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Japanese-backed company signs deal to build $2 billion alumina plant

[Guinea] Guinea motto, At the sekou Toure memorial, Conakry. IRIN
Le sous-sol guinéen renferme le tiers des réserves mondiales de bauxite
A Japanese-backed company has signed a definitive agreement with the government of Guinea to build a US$ 2 billion alumina refinery in the northwestern mining town of Sangaredi, next to the biggest bauxite mining complex in the world. If the planned refinery is actually built, it will be the largest foreign investment project undertaken in West Africa since a consortium of international oil companies led by ExxonMobil invested US$3.7 billion to develop the oilfields of southern Chad. Chad began to export oil via a pipeline to the coast of Cameroon last year. The agreement between the Global Alumina Production Corporation (GAPCO), a company backed by Japan's Marubeni and Mitsubishi industrial conglomerates, and the Guinean government provides for the construction of a refinery that will produce 2.8 million tonnes of alumina a year for export, GAPCO said in a statement on Monday. Construction work is due to begin towards the middle of next year and the refinery, to be built 200 km north of the capital Conakry, is scheduled to produce its first alumina for export in 2008. Guinea is one of the world's largest producers of bauxite, an ore which is refined into alumina, a fine white metallic powder, and then smelted to become aluminium. The West African country contains one third of the world's recoverable bauxite reserves. Bauxite is Guinea's main export and largest source of foreign exchange. The country's bauxite mines are owned and operated by three of the world's largest aluminium companies, Alcoa of the United States, Alcan of Canada and Rusal of Russia. Investment goes ahead despite political uncertainty Industry sources said the arrival of GAPCO on the scene marked an attempt by Japanese aluminium producers to claim a slice of the market. However, the Canadian-listed company has emerged as a major investor at a time of increasing international concern about the stability of Guinea's government. Diplomats in West Africa are concerned at the poor health of President Lansana Conte, who has ruled Guinea with an iron hand for the past 20 years, and the steady deterioration of the country's economy. A rapid rise in the price of rice, the staple food of Guinea's eight million people, triggered riots in the capital Conakry earlier this year and ethnic tensions run high in the densely forested southeast of the country. The International Monetary Fund and World Bank have suspended aid to Guinea and the European Union is withholding large sums of aid money until the government implements democratic reforms and clamps down on corruption. Diplomats have long warned that Guinea could easily fall prey to the sort of conflicts that have already brought suffering and misery to neighbouring Sierra Leone, Liberia and Cote d'Ivoire. However GAPCO's Chief Financial Officer, Michael Cella, dismissed such worries as groundless. "I regard the government of Guinea as really extremely stable for the region, having had only two leaders in 40 years," he told IRIN by telephone from New York.
Map of Guinea
Cella said GAPCO planned to raise $600 million in equity capital for the refinery project through a share issue in the second quarter of 2005. The remaining $1.4 billion of finance would come from export guarantee agencies, such as the US Overseas Private Investment Corporation (OPIC) supplier credits and loans from multilateral lending agencies, he added. Cella said GAPCO had already held preliminary discussions with the World Bank, the European Investment Bank and the African Development Bank about providing finance for the project. GAPCO is headed by Bruce Wrobel, a US entrepreneur and venture capitalist, who made his fortune by building and operating power plants in the United States and various other countries around the world. Marubeni acquired his original company, Sithe Energies, in 1996 and Wrobel has retained a close association with the Japanese conglomerate since then. Founded in the British Virgin Islands in 1999, GAPCO raised $50 million in a private placing in Canada in February this year and listed on the TSX Venture Exchange for small high risk companies in Toronto in May. Japan will take nearly half the alumina output Cella said Marubeni would have the right to buy at least 20 percent of GAPCO's alumina production and had an option to acquire up to 20 percent of the company's shares. Mitsubishi would have the right to buy at least 25 percent of the refinery's output and had an option to buy up to 25 percent of GAPCO's equity. The Japanese industrial groups have each appointed a director to GAPCO's board. GAPCO's other strategic partners are Karim Karjian and Safwat A Safwat, two Lebanese businessmen with close links to the Guinean government, who are also directors. These two men helped the government of Guinea sell the country's 700,000 tonnes per year alumina refinery at Friguia to Rusal in 1997. But they subsequently fell out with the Russian aluminium giant, which tried unsuccessfully to sue them in a UK court last year. According to recent reports in the Russian media, Rusal has now shelved plans to invest further in alumina production in Guinea and is studying the construction of an alumina refinery in Congo instead.
[Guinea] President Lansana Conte.
President Lansana Conte
However, Guinea's bauxite deposits remain of strategic interest to the US government, which gave GAPCO $507,000 in 2002 to conduct a feasibility study of the alumina plant in Sangaredi. According to GAPCO, Guinea presently provides half of all the bauxite imported by the United States and Canada. The Sangaredi refinery will be situated next to Guinea's largest complex of bauxite mines, which is operated by the Compagnie des Bauxites de Guinee (CBG). Its open cast mines produce between 12 and 14 million tonnes of ore per year and constitute the biggest bauxite mining complex in the world. Despite the high political risks of investing in Guinea, the financial rewards are potentially huge. GAPCO noted at the time of the February placing that the world price for alumina had soared from US$180 per tonne to over $500 over the preceding 24 months as a result of steadily increasing demand from China and a general upturn in the world economy. The spot price of aluminium on the London Metal Exchange has risen 14 percent so far this year to US$1,810 per tonne in response to rising demand for the metal. Supplies of bauxite guaranteed GAPCO said in its May submission to the TSX Venture Exchange that the Guinean government had undertaken to guarantee supplies of bauxite for the Sengaredi refinery from the CBG mines, in which it owns a 49 percent stake. Most of the remaining shares in CBG are owned by Alcan of Canada and the US aluminium giant Alcoa, which has operational control of the mining company. These two North American producers signed a memorandum of understanding with the Guinean government in May to build their own 1.5 million tonnes per year alumina refinery in the same area. GAPCO made clear that its own factory would compete with this plant, were it to be built. The Japanese-backed company said the estimated $2 billion cost of building its own alumina refinery would include the construction of a 130 megawatt power station, fuelled by coal imported from South Africa, and the construction of a 43-metre high dam to provide water. It would also cover the cost of upgrading the 130 km railway from Sengaredi to the port of Kamar and enlarging port facilities at Kamar to handle the large imports of coal, limestone, fuel and sulphuric acid required by the alumina refinery. GAPCO said it would also build a completely new town to house the 1,000-strong workforce of the refinery, whose production capacity could be raised to 4.2 million tonnes per year in due course. The company signed an agreement with the US engineering giant Honeywell last July to design and build the plant Cella said work on expanding the port at Kamar would begin "within weeks." He declined to reveal how much revenue the Guinean government would derive from the new alumina refinery, but an industry source familiar with the project predicted that Conakry would earn "tens of millions of dollars per year" in royalties during the early years of production, during which GAPCO would enjoy a tax holiday. Cella said GAPCO planned to build further alumina refineries in Guinea in due course.

This article was produced by IRIN News while it was part of the United Nations Office for the Coordination of Humanitarian Affairs. Please send queries on copyright or liability to the UN. For more information: https://shop.un.org/rights-permissions

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