African states play tough with iron ore investors
But they are making it clear they won't be pushed around by resource-hungry corporate mining giants.
With world-class ore deposits few and far between and resource quality key to corporate valuation if not survival, African governments are now dictating terms to mining companies.
The Simandou iron ore project in poor West African state Guinea has been touted by majority owner Rio Tinto as the world's best unexploited resource, big enough and rich enough for Rio to lean on as a defence against a hostile takeover bid from bigger rival BHP Billiton.
Guinea, sensitive to this, has started exerting pressure on Rio.
"Rio will go further than they otherwise would to control this asset," said Nick Day, Chief Executive of Diligence, a London-based firm which advises corporations on political risk.
"For Rio, the balance is ensuring profitability of the project, and for (Guinean President Lansana) Conte, it's about extracting as much money as possible."
Investors in Rio should look out for similar behaviour from the Guinean government as oil major BP experienced with its troubled Russian oil venture TNK-BP, Day said.
"You'll see warning signs. If it starts to get accused of pollution, there are labour disputes, health and safety issues -- that's when Rio is about to lose control," he added.
Guinea has repeatedly voiced frustration with Rio, saying in August it was rescinding its concession, while Rio's public statements have kept a positive tone. Chief Executive Tom Albanese said he was encouraged this month by talks with the government.
Even if Rio or any other firm running a big African iron ore project loses control, the chances are someone else will step in.
South African miner Kumba Iron Ore is taking Senegal to the International Court of Arbitration after the government ordered it to stop exploration at a key mine in which ArcelorMittal has said it wants to invest $2.2 billion.
Kumba would not comment on the progress of the arbitration case, but has not been deterred from working in West Africa. It plans to open an office in Guinea this month.
But whereas Guinea is pushing for the best deal it can get, neighbouring Liberia wants to be a stickler for transparency.
Liberia was the world's fifth biggest iron ore producer before a 1989-2003 civil war.
Now foreign investment is a central part of President Ellen Johnson-Sirleaf's attempts to rebuild Liberia's economy. But even a country where unemployment runs around 80 percent is being choosey about who it allows into the bidding for its $1.5 billion Western Cluster project.
In September, it disqualified India's Tata Steel and South African-based Delta Mining Consolidated, citing "acts of violation" in an earlier bidding process.
"The key difference is that in Liberia, investors are dealing with a democratically elected government in a post-conflict phase, whereas Guinea is on the verge of being a failed state," said Rolake Akinola, Senior Analyst, West Africa at consultancy Control Risks.
The country hopes its uncompromising stance will play well with mining firms as it seeks the best deal for its resources.
"It's such a tough stance to take, despite the fact that Liberia needs investment, but the key is to send a message to investors about corruption, which will improve confidence among investors," Akinola said.
AFRICAN PROJECTS SEEN MORE RISKY
Still, no matter how rich the ore or big the project, its viability depends on how much its iron ore is worth. Rio Tinto achieved price hikes of 96.5 percent in this year's annual price negotiations, but if demand growth slows as many analysts think it will, African projects will be the first to be shelved.
"These are seen as marginal projects. If global demand growth was to fall short of our expectations by just a few points, we wouldn't need these projects," said Helen O'Malley, iron ore specialist at London-based mining consultancy CRU.
When African political risk combines with the global financial turmoil that has wiped billions from the value of stock markets, investors are likely to take a much less bullish view of mining on the continent.
Investec Asset Management oversees funds of around $60 billion and earlier this year picked iron ore as one of its favoured commodities. But Bradley George, head of global commodities and resources, said risk appetite was diminishing.
"In this environment we have been less focused on riskier African mining projects," he said.