Israel’s largest mining corruption scandal hits diamond magnate

Israeli diamond magnate Beny Steinmetz and four others were taken into custody by Israeli police on suspicion of fraud, forgery, obstruction of justice and bribery.

This is the second arrest of Steinmetz as part of a joint Swiss, Israeli and US probe over allegations that BSGR, the billionaire Israeli-French businessman’s mining company, bribed government officials in Guinea in order to obtain mining rights over the vast Simandou iron ore deposit.

Steinmetz denied any wrongdoing and was not charged with a crime. The diamond magnate blamed hedge fund billionaire George Soros for running a defamation campaign. “There is nothing, the whole investigation is nothing. There are those who have marked us here. It’s political. George Soros marked me. We did not do anything,” Steinmetz was quoted in a report in Telegraph, London.

BSGR acquired the rights to one half of Simandou from Anglo-Australian giant Rio Tinto over development delays in 2008 when Guinea was under military rule. After spending $170 million advancing the project, BSGR signed a $2.5 billion deal with Brazil’s Vale in 2010 to jointly develop the project, but the Rio de Janeiro company only paid out $500 million before Guinea stripped BSGR’s rights in 2014.

The UK’s anti-fraud investigating body said last month it is probing Rio’s dealings in Guinea involving Simandou. In November last year Melbourne-based Rio fired two executives involved in the project after an internal investigation uncovered a $10.5 million payment in 2011 to a French national acting as a go-between with the West African nation’s government.

Rio Tinto’s exit

Rio Tinto, the world’s second largest mining company, announced in October it was exiting the project by selling its stake to former partner Chinalco for $1.3 billion. Rio has spent more than $3 billion advancing the project, including a $700 million payment to the Guinea government to resolve “outstanding issues” in April 2011.

Rio last year had its lawsuit for damages against BSGR and Vale dismissed in a New York court. BSGR is still seeking international arbitration over the loss of its Simandou mining rights.

In June, ex-Wall Street banker Mahmoud Thiam who served as Guinea’s mining minister during 2009–2010 was convicted of laundering $8.5 million he was alleged to have taken to help a Chinese company gain mining concessions. Guinea is one of the world’s largest producers of bauxite, the primary ore used in the production of aluminium.

With complete control of Simandou, Beijing-based Chinalco may revive the stalled project for the southern block of the 2 billion-tonne deposit of high-grade iron ore, but the cloudy outlook for prices for the steelmaking raw material now trading around $70 a tonne after peaking in 2011 at $190 may deny the windfall again expected.

The original $20 billion agreement signed in 2014 with the backing of the World Bank called for a new 650km railway to Conakry, Guinea’s capital in the north, a new deep water port at a conservatively estimated cost of $7 billion, and infrastructure investments that would double the economy of the impoverished country.

The World Bank has now withdrawn its backing.

Shekhar Ghosh is a communications consultant and and former journalist, who has edited and written for publications such as like Business India, Business Standard, Business Today and Outlook.

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