Asia’s demand triggers frontier integration in Africa via mining companies

Financial Times reports:

Six of the world’s biggest mining and steel companies have converged on an unprecedented scale on a mineral-rich corner of west Africa beset until recently by civil war.

West Africa Iron map

The companies plan to spend billions of dollars in Guinea, Liberia and Sierra Leone, where some of the world’s richest deposits of iron ore, the raw ingredient of steel, are found.

The groups are Vale, the Brazilian iron ore miner, Rio Tinto and BHP Billiton, the Anglo-Australian mining houses, ArcelorMittal, the UK steel company, Russia’s Severstal, and Chinalco, the state-owned Chinese mining company.

Buoyant demand for steel has lifted iron ore prices, intensifying global competition for Africa’s hitherto little exploited deposits, and pushing companies into increasingly risky territory.

Liberia and Sierra Leone emerged only recently from civil wars, while Guinea has been teetering on the brink of conflict since the death of dictator Lansana Conte prompted a military coup in 2008.

As yet there is little infrastructure to facilitate mineral exports from any of these countries, whose governments want to use the multinational corporations to fund the ports, roads, and railways needed to lift their struggling economies.

Last month, Vale agreed to spend between $5bn-$8bn on building mines, ports, and railways in Guinea and Liberia by 2020. By comparison, the gross domestic product of Liberia is under $1bn (€800m, £700m).

Vale entered the region by paying Beny Steinmetz Group (BSG), a mini-conglomerate associated with the Israeli billionaire, $2.5bn for exploration rights in Guinea’s Simandou mountains.

BSG’s claim is controversial, as Rio Tinto still disputes the Guinean government’s decision in 2008 to remove half of its Simandou exploration rights.

Teams from both Vale and BSG are in Monrovia, Liberia’s capital, to negotiate details of the infrastructure deal with the country’s government. The idea is to transport the iron ore mined in Guinea through Liberia to a new export facility on the coast.

Marc Struik, head of mining at BSG, told the Financial Times the Vale-BSG joint venture wanted to build a new port at Didia in Liberia. That could cost $1bn, Mr Struik estimated.

The joint venture, he said, could spend more than $5bn on ancillary infrastructure to run the Simandou mines in Guinea. This would include two railway lines. The first would reconstruct a line through Guinea for passenger use. The second would be a new line to carry iron ore through Liberia to Didia.

The venture hoped to finalise the plan by the end of June, BSG said. It has signed only a memorandum of understanding with Liberia, which potentially stands to gain as much as Guinea from ore exports.

“We have come with a proposal that no one else has matched,” said Mr Struik. “Liberia is not going to stop the infrastructure development agreement.”

But recent history has shown such agreements to be fragile. Rio Tinto has not acknowledged that it has lost the title to the northern block of Simandou, which Vale now controls.

Rio still holds exploration rights in the southern Simandou block, where most of the region’s known reserves of iron ore are found.

In March, Rio brought in Chinalco, China’s state champion, in a joint venture to develop Simandou. Chinalco has ties to Chinese infrastructure contractors that could be key to developing the southern Simandou block – or more.

But no one is jumping to conclusions about the outcome. Elections are coming up in Guinea. Vale’s deal was signed by the interim government, installed after the former military leader was shot. Guinea’s unions and some opposition politicians say no new deals should have been made in the transitional period.

Done well, this can be a big boost to local economic development.  The hoped-for key difference with the past is the sustained, boom-like demand from Asia, which constitutes a socio-economic revolution all its own for Africa.

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