Saturday, March 20, 2010

China and Rio Tinto in Guinea: A Wild Courtship

Yesterday we heard from the BBC and others that Chinalco, the Chinese aluminium giant, is likely to partner with Anglo-Australian giant Rio Tinto in the Simandou iron ore mining venture. The deal was announced just weeks after the Guinean opposition joined the post-coup junta government, with elections on the horizon. What are we to make of this announcement? Several things are significant:
  • It was announced by Rio Tinto, which noted that the well-financed Chinese firm will make an "in kind" investment of $1.35 billion in mining-related infrastructure. Chinalco will be a junior partner in the investment, a reflection of a growing trend for Chinese multinationals to partner with more experienced firms. Chinalco already owns 9% of Rio Tinto; this is not a "first date". Also, Rio Tinto specifically notes that this is a "non-binding memorandum of understanding (MOU)." In other words: they're engaged, but not married.
  • It's been a wild courtship so far. As I noted in my March 5 posting, before he died, Guinea's former president Conte had tried to take half of Rio Tinto's concession away and give it to Chinalco, which refused the deal. Rumors that he had given it instead to Israeli tycoon Beny Steinmetz may have been just that: rumors. Rio Tinto is acting as though they still have control over the full Simandou concession and they are making the decisions. But did they conclude this deal under pressure? 
  • On the other hand, the deal seems more strategic than simply caving in. Remember that Chinalco holds 9% of Rio Tinto's shares. These two are hardly strangers. If the Guineans were putting pressure on Rio Tinto, wouldn't the end result be something that shifted benefits to Guinea? The Guinean state still has no ownership shares in the Simandou mine.  
  • Estimates of the cost of developing Simandou have usually cited a figure of $10 billion. But with an investment of only $1.3 billion, Chinalco will have almost half of the stake in the mine.There's something odd about the math here, unless the $1.3 billion is just a starting point.
Finally, it is also significant that Rio Tinto's partner is not the murky, upstart, Hong Kong-based "China International Fund" but a well-established Beijing-based company with an international reputation to keep up. This news also flies in the face of allegations that Western companies were "paralyzed" in Guinea, that China International Fund was buying up the whole country, or even the rumor (reported by the BBC in October 2009) that China International Fund "would be a 'strategic partner' in all mining deals (emphasis added)". Mainstream Chinese companies that have been actively exploring and negotiating deals in Guinea over the past few years appear to still be well-positioned for business. Just like their counterparts from the West. Whether all of this will benefit ordinary Guineans much is another question.

5 comments:

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  2. Another reader commented to me privately that it is interesting that both the current Guinean leader Sekouba Konate and Congolese President Joseph Kabila and Guinean leader Sekouba Konate spent several months in China undergoing military training. Is this a coincidence, he wonders? Here is the link to Konate's biography: http://guineenet.org/modules/news/article.php?storyid=89

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  3. Here is a follow up article which is all over the international press right now that, if rumors are correct, might be related to the Rio Tinto/Chinese deal in Guinea that this article was talking about. Namely that Rio Tinto, in an effort to secure China's role in the opening up of the mine that it wants to open in Guinea, which is a big project by any measure, now wants to put the steel price fixing episode and allegations that have poisoned its relationship with the Chinese government behind it.

    Of perticular interest, which seems to add credence to the rumor is, to quote the Al Jazeera article, that "Rio, which initially staunchly defended its staff but recently urged the court to handle the case in a quick and transparent way, said it would sack all four employees."

    Personally I suspect that it is quite likely that Rio's change of heart on the fate of its four Beijing based employees involved in the scandal has indeed got some thing to do with this, and possibly other, projects.

    --------------------------
    Al Jazeera
    China jails Rio Tinto employees
    Monday, March 29, 2010
    http://english.aljazeera.net/news/asia-pacific/2010/03/201032971635388208.html

    -Douglas

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  4. This is an interesting interpretation. Here in Washington, the feeling was that Rio Tinto was not originally very happy to "share" the Simandou mine, but was pressured to do this by the Guineans. The economic downturn might have made them more receptive to a substantive partner (they were already partnering with the World Bank's IFC).

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