Dark clouds hang over Guinea's bauxite market

Guinea has the world's largest reserves of bauxite - an ore crucial for the development of aluminum - which makes the small West African country a magnet for global mining and metal companies.

The country is the sixth biggest producer of bauxite, with 17.4 million metric tons last year, after Australia, China, Brazil, Indonesia and India, and is expected to raise production exponentially in a few short years.

In March, president Alpha Conde pledged to triple production to 61 million metric tons by 2016-17 and account for a quarter of the world's bauxite production by 2020.

But trouble in the global mining sector and the country's own political unrest could derail the country's ambitious plans.

On May 19, BHP Billiton and Global Alumina Corp. sold their share of the Guinea Alumina Corp. to Dubai Aluminium and Abu-Dhabi based Mubadala.

In March, Rio Tinto informed the Guinea government that it was slowing down investments in the giant Simandou iron ore, as it cuts back on investment globally.

Rusal, Russian mining company has also suspended operations in the Guinea town of Friguia. Reports suggest the company is also scrapping plans for a USD 5 billion 240,000 tons per year alumina refinery project in Dian Dian, said to be one of the largest bauxite sites in the world.

Global mining companies have been reeling after over-investment in the past few years and have been waylaid by a fall in commodity prices.

Indeed, investment write-downs and departure of CEOs in many global mining companies have ended a decade-long bull run in commodity prices and massive investment in places like Guinea.

Worried about losing the prospect of USD 20 billion of potential investment in its mineral and mining sector, the Guinea government reacted quickly by slashing mining profit tax from 35% to 30%. It also reportedly reduced tax on bauxite from 0.55% to 0.15% of the international price and made efforts to reform the mining code.

The retrenchment by global players is already having an impact on the economy. GDP grew by 3.9%, as alumina production fell to 241,000 tons last year, less than half of the 586,000 tons produced in 2011. However, bauxite production surged 20% to reach 20 million tons, according to government estimates.