because it extends far
beyond simple exploration or mining and includes diverse
legal provisions (like land rights to construct a railroad)
that are not linked to mining, and in part because Hydromine
has done so little work on the site to date.

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The PM's Take
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6. (C) In October 2005, Prime Minister Inoni signed a
far-reaching "letter of intent" with ALCAN, then the
controlling share-holder of ALUCAM, that addressed various
issues including the expansion of ALUCAM's smelting
facilities, the provision of new electrical supply and the
possibility of ALCAN's use of the bauxite reserves in
Minim-Martap and Ngaoundal. According to Hydromine's Vice
President in Cameroon, Cameroonian national Jean Pierre
Ndongo Zanga, portions of the GRC's October 2005 agreement
with ALCAN (now Rio Tinto) conflict with Hydromine's rights
under the March 2005 agreement. A senior executive at Rio
Tinto told Poloff on November 30 that ALCAN and Rio Tinto had
also concluded that the agreements offered conflicting
rights. (Comment: In our view, Hydromine's claim appears
more solid since it has signed licenses from 2004, whereas
ALCAN's claim was based on a "political" statement made by
the President during the visit of a senior ALCAN official,
referring to "exclusive" mining rights. Then-Ambassador
Marquardt repeatedly urged Prime Minister Ephraim Inoni to
retract the political statement. The PM did not do so, and
his 2005 "letter of intent" seems designed to avoid the risk
of alienating ALCAN in light of the President's positive but
ambiguous statement. End comment.)


7. (C) Nonetheless, Ndongo Zanga showed Poloff a photocopy
of an August 14, 2007 letter from Secretary General at the
Presidency Laurent Esso instructing Prime Minister Inoni to
sign the convention with Hydromine. Ndongo Zanga also had a
photocopy of a November 11, 2007 letter from Badel Ndanga
Ndinga, the new Minister of Mines, recommending to the Prime
Minister that he sign the convention.


8. (C) Prime Minister Inoni telephoned the Ambassador in
the first week of November to express his desire to address
lingering issues with the Hydromine dossier. In a November 7
meeting with the Ambassador, Prime Minister Inoni said that
the GRC was reluctant to move forward with the MOU because in
a number of areas Hydromine had failed to live up to its
commitments to the GRC under the March 2005 agreement. On
November 21, Inoni shared with the Ambassador a memo prepared
at the PM's request by the Ministry of Mines detailing
Hydromine's alleged shortcomings. Ambassador shared a
translated version of the memo with Peter Briger, who
countered that Hydromine had met and even exceeded its
commitments under the 2005 agreement, and he promised to
present Hydromine's response in writing to the PM.


9. (C) After receiving reports from Hydromine executives
that the Minister of Mines was unwilling to meet with Peter
Briger and that some GRC officials had become "hostile" to
Hydromine's proposal, Ambassador met with Inoni on December 3
to request clarity on the GRC's position regarding the
negotiations with Hydromine. Inoni clearly affirmed to the
Ambassador that he remained committed to moving the Hydromine

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project forward, but complained that he was fighting against
other (unnamed) officials in the cabinet who were unimpressed
by Hydromine's meager progress to date and suspicious that
Inoni, as an Anglophone, was too eager to push for a deal
with any American company. Inoni asked the Ambassador to
urge Briger to come to Cameroon as soon as possible to
respond to criticisms of the Hydromine project (which she has
communicated to Briger).

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Competitors Active
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10. (C) Hydromine alleges that a network of businessmen and
officials linked to the former Pechiney network is seeking to
undermine Hydromine's position. As proof of this effort,
Hydromine officials furnished a letter signed by Celestin
N'Donga, Technical Advisor at the Minister of Mines and Vice
President of the "Cellule d'Appui au Programme Intgr de
Mise en valeur des Gisements de Bauxite de Minim-Martap et
Ngaoundal," wherein N'Donga demands that Hydromine deposit
about $100,000 in an account at Afriland First Bank (in the
name of the Cellule) for "Assistance en Expertise" for the
project. Ndongo Zanga says that this network includes senior
officials at the Prime Minister's Office and the Presidency,
whom he believes are aligned with Pechiney.


11. (SBU) On November 30 Prime Minister Inoni and Rio Tinto
President for Primary Metals Jacynthe Cote signed an
amendment to the October 2005 letter of intent. According to
press reports, the deal provides additional access to water
resources to enable Rio Tinto to move ahead with the
construction of a 1,000 MW hydro-electric dam at Sonmbengue
linked to the construction of a new smelting facility and the
construction of a 330 MW hydroelectric dam at Nachtigal that
would allow expansion of the current smelting facility at
Edea. If realized, the entire project would increase Rio
Tinto's aluminum smelting capacity in Cameroon to 400,000 MT
annually. In his December 3 meeting with the Ambassador, PM
Inoni asserted that the GRC's agreement with Rio Tinto did
not conflict with Hydromine's interests. However,
Hydromine's Cameroonian Vice President had earlier told an
Embassy official that the deal allowed Rio Tinto to lock up
the water rights needed to construct the hydro-electric
facility necessary for a new smelting operation, providing
Rio Tinto with effective control over any prospective
smelting operations in the region.


12. (C) According to a January 2007 local press report, the
Chinese firm Hydro Corporation is pursuing the same resources
as Hydromine. In their pursuit of the contract to construct
a hydroelectric damn at Memve'ele, Hydro Corporation was the
target of credible reports (from a Western mission) of
corrupt dealings with former Minister of Economy and Finance
Polycarpe Abah Abah. A senior executive with Rio Tinto
confirmed to Poloff on November 11 that Hydro Corporation had
sought to gain access to the bauxite reserves through corrupt
relationships with (unnamed) cabinet officials. In addition,
a December 4 press report indicates that Chinese parastatal
Baosteel may make a competing offer for Rio Tinto to stave
off the creation of a Rio Tinto-BHP conglomerate, which could
potentially strengthen the hand of Hydro Corporation.

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Comment: Moving Forward
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13. (C) With a multi-billion dollar mineral deposit at
stake and Cameroon's challenging business operating
environment, we are not surprised by the competition,
scrutiny and complicated politics involved in the Hydromine
deal. The GRC is no doubt balancing its commitments to
Hydromine and its equities with other companies in the
aluminum sector here. That said, two other large foreign
mining projects -- the cobalt mining project already in
operation by American firm Geovic and the iron ore extraction
project (with the same rail-port facets as Hydromine) run by

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Australian firm Sundance -- have advanced far beyond
Hydromine without similar difficulties or controversy.
Cameroonian private press outlets have carried stories highly
critical of Hydromine, focusing on Hydromine's reported lack
of experience in the mining business (which from our
information, appears true). The enemies of Hydromine have
always, and at every level, tried to discredit the company
because it is a small player. We have countered that
Hydromine is a classic deal-maker, bringing the expertise of
other major partners to the table.


14. (C) One senior cabinet official well-known to the
Embassy alleged that Hydromine had engaged in a corrupt
relationship with former Minister of Mines Charles Sale,
about whom post has received credible reports of corrupt
dealings with other mining firms. We have not been able to
substantiate this troubling claim nor are we able at this
point to satisfactorily evaluate the GRC's claim that
Hydromine has not lived up to its license commitments (and
the company's counter-claim that it has). However, given
these various claims and the increasing complexities and high
profile of this deal, the Ambassador asked Briger to submit
an Advocacy Questionnaire to the Department of Commerce;
Briger readily agreed to do so. While Hydromine is an
American entity, the American content of the eventual deal
appears relatively small. Nevertheless, the USG has real
interests in Cameroon's economic development and in fostering
transparency and clean government, and the management of its
bauxite reserves (and infrastructure offshoots) will have a
major impact on the country's future.
GARVEY