West Africa Flexing Its Muscles With Mining Giants

However you package it, the reality is West Africa is looking to take a bigger share of the pie from resource extraction projects and western (mostly) mining firms are using every angle to counter them according to this article.

In Ghana, the world’s ninth largest gold producer and Africa’s second, the authorities are looking to increase their royalties from 3% to 5%, not outrageous you may say, out of US$2.2bn worth of gold exports last year the state got just $116m. At the same time, the government is more rigorously applying environmental regulations after a number of tailing spills and failures by mining companies to stick to agreements. Compare that to the one third return the state will get from oil production off the coast should current exploration reveal commercially exploitable reserves and their position on mining royalties makes some sense.

Just around the coast in Guinea the new government of Guinean Army Captain Moussa Dadis Camara, he took power as Guinea’s president after the previous incumbent Conte died in December 2008. Camara appointed Mahmoud Thiam who had been working as an investment banker in New York, as Minister of Mines. Last July, Thiam issued Rio Tinto with a notice revoking 50% of the potentially huge Simandou iron ore concession for failure to meet its obligations. Simandou is estimated to contain 2.5 billion tons of iron ore – the equal to Rio Tinto’s enormous Pilbara iron-ore mine in Australia. Guinea is lined up against not just Rio but their JV partner Chinalco who have agreed to pay US$1.35 billion for a 47% stake in the project if Rio can get a binding legal agreement regarding their rights from the Ministry.

Clearly not one to shy away from a fight, the Ministry has also taken Rusal to task over their agreement to exploit the massive bauxite reserves and alumina treatment facilities they purchased from the previous regime back in the middle of the decade. On Thiam’s initiative, the Guinean courts are currently considering revocation of Rusal’s concessions, while international and Guinean government auditors have been examining Rusal’s records for evidence of alleged fraud and tax evasion. Of course Rusal rigorously denies any wrongdoing but with roughly 15% of Rusal’s capital at risk in Guinea, the Russian stakes are high. Rusal is the largest Russian company currently operating in Africa and it has mobilized Kremlin support to lean on the Guineans to drop the charges. So far, the authorities are holding fast. Guinea is said to contain two third’s of the world’s bauxite reserves and so the authorities desire to re-set the ground rules in a manner more favorable to them is understandable.

Even Sao Tome, a tiny island off the coast of Cameroon and Gabon is getting in on the resource extraction game according to a Reuters article. Having just held meetings with at least 10 U.S., European, and Asian energy companies bidding for seven of its 19 oil blocks in March with bids due from oil companies in mid-September, Sao Tome is mustering western advisers to ensure they professionally manage the bidding process in their favor.

Let’s hope these West African nations increasingly confident handling of foreign mining and exploration companies is matched by an equally responsible management of the increased revenue share they are seeking to secure. No one would argue that the host country deserves a fair share of the rewards from resource extraction. In too many cases in the past, western companies have come into Africa, sometimes plundered the resources, occasionally supported unsavory regimes more interested in lining their own pockets than the welfare of their people, and then left the country poorer than when they found it. If the West African states achieve a larger share of the rewards while still treating foreign investors fairly and responsibly use those funds for infrastructure, education and health-care for their people then maybe Africa can be said to have come of age.

–Stuart Burns

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