Global Outlook: How Rio Tinto is aiming its legal big guns at one of the world’s richest diamond tycoons - and its Brazilian rival
Beny Steinmetz, the Israeli diamond billionaire embroiled in corruption investigations, must wish he’d never set foot in the poverty-stricken African country of Guinea.
To recap: in 2010, under the previous military dictatorship, Mr Steinmetz managed to persuade the then president of Guinea to grant him the mining rights to some of the world’s biggest iron ore deposits in an area known as Simandou.
His BSG Resources secured the deal through a £98.5m investment in exploration there. It then sold half of the project on to Vale, a giant Brazilian mining company for a huge $2.5bn (£1.48bn).
Eyebrows were raised.
Even more peculiar, his critics said, was that the rights only became available because the government had stripped them from London Stock Exchange-listed Rio Tinto.
Fast-forward to a new regime under President Alpha Condé, who now, with the support of Tony Blair, holds power following the first democratic elections in the country. A committee set up by Mr Condé launched an investigation into the mining rights saga and three weeks ago concluded there was “precise and coherent evidence” that BSG Resources had secured the concessions by corruption.
The findings were that he used intermediaries to bribe the wife of the former, and now deceased, president, to obtain the rights.
As a result, the committee ruled, the Steinmetz-Vale joint venture should be stripped of its contracts, and they should now be put out to an open tender. Vale, which the committee said was probably innocent of corruption, may re-bid, but BSG Resources should be barred, it said.
Mr Steinmetz denies all wrong-doing and says he will disprove the allegations, adding that the licence was granted after BSG Resources proved its technical and financial abilities. He also points out that only $500m of Vale’s $2.5bn was ever paid.
But if you thought those allegations were bad, wait until you see what Rio Tinto had to say this week. The UK giant filed a lawsuit against Mr Steinmetz in New York, packing more punch than a mining truckload of dynamite.
Key among the allegations, as well as some old ones such as the gift to the then president of a Steinmetz diamond-encrusted watch (denied by Mr Steinmetz), is that he paid a Guinean official a $200m bribe – $200m! – in 2011 for “facilitating the signing and announcement of BSGR’s exploration licence…” Later that year, the official, named in the filing, bought an apartment in Manhattan for $1.5m and an estate in Duchess County, NY, for $3.75m. The civil servant in one of the world’s poorest countries paid cash, the lawsuit alleges. Mr Steinmetz and BSG Resources deny paying any bribes.
All great fun, but where the suit really breaks new ground is in its all-barrelled assault on Vale, which has until now avoided much of the muck.
Vale may be based in Brazil but it’s a global concern; it’s biggest shareholder is our very own Aberdeen Asset Management, and it also has big UK investors such as Schroders and Barclays. It has has shares listed on the New York Stock Exchange, and stakeholders around the world. In other words, it has a reputation to consider.
According to the lawsuit, while Rio still held the disputed licences in Guinea back in August 2008, Vale expressed an interest in teaming up on them. At these talks, held in Vale’s lawyers’ offices in New York, Rio let it in on confidential information, such as geological findings and plans on how to transport the ore from the area for export, according to the US deposition.
The conversations went on for months, with Vale apparently being given ever more confidential information from its potential partner.
In November of that year, Rio says it told Vale in confidence that Mr Steinmetz’s operators were trying to get the Guinean government to give them Rio’s concessions. Vale’s response? According to the lawsuit, unbeknown to Rio, Vale met the Israeli’s people and started cooking up a deal.
Not only did Vale meet the Steinmetz crew, but also, it is claimed, started sharing Rio’s confidential information with them to help in their lobbying efforts with the government.
The first Vale-Steinmetz hook-up was in December 2008, but the Brazilian company continued negotiating with Rio – and accessing its confidential information on Simandou – until they broke off talks off in June 2009.
How does Rio Tinto know its confidential plans were being shared with the Steinmetz group? The lawsuit says one pointer was that, when Vale and Steinmetz went public on their joint venture plans, it emerged that they were copying the exact transport route to get the ore to the coast that Rio had outlined to Vale. According to Rio, this was a particularly cunning route, because it used an obscure port in Liberia that it was particularly proud of having discovered. Mr Steinmetz’s spokesman denies the plan was copied from Rio, saying it was based on old information.
Murilo Ferreira, Vale’s chief executive’s response to the legal action is “bring it on” – my words, not his. Neither Guinea, nor the US government (which is investigating Mr Steinmetz) have made any accusations against Vale, he says, adding: “In the case of Rio Tinto, it is up to the accusers to show evidence of his allegations, because otherwise they could be accused of acting or speaking in bad faith, and refute the investigations made by all these countries.”
Mr Steinmetz’s people deny the allegations and repeat what they have said all along, that the reason Rio Tinto was kicked out of the Simandou concessions were that they sat on them for years and did nothing.
As for Mr Steinmetz himself, as his legal difficulties spread, I can’t help wondering: how long will his other business contacts continue engaging with him? His Diacor diamond cutting and polishing empire is one the biggest licence-holders to receive rough diamonds from De Beers.
A call to a contact at De Beers’ owner Anglo American was revealing: De Beers, it appears, sought “assurances” earlier this year that Mr Steinmetz was no longer involved in the firm. It was told that he had sold his shares, some to his brother, and no longer had any association with the firm that made him his many millions.
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