In the Convulsing World Economy, to Make Enough Sense to Keep Going, Social Infrastructures Must be Regarded as Social Investment


The lesson that President Obama is finding a bit difficult to assimilate is also missing in Guinea and other metal-rich lands with mining potential in Africa.

The Wall Street Journal (7/17, “Mining Giants Beat Hasty Retreat from World Stage” by Robert Guy Matthews) lets us in on a big secret: both the once mighty world mining organizations, governments in Africa lacking the infrastructure to turn on the lights in their schools as well as the railways to haul ore, and the world’s largest mining corporations will have to join in sensing that social infrastructure, more than a luxury, is the very means of society’s survival: “Simandou, Guinea – In a sun-baked field carved into a patch of lush forest here stand a half-dozen hulking mining machines shut down earlier this year. Nearby, military barrack-style housing for 200 workers sits abandoned.

“‘We were building a country-changing project,’ says David Smith, head of Guinea operations for mining giant Rio Tinto PLC. But that was before the global commodity boom went bust. Late last year, the Guinean government stunned the mining industry by telling Rio Tinto that it wasn’t moving quickly enough on its $6 billion project to develop the world’s largest iron ore reserve in the west African nation. It stripped Rio Tinto of 50% of the mine and gave them to another company.

“BHP Billiton, the world’s largest miner, is scaling back aluminum operations in Africa, turning attention away from Russia and beefing up copper, uranium and gold mines in South Australia. In June it entered into a joint iron-ore project agreement with Rio Tinto in the Filbara region of Australia valued at $10 billion.

“‘We want to focus, principally in our backyard,’ said Marius Kloppers, BHP’s chief executive officer.

“Not long ago, Xstrata PLC was trying to take over a palladium producer in Africa and several gold companies flooded Tanzania, Zimbabwe and Madagascar looking for riches. Now most of those plans have been dropped or put on hold as governments there begin tacking on new contract terms.

“‘Mining companies are no longer willing to take the risks,’ said Claire Divver of Xstrata, which abandoned its plans for the African Palladium venture. Others are also pulling back.

“Xstrata’s new strategy is to grow through acquisitions rather than expensive and risky new mines. Last month it sent a letter to its larger competitor Anglo American FLC proposing a merger of equals. Anglo has been lukewarm to the idea. Brazil’s Vale SA, the world’s second largest miner, is likewise considering Anglo as a possible acquisition target and more conservative way to grow.

“In 1996, Rio Tinto’s exploration team was invited to Guinea by the mining minister to perform initial work to find iron ore. By 2000, Rio won the rights to mine 300 square miles of what promised to be the world’s largest reserve of unexplored iron ore….

“Rio’s winning bid included $3 million in advanced taxes, an option for the government to acquire a 20% equity interest in the project, royalties of 3.5% and annual contributions to the local community. In all, the company expected to pump $6 billion into the country’s economy and begin producing ore in 2013.

“‘We will succeed here,’ Tom Albanese, Rio Tinto’s CEO told investors at a mining conference in Perth, Australia, in early 2008. ‘Rio Tinto knows how to operate in a difficult environment.’”

No Plumbing or Power in Canakry’s University

“Still, the hurdles were huge. With a gross domestic product of just $4.8 billion, Guinea has few skilled workers and woeful infrastructure. The main university in the capital city, Canakry, has no electricity or working plumbing, and residents are forced to burn trash on the streets. In addition to exploring for ore, Rio Tinto had to plan and start building a cross-country rail line and also construct a brand new shipping port. Meanwhile, the mining ministry was in turmoil, going through a series of mining ministers, two of whom were forced to make restitution to the government after facing embezzlement accusations.

“Rio Tinto also had its own problems. The company ran into financial troubles last year, brought on by the commodity bust. Rio had shaken off take-over advances from its rival BHF Billiton, but in the wake, it was left with heavy debt from its earlier acquisition of Alcan, an aluminum maker. To conserve money, Rio was forced to slow down some development at its nascent Guinea operations.

“In June 2008, Sam Mamady Moumah, the general secretary of the Guinean president, sent Rio a letter, admonishing the company about the mines’ development progress. By December a new president was in place and the government rescinded half of Rio’s mining area and transferred the rights to UK-based BSG Resources Ltd., which already had bauxite interests in Guinea.

“Rio said that since then, Guinea has treated the decision as final and has refused to meet with Rio officials to discuss any changes….

“The government’s action made the project unfeasible in Rio Tinto’s view because the reduced output wouldn’t support the investment needed. Rio Tinto, which had been spending $30 million a month, began pulling up stages this year.

“Still hoping that the government will change its mind and in an effort to demonstrate its commitment to the country, the mining company continues building roads, schools and hospitals. It estimates it is spending $10 million a month there, but isn’t sure how long it can keep it up. Rio has actually spend more in Guinea than required under its contract….

“Rio Tinto isn’t without allies. Local villagers miss the work the company was providing and some village leaders have appealed to the government to settle.”

Even across class barricades there are crucial times when basic human interest must prevail. We are at one such today.


– from Economic Reform, August 2009