Rusal: New Mining Code Will Reduce Appeal of Investing in Guinea

Russian aluminum producer United Co. Rusal PLC (0486.HK) said Thursday that an amended mining code in Guinea will decrease the attractiveness to mine in the country, rich in minerals, despite some of the positive adjustments.

This week, the mining ministry said it had amended its 2011 mining code. That included reducing the industrial and commercial tax rate to 30% from 35% and cutting royalties on bauxite to 0.15% of the internationally traded aluminum price from 0.55%.

But the concern to miners was the reaffirmed clause from the 2011 mining code that gives the state the right to a free 15% stake in all mining projects with the option to purchase an additional 20% stake at a latter stage.

"Rusal considers that the new Mining Code does not apply to the existing concessions and agreements and as such has no relation to Rusal's businesses in Guinea," the company said in an emailed statement. "Rusal continues to believe that the new Mining Code will decrease the attractiveness of investment into Guinea's mining sector."

Rusal's holdings in Guinea include the Friguia bauxite mine and alumina refinery and the Kindia mine. In December, Rusal said it had signed an agreement with the Guinean government to develop the Dian-Dian bauxite deposit, which is the world's largest.

Guinea accounts for about two-third of the world's supply of bauxite, the raw ingredient used to make aluminum, and has one of the world's largest deposits of iron ore, which is used to make steel. Along with Rusal, iron-ore producers Vale SA (VALE) and Rio Tinto PLC (RIO) have projects in the country. Vale and Rio Tinto declined to comment.

Smaller producer Sable Mining Africa Ltd. (SBLM.LN), an exploration company developing the Nimba Iron Ore Project in south-east Guinea, welcomed the changes.

"The government has recognised the need to foster a mining friendly jurisdiction," Sable chief executive Andrew Groves said.