By Tom Burgis in London
The mining arm of Beny Steinmetz’s business empire won its rights to a multibillion-dollar iron ore prospect in Guinea through a bribery scheme involving the wife of the country’s former dictator, a two-year government inquiry in the west African nation has found.
Six years after BSG Resources, the mining arm of the Israeli tycoon’s family conglomerate, pulled off one of the great coups of modern African mining by winning rights to the giant Simandou iron-ore deposit, the government is expected swiftly to act on the inquiry’s recommendation that the company’s rights be cancelled.
That would leave BSGR’s 2010 agreement to sell a 51 per cent stake in its Guinean assets to Brazil’s Vale, the world’s biggest iron ore miner, for $2.5bn – a deal hailed by an industry insider at the time as “the jackpot” – in tatters.
The bribery allegations, in the report published yesterday, have also triggered corruption investigations in Switzerland, where Mr Steinmetz lives, and the US, where one BSGR intermediary is facing years in jail. Neither investigation has led to charges against Mr Steinmetz or Guernsey-registered BSGR.
“BSGR will prove these allegations are false,” the company said. “The Guinean government is relying on fabricated claims, compromised witnesses and illegitimate processes. BSGR demands the opportunity to defend itself in a forum that plays by the rules and follows internationally recognised conventions, such as allowing cross-examination of witnesses.”
BSGR has denied allegations of corruption in its Guinean dealings since they were first revealed in the Financial Times in November 2012. The company has threatened to seek international arbitration if the government proceeds with what it calls an “illegal” move.
But the inquiry, part of a review of past mining contracts, concluded in its report there was “precise and consistent evidence establishing with sufficient certainty the existence of corrupt practices” in the way BSGR won its
A committee of ministers endorsed the inquiry’s recommendations last week, according to a person briefed on the matter, and they are expected to be enacted by the cabinet forthwith.
BSGR won the rights to half of Simandou,which ranks among the world’s richest untapped iron-ore deposits, in late 2008, days before the death of the long-time dictator Lansana Conté. According to the inquiry’s findings, from 2006 BSGR’s representatives offered millions of dollars in cash and shares to Mamadie Touré, the dictator’s fourth wife, to help ensure those rights were stripped from Anglo-Australian miner Rio Tinto and granted to BSGR.
Simandou iron-ore deposit
The Simandou project has been dogged by delays and disputes. Mining companies continue to vie for control but few now expect Simandou to yield its treasure before the end of the decade, if then.
After spending $160m on preliminary development of its Guinea assets, BSGR in April 2010 struck its $2.5bn deal with Vale; $500m was payable immediately. The balance was to be paid if targets were met but Vale halted payments last year, after the corruption allegations surfaced.
The inquiry concluded that, although payments to Ms Touré allegedly continued following the Vale transaction, it was “likely” the Brazilian group “has not participated in corrupt practices”. Nonetheless, it said the Vale-BSGR joint venture – which BSGR says has spent $1bn at Simandou – should be stripped of its rights to that and other prospects.
Vale maintains it “conducts appropriate due diligence prior to its investments”. Last week it warned it might lose its investment in Guinea if the government cancelled the Vale-BSGR joint venture’s rights. It declined to comment yesterday. But the inquiry recommended only that BSGR, not Vale, should be banned from bidding for the rights when they are issued anew.
Rio Tinto has signalled it would be among the big mining groups expected to be interested in a fresh tender. The inquiry called on the government to demand the Vale-BSGR joint venture hand over all its exploration work to the state.
The inquiry said it had repeatedly asked BSGR for responses to the allegations. BSGR had “systematically refused . . . constructive dialogue” and the company’s responses were “imprecise and stalling”, it said.
BSGR said it had “sought to co-operate fully with the committee despite the fundamental unfairness, procedural irregularities and false claims inherent in its review process”.
The inquiry dismissed BSGR’s denials of the corruption allegations and concluded that “no other coherent and complete interpretation of the evidence . . . is plausible”. It said BSGR had failed to support its claim that contracts which appear to detail the bribery scheme – and which formed part of the evidence cited by the inquiry – were fakes. (FT)