Guinea foul. A scandal in Africa.,Tullow Oil plc (TLW), a British oil exploration firm mostly working there, has had to suspend work at a Guinea offshore oil site because its US partner is under investigation by the SEC and the US Dept of Justice for alleged bribery. The Houston firm Hyperdynamics acquired a kicense from Conakry and later sold 40% of it to TLW.
Tullow, which planned to start drilling a deepwater well by now, cannot do so because of “force majeur”, the US DoJ probe. TLW paid $27 mn to Hyperdynamics and agreed to invest as much as $200 mn in offshore Guinea.
Our DoJ is also examining how iron mine concessions were awarded in the West Africa country’s huge Simandou deposit. This affects one of our non-UK stocks.
Steve Halpern featured our own Frida Ghitis writing in this newsletter about Orocobre on today’s Money Show blog. OROCF is the subject of the article “Gambling on Lithium” quoting from www.global-investing.com. The share is now $2.13 bid 2.20 ask, 5% above our readers’ cost 5 days ago. We told you first (WTYF).
More follows about Canada, Jordan, Guinea, Israel, Brazil, Finland, India, Belgium, and Britain.
*Trefis reported on another problem in foul Guinea closer to home: It writes that Vale may lose the $1 bn it paid for a stake in the northern Simandou project to an Israeli partner, Beny Steinmetz Group Resources (BSGR), run by millionaire Benny Steinmetz. BSGR appears to have bribed the wife of the former president of Guinea to win the concession. The rich but undeveloped iron ore depost had very high iron ore content and can be developed with little processing–but will need power, water, and a railway to operate. The sea coast is over 1000 miles from Simandou.
An initial concession for the whole of Simandou was granted to Rio Tinto but then transferred to BSGR in 2008 because Rio hadn’t invested in developing the site. Then VALE bought 51% of the northern Simandou project from BSGR for a total of $2.5 bn, $500 paid up front. Vale then spent another half billion bucks on developing the site.
Now there has been regime change in Conakry and a “technical” committee is investigating how Steinmetz got the concession ostensibly for only $160 mn up front, although there may have been side-deals. It has decided to exclude both BSGR and Vale from reapplying for nothern Simandou rights. It reported to a “strategic committee” advising the Guinea government on concessions made by the prior government including the oil deal mentioned above.
BSGR threatens to sue if it is stripped of its rights. Even if eventually allows a VALE bid on the renewed north Simandou tender now being planned, Conakry has to decide whether to credit or reimburse Vale for what it has spent so far. Rio Tinto and BHP Billiton are likely to bid if the mine again goes out to tender.
BSGR has attacked what it calls a “pre-determined and orchestrated plan†to strip it of its mining rights. It has warned that if the recommendations are accepted the company will opt for international arbitration, a lengthy process that will further delay developing the mine.
“The Simandou project was put on hold in October 2012 following the constitution of the government committee to review mining concessions. Therefore, any expected production from this deposit is not factored into the company’s growth plans or valuations. We think that this limits the impact on [VALE]’s stock valuation to only the non-cash impairment that will have to be incurred if the deposit gets taken away. This assumes that an international arbitration process will fail to bring relief.
However, if the project does go through, there could be upside for Vale’s stock in the long term. The production targeted from this deposit is 50-70 mn tonnes per year if and when operations begin and Vale’s share would be half of this. To put it in perspective, [Vale] produced 300 mn tonnes of iron ore in 2013. The benefits wouldn’t accrue as soon as production begins because upfront capital expenditure for the project is expected to be $8-10 bn and Vale would definitely have to fund a large portion.
