Identifier
Created
Classification
Origin
09CONAKRY311
2009-06-02 16:11:00
CONFIDENTIAL
Embassy Conakry
Cable title:  

RIO TINTO DOWNSIZES IRON ORE PROJECT

Tags:  EMIN PGOV PREL ASEC GV 
pdf how-to read a cable
VZCZCXRO8574
PP RUEHPA
DE RUEHRY #0311/01 1531611
ZNY CCCCC ZZH
P 021611Z JUN 09
FM AMEMBASSY CONAKRY
TO RUEHC/SECSTATE WASHDC PRIORITY 3717
INFO RUEHZK/ECOWAS COLLECTIVE
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHDC
RHMFISS/HQ USAFRICOM STUTTGART GE
RUCPDOC/DEPT OF COMMERCE WASHDC
C O N F I D E N T I A L SECTION 01 OF 03 CONAKRY 000311 

SIPDIS

E.O. 12958: DECL: 06/02/2019
TAGS: EMIN PGOV PREL ASEC GV
SUBJECT: RIO TINTO DOWNSIZES IRON ORE PROJECT

REF: A. CONAKRY 0776

B. CONAKRY 0661

Classified By: POL/ECON CHIEF SHANNON CAZEAU FOR REASON 1.4 B AND D

C O N F I D E N T I A L SECTION 01 OF 03 CONAKRY 000311

SIPDIS

E.O. 12958: DECL: 06/02/2019
TAGS: EMIN PGOV PREL ASEC GV
SUBJECT: RIO TINTO DOWNSIZES IRON ORE PROJECT

REF: A. CONAKRY 0776

B. CONAKRY 0661

Classified By: POL/ECON CHIEF SHANNON CAZEAU FOR REASON 1.4 B AND D


1. (C) SUMMARY. Mining giant Rio Tinto has all but halted
its multi-billion dollar iron ore mining project in Simandou.
According to the company's local project manager, Rio Tinto
based its decision on Guinea's continued lack of political
stability. After cutting staff by more than 50% and halting
most construction activities, the company has essentially
adopted a "wait and see" approach in Guinea. At the same
time, Rio Tinto is still investing $10 million a month in the
country, but this money is now primarily targeted towards
projects that will build positive relationships with
communities around the mines while bolstering the company's
image. Rio Tinto is not pulling out despite the significant
setbacks it has experienced in recent months. The company's
current strategy seems to be one of patiently maintaining a
presence in Guinea until it can begin construction again in
earnest. END SUMMARY.


2. (SBU) Pol/Econ Chief met with Rio Tinto's Country
Director for Guinea, Dave Smith, on May 20 to discuss the
status of the company's iron ore mining project in Simandou
(Forest Region). As the company is downsizing its operation,
Dave Smith will permanently leave Guinea at the end of June.


--------------
IT'S GUINEA, NOT THE GLOBAL CRISIS
--------------


3. (C) Smith confirmed rumors that Rio Tinto is downsizing
its multi-billion dollar investment in Guinea (reftels). He
acknowledged the negative effects of the global economic
slowdown, but emphasized that Rio Tinto's decision was more
deeply influenced by Guinea's increasingly unstable political
environment. Smith pointed out that it actually makes better
business sense to invest in a major project during a
recession. "Construction costs are at all time lows right
now...it would take us four to five years to construct the
mine and then just when the mineral market starts to take off
again, we would be ready to start producing massive
quantities of high quality ore," Smith said.


4. (C) According to Smith, recent GoG decisions (reftels),

both pre and post coup, have set the Simandou iron project
back at least eight years. He explained that Rio Tinto used
to have full ownership of the mining concession, which was
endorsed both by the National Assembly and by President
Conte, as required by law. "It took us years to get that
concession and it was only after we got it that we started
construction," Smith said. The CNDD's Minister of Mines
reportedly told Smith that the GoG would now give Rio Tinto a
"lease on the southern part" of the mine and an exploration
license. Although Smith admitted that this offer was better
than nothing, he said it ultimately set the company back.
"They gave us an exploration license, but we have been
exploring for years. We're ready to mine and we had a legal
concession allowing us to do so."

--------------
CONTRACT INTERFERENCE
--------------


5. (C) Smith attributed the GoG's backtracking to the
interference of a Mr. Benny Steinmetz, owner of BSGR (Benny
Steinmetz Group Resources). He claimed that Steinmetz is
connected to a former Minister of Mines, Kassory Fofana, who
is perceived by many to be corrupt and behind the scenes
political power broker. According to Smith, Steinmetz has
had a number of "damning human rights accusations" filed
against him. In addition, he has reportedly issued "bad
bonds." Smith said "Steinmetz needs the Simandou lease in
order to back his bad bonds and stay out of financial
trouble." Smith added that he does not think Steinmetz
actually has any intention of mining in Simandou, but rather,
is seeking to obtain the concession and then sell it for a
big profit.


6. (C) To support his claim, Smith explained that Steinmetz
had not done any real exploration in the region, but had
managed to convince the GoG that he would build them a
transnational railroad, and that the mining project would be
up and running within three years. "He hasn't even done a
feasibility study, but I'm sure the GoG gave them ours, and
he's basing everything on that," Smith said. He added that
Steinmetz's company had not yet "sunk a single drill" in the

CONAKRY 00000311 002 OF 003


region even though he did install three pieces of drilling
equipment. Smith noted that Rio Tinto has sixteen drills in
operation in Simandou.

--------------
WAIT AND SEE
--------------


7. (C) Smith said that although the post-coup political
situation appears calmer now, Rio Tinto's economic risks have
increased. "We are not going to invest $15 billion in what
will potentially be the world's largest mining project in a
country where the government could change within eighteen
months," Smith said. He said that Rio Tinto is unwilling to
negotiate with the current government, especially since there
is no guarantee that any negotiation would endure if the CNDD
loses power. "We're essentially just in a wait and see
mode...even if someone waved a magic wand and gave us the
concession back, we would still be facing huge risks,
especially if that agreement were to be signed by Dadis,"
Smith added.


8. (C) As a result, Rio Tinto has already started downsizing
its operations in Guinea. One year ago, the company was
employing 2,000 people and had expected that number to grow
to between 5,000 and 10,000 by 2010. Instead, the company
has cut its staff to just 800 and further cuts are expected.
Smith said Rio Tinto has also demobilized its drilling fleet
as well as most of its earthworks fleet.


9. (C) At the same time, Rio Tinto is not pulling out
entirely. Smith said the company wants to maintain a visible
presence while building strong relationships with the
communities in the Simandou region. "We need to maintain our
reputation so that we can easily come back in when the timing
is more appropriate," Smith said. As such, the company is
still spending approximately $10 million a month in Guinea, a
large portion of which goes to community relations projects.
Smith commented that while that amount may seem like a lot of
money, in terms of the financial scale of mining operations,
it is actually quite small. Smith added that the company is
still debating, but will likely bring the monthly expenditure
down to the $6 to $7 million range.

--------------
THE MANY FACES OF DADIS
--------------


10. (C) Commenting on his interactions with CNDD President
Moussa Dadis Camara, Smith said "I'm currently his best
buddy, but he can sway very quickly...he was absolutely
charming the last time I saw him, but the next time I see
him, he's just as likely to spit in my eye." Smith said he'd
been a "player on the Dadis Show" several times, all of which
had gone relatively well.


11. (C) However, Smith's first interaction was particularly
memorable. Smith waited for six hours in Dadis' waiting room
at Camp Alpha Yaya. "I had never been shocked by anything I
had seen in Guinea until that moment," Smith said. He
recounted how he was not only made to wait on Dadis, but so
were the prime minister and several ministers of the
government. According to Smith, the ministers huddled in a
circle and essentially held a cabinet meeting right there in
the waiting room. "I got to see how the GoG actually works
and it was farcical," Smith said.


12. (C) Dadis eventually emerged from his office and then
picked Smith out from the crowd and proceeded to shout at him
and verbally abuse him for more than ten minutes. Smith said
that Dadis had mistaken him for someone else and was railing
against him for things that had nothing to do with Rio Tinto.
"The funny thing is that all the ministers were standing
there and knew exactly who I was...no one bothered to correct
Dadis." Once Dadis was done with Smith, he reportedly
started in on a number of other people in the room, including
ministers. After it was all over, Smith said the ministers
patted him on the back and laughed as if it were all a big
joke.

--------------
COMMENT
--------------


13. (C) Although Rio Tinto has called a halt to its
investment project and is currently downsizing its
operations, the fact that the company is not leaving
indicates that its managers are hopeful that they will
eventually regain their concession and that the political

CONAKRY 00000311 003 OF 003


situation will settle enough that they can move forward with
the project. Certain comments made by Smith during the
discussion suggest that Rio Tinto is willing to be patient
for awhile. He did not anticipate the political situation
resolving itself in a positive way for at least another 18
months. According to Smith, the iron ore in Simandou is of
an extraordinary quality, and the project is expected to be
highly lucrative. END COMMENT.
RASPOLIC