Weekly Nugget

Guinean Coup Spikes Aluminum Prices, But Miners Told to Keep Mining

A military coup in Guinea briefly threatened one of the world's leading suppliers of aluminum, causing prices to spike.

A military coup in Guinea briefly threatened one of the world's leading suppliers of aluminum, causing prices to spike. Its price hit the highest level in a decade on Monday, reaching $2,776 per tonne on the London Metal Exchange.

Guinean Lieutenant-Colonel Mamady Doumbouya of the country’s Special Forces Group led an elite cadre of soldiers to seize control of Guinea, and its vast resources of metals, pushing aluminum prices higher

According to one report from Al Jazeera, the revolt was sparked by the dismissal of a senior commander in the country’s special forces, provoking loyal soldiers to rebel. 

However, the country has been experiencing protests and revolts against the former president’s third term, secured through a reform to the country's constitution.

On the state broadcaster, Radio Télévision Guinéenne (RTG), a group of soldiers announced on Sunday that regional governors had been replaced by military commanders, and the 83-year-old former president Alpha Conde was safe but in detention.

"The president is with us, he's in a safe place," Doumbouya said in the broadcast on Sunday.

According to Doumbouya, the 41-year-old former French legionary, the army had few options because of corruption, disregard for human rights, and economic mismanagement under Condé.

Doumbouya said in the public broadcast: “We are no longer going to entrust politics to one man, we are going to entrust politics to the people.”

The junta is calling itself the National Committee for Reorientation and Development and told members of the freshly deposed administration in a meeting in the capital Conakry that its planned government “will be set up to lead the transition” to civilian rule. 

After an announcement of a nationwide curfew, Mamady said that ports in the world’s second-largest bauxite producer would remain open and the curfew in mining areas had been lifted “to ensure continuity of production”. 

Guinea supplies a quarter of the world’s bauxite, mostly to China and Russia as the main ingredient in aluminum refining. 

In an article from Australia’s Financial Review, bauxite industry expert Alan Clark of the CM Group said his communication with people on the ground in Guinea combined with vessel-tracking data had convinced him that Guinea’s bauxite industry had not been significantly disrupted by the coup so far.

“We track all bauxite vessels into and out of Guinea and from what we can ascertain it is business as usual, although it is the wet season right now so there is less activity generally,” he said.

We can see the bauxite industry in Guinea is still moving. They are barging and transhipping, we can see barges moving, we can see trans-shippers operating and we can see bulk vessels coming into and out of the region.”

Guinea has some of the world’s best bauxite and iron ore deposits. It generates most of its revenues from mining exports, which have helped power the economy to more than 6% growth annually over the past five years. 

Russia’s Rusal and U.S.-based Alcoa (NYSE: AA) are big investors in Guinean bauxite, while Anglo-Australian mining group Rio Tinto (LSE: RIO), Chinalco, and the China-backed consortium SMB Winning own parts of Simandou, one of the world’s largest and high-grade iron ore deposits, in south-eastern Guinea.

Guinea accounts for about 22% of the world's production, producing 82 million tonnes of bauxite in 2020, according to the U.S. Geological Survey. Guinea is home to the world's largest reserves of bauxite with 7.4 billion tonnes.

Guinea also hosts some of the world's largest reserves of iron ore but years of legal wrangling and alleged corruption over the largest project Simandou, have left the minerals in the ground after many stalled efforts to advance the project. 

Simandou holds more than two billion tonnes of high-grade ore, the largest known deposit of its kind. Iron ore is used to make steel.

In addition to bauxite and iron ore, Guinea produced about 56.9 tonnes of gold in 2020, according to the World Gold Council, and is the seventh-largest miner of the precious metal in Africa.

Former Severstal company Nordgold operates one gold mine in Guinea. Its Lefa mine, located 700 kilometers northeast of Conakry, accounted for 17% of Nordgold's total production in 2020. AngloGold Ashanti (J: ANGJ) also has a presence in Guinea with its Siguiri gold mine, where it produced 214,000 ounces in 2020. 

A Reuters article quoting Guinea bauxite industry specialist Bob Adam revealed that the coup would have little impact on Guinea’s metals reaching global markets and insight into Colonel Mamady’s decision to lift curfews for mining regions.  

"It is highly unlikely that the coup will have any major short-term impact on exports, which are always at the lowest part of the cycle in September with stockpiles depleted as the rainy season comes to an end...Any incoming government will want to make sure that it doesn't jeopardize future earnings and investment."

The timing of the coup fits a convenient season for a country that accounts for 35% of its GDP from mining.

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