Rio CEO Sparks Renewed Guinea-Mine Spat With Billionaire

Rio Tinto Group said it would be interested in regaining control of disputed iron-rich ground in Guinea it was stripped of in 2008, prompting the recipient of the land to claim Rio has no viable plan for its development.

“We know that there’s iron ore there and clearly that could be attractive to us depending on how it was offered,” said Rio Chief Executive Officer Sam Walsh, who was head of the company’s iron-ore unit at the time the project was seized and subsequently given to a business linked to Israeli billionaire Beny Steinmetz. “If it were attractive, we’d be interested.”

Rio is the world’s biggest exporter of the steelmaking material after Brazil’s Vale SA and today reported first-half earnings from its iron-ore division of $4.3 billion. It has previously described Guinea’s Simandou deposit as the world’s best untapped iron-ore resource. The West African nation has said the Simandou development may cost $20 billion to build.

Rio currently owns two of four blocks of land at Simandou, having previously controlled the entire deposit. It was ordered by the government in 2008 to hand over the northern half to Steinmetz’s BSG Resources Ltd. In April 2010, Vale agreed to pay BSGR as much as $2.5 billion for deposits in the country including Rio’s confiscated assets.

The Simandou blocks 1 and 2 were legally stripped from Rio because the company failed to proceed with development, other than drilling six holes over 13 years, BSGR said today.

Not Viable

“Rio is not interested in developing these assets, they want to prevent others from doing so in order to maintain a competitive advantage,” BSGR President Asher Avidan said in an e-mail. Rio’s mining project isn’t commercially viable, he said.

Rio declined to comment on BSGR’s claims.

Rio held talks with Guinea President Alpha Conde in May on Simandou, including discussion of the disputed ground, amid a government-led review into mining licenses, Walsh told reporters today in London. Rio, which has had an interest in the Simandou area since 1997, is yet to mine the site.

“We’ve pointed out that we had done this work, that we’d like to get a return on that work,” Walsh said of talks with Guinea. “The president has made very, very good comments that the review of blocks 1 and 2 and in fact the implementation of the mining code of Guinea is in the hands of the bureaucracy and the departments.”

Walsh said he expected the two blocks would be put up for tender should the current owners lose their license to the ground.

Vale Venture

Asked about Walsh’s comments, Vale Chief Executive Officer Murilo Ferreira said his company has never discussed the issue with Rio Tinto.

“I was never contacted by Rio Tinto, neither formally nor informally,” Ferreira told reporters today during a conference call, without elaborating. “I don’t know about any interest from them.”

BSGR said in March that Guinea was preparing to strip its joint venture with Vale of rights to its mining assets in the country. They had planned a $10 billion mine at Simandou.

A joint investigation by the U.S. Department of Justice and Guinea has led to the arrests of two BSGR executives in the African country and the detention of a French citizen, indicted to stand trial in New York.

Conde “wants to see a proper review,” Walsh said. “He wants to see justice properly carried out and I give him 10 out of 10 for that.”

Moussa Cisse, the president’s spokesman, couldn’t be reached by phone today. Calls to Mines Minister Mahmoud Thiam also went unanswered.

Infrastructure Funding

Separately, the Rio CEO said he reached an agreement with the government that would allow a third party to fully fund the construction of a 650-kilometer (400-mile) rail line linking Simandou to the coast, and a port to export the iron ore. Rio had said in April it was waiting for the government to secure its 51 percent share of the financing.

“It is a change from where we were; however, we need to bring the project forward and if that facilitates it then we’re happy with it,” Walsh said. The decision means Rio won’t be required to fund any of the infrastructure that Liberum Capital Ltd. had estimated may cost $15 billion to $20 billion.

Conde last year held talks with a delegation of Chinese companies including Aluminum Corp. of China, or Chinalco, China Power Investment Corp. and the China Development Bank on financing for the project’s port and rail. Rio sold Aluminum Corp. of China Ltd. a 44.65 percent stake in its two Simandou blocks for $1.35 billion in 2010.

To proceed with the project Rio is waiting for the government to ratify an accord laying out the conditions of its investment in the country. Walsh said the government has indicated this should happen by the end of September, before going to parliament by the end of the year.

“That’s good news,” he said, adding that meeting a target of first production by 2015 would prove difficult. “That will be a good step in terms of taking the project forward.”

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