VALE Vale SA

By Scott Patterson and Rory Jones 

Allegations of corruption have shadowed Beny Steinmetz ever since he outmaneuvered one of the world's largest mining companies in 2008 for some of the richest iron-ore deposits on Earth in the West African nation of Guinea.

On Monday, Israeli authorities arrested Mr. Steinmetz -- one of Israel's richest men -- on suspicion of paying bribes to Guinean officials, furthering a six-year-long probe involving authorities in the U.S., Africa, Israel and Switzerland. Mr. Steinmetz, 60 years old, who hasn't been charged, was put under house arrest after posting 100 million Israeli shekels ($26 million) in cash and property as bail, Israeli authorities said.

Mr. Steinmetz's arrest marks a dramatic turn in the saga surrounding a lucrative iron-ore vein in Guinea's remote Simandou mountain range. Its green-forested hills hold some of the world's largest and highest-quality deposits of iron ore and have lured mining companies competing to exploit China's booming need for that key ingredient for making steel.

Last month, Rio Tinto PLC, the British-Australian mining giant that Mr. Steinmetz outmaneuvered in 2008, fired two top executives, saying they were involved in a $10.5 million payment made to a man closely connected to Guinea President Alpha Condé. The former Guinean mining minister who Rio Tinto has alleged colluded with Mr. Steinmetz's mining company, BSG Resources Ltd., was charged last week in U.S. federal court with laundering proceeds from bribes in a separate mining case.

In 2014, the Guinea government stripped BSGR of its rights to Simandou and accused people connected to the company of paying bribes to a previous regime. It was a major blow for Mr. Steinmetz, who was trying to expand beyond the business that made his fortune -- selling African diamonds, including to his biggest client, Tiffany & Co.

BSGR issued a statement on Monday, again denying the bribery allegations.

"It is BSGR's strong belief that these allegations of bribery by the Government of Guinea are not only baseless, but are a systematic attempt by the Government of Guinea to cover up the endemic corruption which has blighted this country for a number of years," a BSGR spokesman said in the statement.

A spokesman for the Guinea government declined to comment.

Mr. Steinmetz's arrest heightens the stakes for a host of companies, executives and consultants who have participated in commercializing the rights to Simandou.

The U.S. Department of Justice has been investigating claims of bribery and obstruction of justice related to Simandou and presented evidence to a grand jury, The Wall Street Journal has reported. The Justice Department declined to comment.

Prosecutors in Switzerland, where businesses tied to Mr. Steinmetz are located, have also been questioning witnesses with knowledge of the Simandou bids. Swiss authorities declined to comment.

While involving many players, the feud over Simandou boils down to Rio Tinto and BSGR.

Rio Tinto, the world's second-largest producer of iron ore, held the rights to Simandou from the 1990s. But in a surprise move, Guinea revoked its rights in 2008, saying the giant firm wasn't moving quickly enough to develop the resources.

Guinea handed half those rights to BSGR after the firm carried out a three-year, $165 million exploration program. BSGR then struck a $2.5 billion deal for Brazilian mining giant Vale SA, which focuses on iron ore, to buy a 51% stake in its Guinea asset.

The Guinea government later alleged that BSGR won its rights by paying bribes to the wife of now-deceased Guinean President Lansana Conté.

Mr. Conté's widow, Mamadie Touré, is cooperating with U.S. officials, according to people familiar with the investigation. An attorney for Ms. Touré didn't respond to a request for comment.

In April 2013, U.S. investigators arrested Frédéric Cilins, a French citizen, after he met with Ms. Touré in Florida. They charged him with obstructing the U.S. investigation. Mr. Cilins pleaded guilty in a Manhattan federal court but didn't agree to cooperate with investigators. He was released in January 2015.

Simandou is also the source of a mounting scandal at Rio Tinto, which made great efforts to win the deposits back after BSGR and Vale took them.

Last month, Rio Tinto dismissed two top executives for their alleged role in making $10.5 million in payments to a consultant in Guinea, former Lazard Ltd. managing director François de Combret. Rio Tinto fired its energy and minerals chief, Alan Davies, and its head of legal and regulatory affairs, Debra Valentine, following a review of internal company emails detailing the payments to Mr. de Combret.

Mr. de Combret had been helping Rio Tinto negotiate with the Guinean government to retain the Simandou iron-ore concession, according to the emails, which were reviewed by The Wall Street Journal. Attempts to reach Mr. de Combret were unsuccessful.

The emails show Mr. Davies in 2011 asked permission from the company's then-iron-ore chief, Sam Walsh, to make the payments to Mr. de Combret. Mr. Davies said in the email that Mr. de Combret's services "were of the most unique nature," including helping to facilitate communications with Guinea's president, Mr. Condé.

Mr. Walsh later became chief executive of Rio Tinto in 2013. He stepped down earlier this year and was replaced by Jean-Sebastien Jacques, who remains the CEO. Messrs. Walsh and Ms. Valentine couldn't be reached for comment. Mr. Davies has denied the allegations.

Another key player in the Simandou controversy, Mahmoud Thiam, who served as Guinean minister of mines for a time under President Conté, was charged last week in a criminal complaint in an unrelated case with two counts of money laundering. Mr. Thiam, a one-time UBS Group AG banker, is accused of laundering proceeds from bribes he allegedly received from a Chinese conglomerate operating in Guinea.

Mr. Thiam didn't respond to a request for comment.

Write to Scott Patterson at scott.patterson@wsj.com and Rory Jones at rory.jones@wsj.com

(END) Dow Jones Newswires

December 20, 2016 02:47 ET (07:47 GMT)

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