A TALE OF TWO EXPROPRIATIONS

C O N F I D E N T I A L SECTION 01 OF 02 CONAKRY 000436

SIPDIS
SENSITIVE

E.O. 12958: DECL: 03/16/2019
TAGS: ECON EINV EMIN ENRG EPET PGOV PREL GV
SUBJECT: A TALE OF TWO EXPROPRIATIONS

REF: A. A:CONAKRY 00776

B. B:CONAKRY 00311

C. C: CONAKRY 00456

Classified By: ECONOFF BRIANA WARNER FOR REASONS 1.4 (B) AND (D)


1. (C) SUMMARY: The Ministry of Mines recently threatened
two large economic players in Guinea's natural resource
sector. Anglo-Australian mining giant Rio Tinto received a
letter threatening total contract revocation. In the oil
sector, employees of Hyperdynamics, a US oil exploration
company, woke up on July 10 to reports that the GOG awarded
Sino-Angolan Sonongal the rights to their 31,000 square mile
oil concession. Both companies seem fairly confident that
their contracts will eventually be respected, and that the
government will recognize that the companies' large
investments benefit the economy in the long-term. END
SUMMARY.

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REMOVE YOUR MACHINES OR LEAVE WITH YOUR BILLIONS
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2. (U) In a letter mailed to Rio Tinto,s Australia
headquarters, Minister of Mines Mahmoud Thiam demanded that
the company remove its machinery from the controversial
northern half of their Simandou mining concession, or face
suspension from the entirety of the massive iron-ore project.
A copy of the letter was released to international news
sources on July 22, and Rio Tinto took action to remove the
machinery from the premises by Monday, July 28.


3. (U) Claiming that he had proof of Rio,s "direct
implication in a libel campaign against the Guinean state,"
Thiam noted that Rio,s refusal to accept GOG demands to
clear the northern half of concession "veered on defiance of
the authority of the state." He also stated that the GOG,s
decision was irrevocable and final.


4. (C) Rio Tinto has been fighting a battle over the
northern half of the Simandou concession since it was
abruptly awarded to BSG Resources (BSGR),owned by Israeli
diamond mogul Benny Steinmetz, in December of last year
(reftel A). Though this threat is only one in a long line of
GOG warnings to Rio, the new General Manager of Rio,s Guinea
project, Steven Din, was confident in a conversation with
Econoff on July 9 that Rio would regain the northern half of
their concession. Having already invested nearly $450 million
USD in the project, Din believed that the GOG would
eventually realize their folly in awarding the northern
concession to BSGR. For now, he said that Rio will let the
legal battle be waged in court. Rio operations are falling
far behind their 2015 project completion goals. The company
scaled back staffing by fifty percent while limiting
operations to community development in the past 5 months
(reftel B).



5. (C) Din also believed that the GOG was disenchanted by the
work of BSGR, as they have sunk a mere 26 holes in their half
of the concession in comparison to the nearly 1,500 by Rio.
According to Din, BSGR recently removed the majority of its
machinery from the northern part of the concession, a
possible sign that Steinmetz was leaving the area. Steinmetz
reportedly received the land through a connection to Conte,s
government and seems to be out of favor with the CNDD,
according to Din.


5. (C) Din,s optimism dramatically shifted in a telephone
conversation with Econoff on June 24. Usually open and
friendly with the American Embassy, Din told Econoff that he
did not feel comfortable speaking on his "unsecured" cell
phone. He also said that, for now, he plans to work on the
situation with the GOG, and doesn't feel that it is the time
to meet with the Embassy. He then made an unsolicited remark
to Econoff that Rio,s personnel remained secure and safe,
and that, for the time being, he doesn't see any threats to
their personal security.


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JUST BECAUSE IT'S IN THE NEWS, DOESN'T MEAN IT'S TRUE
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6. (C) The GOG also threatened US oil exploration company
Hyperdynamics (HDY),albeit more indirectly. According to the
Country Director, Mohammed Kourouma, staff at Hyperdynamics
was shocked by news reports that the GOG had awarded HDY,s

CONAKRY 00000436 002 OF 002


35,000 square mile oil exploration contract to Sino-Angolan
oil company Sonongal on July 15. News clips in the local
media announced that several meetings with Chinese investors
had brought good relations between the CNDD and Sonongal and
the company would by taking over HDY,s contract.



7. (C) When Econoff asked Kourouma if he plans to confirm
these rumors or take any action with the government, he
emphasized that since the GOG signed a contract, they have no
way to kick HDY out. When Econoff pushed on the point,
Kourouma said that the company's progress on oil exploration
and large capital investment will inevitably convince the GOG
to support them. He said that his company plans to file their
quarterly findings report with the GOG this week, and will
"hope for the best." Kourouma sidestepped questions about
whether he had communicated the news back to HDY headquarters
in Texas.


8. (SBU) According to open source reports, Mr. Thiam and
other individuals at the MOM have signed a deal with Sonongal
and Beiya International Development Ltd. to create a holding
company for infrastructure developments in Guinea (reftel C).
Allegedly, this company will also contribute to revising
Guinea's oil legislation as it pertains to revenue sharing
and contract negotiation.

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COMMENT
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9. (C) While neither of these government actions are a
surprise, they highlight the GOG,s disregard for commercial
contracts. There also seems to be a great deal of
back-channel negotiation for natural resource sector
exploration. In the case of HDY, Sonongal's increasing
presence in Guinea is in line with their public expansion
plans. Furthermore, the Secretary General of Mines, Mr.
Aboubacer Koly Kourouma, told Econoff in early June that he
would like to see HDY leave the country. As such, these two
factors makes it unlikely that HDY's "wait and see" attitude
will produce effective results.


9. (C) By acquiescing to GOG demands, Rio Tinto seems to have
changed its strategy. Despite months of protracted legal
battles and hollow threats, Rio Tinto never conceded the
northern half of their concession. One week after the most
recent threats, however, all Rio Tinto machinery was removed
from the premises. Din, a generally positive and upbeat
manager, seemed not only disappointed by the letter from
Thiam, but also somewhat fearful for his personal security as
well as that of his employees -- possibly explaining the
removal of equipment. In light of Steinmetz,s apparent
disfavor with the CNDD and recent removal of equipment, it is
possible that the northern half of the concession is under
consideration by another, unknown company. This, in
connection with the news about HDY, would explain a wave of
recent visits by Chinese natural resource investors as well
as the CNDD,s apparent urgency to get Rio off of the
concession.
BROKENSHIRE