The World Bank's Mining
Issue 98, September 2014
High in Guinea’s tropical rainforest and over 600kms from Guinea’s coast sit a ridge of mountains rich in high grade iron ore. Divided into two mining concessions, the Simandou mountains host a valuable habitat of grassland, rare frogs, monkeys and chimpanzees.
The white-eyed warbler, a small, brown-backed bird, lives in only three other locations. Simandou, however, is “without doubt, the top undeveloped tier-one iron ore asset in the world,” according to Rio Tinto’s former chief executive.
“Groaning with metal,” the mountains have attracted as much attention from newspaper columnists as investors in recent years. Rio Tinto and Vale, the world’s two largest iron ore exporters, are locked in a law suit over the hillside, due to be aired in New York.
A $200m bribe was paid to Guinea’s former mining minister, offices in Switzerland have been raided, the French agent of an Israeli middleman has been arrested at a Florida airport carrying $20,000 in cash, a gold watch studded with diamonds was offered to Guinea’s former dictator and $2.5m was paid into the bank account of his fourth wife.
The allegations, mostly levelled by Rio Tinto, are “libelous” and “borderline comical”, a key defendant in the case has said. What is rarely said of Simandou however is that it is held by Rio Tinto in the tax haven of Jersey and 5 per cent owned by an investment branch of the World Bank.
Originally founded in 1944 to lend money to “the war-ravaged economies of Western Europe”, the World Bank Group lends over $50bn each year to poor countries globally. Based in Washington, it is funded by bond issuance, priced in everything from Colombian pesos to the Estonian kroon, and profit on its loans.
International Finance Corp., or the IFC, was established 12 years later as a World Bank affiliate, the brainchild of Robert Garner, an American banker and General Foods executive.
Garner believed “deeply” that “the desire to earn a profit” was the best incentive for improving living standards, so the IFC was structured to make loans to assets in developing countries, but only through private companies. Its first loan, made in 1957, was to German engineering group Siemens, expanding a motor plant in Brazil.
Large Scale Gains
Now led by Jin-Yong Cai, once Goldman Sachs’ top banker in China, the IFC invested over $18bn in over 600 separate projects in 2013, an all- time dollar high. $2.2bn of that went into infrastructure and $389m into mining, oil and gas. “Large-scale sustainable investments in these industries can create equally large- scale gains in economic development,” the IFC says.
Whatever the IFC’s intentions, its private sector investments in poor countries inevitably put it close to controversy. Its first investment in Simandou was made in 2006, buying into Rio Tinto’s Guinean subsidiary during the dictatorship of Lansana Conté. In total, the IFC has invested $185m in the project, which is expected to fell two protected forests, shift the flow of water into the river Niger and displace 2,000 households, or 10,000 people.
It also has loans outstanding to platinum miner Lonmin, the focus of the so-called Marikana massacre of
Simandou emerging as valuable currency in Glencore's bid to swallow Rio Tinto
Glasenberg's debt strategy
set to push more assets onto Glencore's balance sheet
MAG's Juanicipio mine in Mexico heading into production full year ahead of guidance
Exclusive interview with the
World Bank's head of mining: Simandou & Oyu Tolgoi
Mining minister on UBS & the $200m bribe he's accused of accepting by Rio Tinto