By Bate Felix and Clara Ferreira-Marques Conakry and London

HIDDEN under the lush forests of southern Guinea is the world’s largest untapped deposit of iron ore, a resource so rich it covers dirt roads, trees and just about everything above it, in a rust red dust.

The Simandou deposit has some of highest grade, lowest impurity ore on the planet, enough to satisfy 12 percent or more of seaborne demand for the steel ingredient, and transform one of the poorest countries into a major producer.

Yet, in more than a century since it was first discovered, not a scrap of iron ore has been dug out. Decades of corruption and unrest have left it trapped in the ground.

The government of President Alpha Condé, elected in 2010 in Guinea’s first free vote after 50 years of one-man rule, has promised prosperity for Guinea’s 10 million people, and wants to make Simandou pay.

But first the authorities must decide whether to honour deals negotiated by previous governments, or demand better terms. The government began a review of mining contracts earlier this year, leaving Simandou’s future in limbo.

“For many years, the management of the Guinean mining sector was characterised by shadowy deals and uncertainty. This review process aims to normalise the sector and put an end to those bad practices,” Mines and Geology Minister Mohamed Lamine Fofana said in an interview.

The owners of the concession for the northern half of Simandou, Brazil’s Vale and Israeli diamond billionaire Beny Steinmetz’s BSG Resources, say they have frozen their project because of the uncertainty.

“The issue is in the hands of the Guinean government,” Vale chief executive Murilo Ferreira said last week. “They set the rules; they tell us what rules govern a project, and they have not communicated the rules for this project yet.”

Some industry and Guinean sources, including former mines minister Mahmoud Thiam, believe the government’s review of mining licences is targeting specific companies, including BSG.

Some suggest that the government plans to revoke the BSG/Vale concession.

“We are getting to a critical state whereby, if necessary, we’ll seek diplomatic protection from the Israeli government because this is beginning to look like an expropriation in another name,” said lawyer Momo Sakho, a former legal adviser to Guinea’s mines ministry who now works with BSG.

The government says it will finish reviewing BSG’s rights to the concession early next year.

Permission to mine Simandou is split between Vale in the north, teamed up with BSG, and Anglo-Australian firm Rio Tinto in the south, teamed up with China’s Chinalco.

Rio Tinto was the first company to commit to Simandou, spending $350 million (about R3 billion now) developing a project there until 2008, when the government of long-ruling leader Lansana Conté revoked its permit, arguing the firm had moved too slowly.

Then, with political tumult keeping many investors away, Conté’s government awarded the northern half of the former Rio Tinto concession to BSG, which later sold 51 percent of the project to Vale in a deal valued at $2.5bn, of which $500m has been paid. – Reuters