Guinea report says strip BSGR of two iron ore concessions

CONAKRY (Reuters) - A Guinea government report recommended that BSG Resources (BSGR) be stripped of two iron ore concessions, saying the company owned by Israeli billionaire Beny Steinmetz obtained them by corruption. The report, released on Wednesday, recommended that Guinea withdraw BSGR's mining permit in the giant Simandou iron ore deposit and cancel its Zogota mining concession. It also called for the government to exclude VBG, a joint venture between BSGR and Brazilian miner Vale, from any future process toward re-allocating the licenses. "There is a set of precise and coherent evidence establishing with sufficient certainty the existence of corrupt practices that tarnished the granting of mining rights and mining concession for Simandou and Zogota to BSGR," the report said. "As such, the corrupt practices also tarnished and voided mining rights and concessions currently held by the VBG joint venture," it said. BSGR, the mining arm of Steinmetz's business conglomerate, denied the allegations and said the government was relying on fabricated claims and an illegitimate process to justify a plan to seize the mines and reward political allies. It said it would seek international arbitration. "BSGR has sought to cooperate fully with the committee despite the fundamental unfairness, procedural irregularities and false claims inherent in its review process. The next step is international arbitration, where the evidence can be aired in a proper forum and BSGR can establish the truth," a spokesman for the company said. Sources close to the matter last month said the committee drafting the report had recommended stripping the licenses. The report said Vale, the majority shareholder in the VBG joint venture, did not participate in the corrupt practices. According to a source close to the Brazilian miner, the company has spent more than $1 billion on its Guinean venture. The report, which has been submitted to a ministerial-level strategic committee for a final decision, is the latest step in a long-running saga over the future of Simandou, one of the largest untapped iron ore deposits in the world. BSGR sold 51 percent of its Guinean assets to Vale in 2010, when they created VBG in a $2.5 billion deal. Vale paid an immediate $500 million, with further payments conditional on meeting production targets. The venture began drilling at Zogota in 2010. It planned to start production at the mine, which has a capacity of 15 million tonnes a year, by 2012, but work was suspended following unrest in August 2012 in the town nearby, during which five people were killed. Anglo-Australian mining firm Rio Tinto spent millions trying to develop Simandou until 2008, when former President Lansana Conte's government revoked its permit on the northern half and transferred it to BSGR, arguing that Rio had moved too slowly. Rio is now focusing on developing the southern part of Simandou together with Chinese partner Chinalco but has said it is unlikely to start production until at least 2018, since billions of dollars need to be invested in building infrastructure to export the ore. (Click here for the committee's full report