Movers and SHAKERS
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What Investable Assets are Impacted by the Coup in Guinea?
A military coup this past weekend has possibly disrupted control of the mineral deposits in the country of Guinea. This has implications for the supply of aluminum, and to a lesser extent, gold, iron ore, and diamonds. Guinea also has known resources that include nickel, uranium, manganese, and graphite.
While mining accounts for 35% of the GDP of the West African nation, much of its large reserves have been barely tapped for reasons that include lack of infrastructure and political challenges. A notable exception is aluminum.
When news first broke of the coup, aluminum which had already been rising with refinery problems in Jamaica and Brazil broke a 10-year price record. Guinea is one of the top producers of bauxite, which is the ore necessary to produce aluminum oxide, which is then smelted to produce aluminum. Last year Guinea was responsible for 22% of all global production of bauxite, or 78 million tonnes. Guinea is a major supplier to North America, Europe, and China.
Aluminum is important because it is a great conductor of heat and is used as a cooling mechanism for motors and other products that need to disperse built-up warmth or risk overheating. Almost every Apple computer product is made of aluminum because lightweight and has superior thermal conductivity than most metals. It is also easily machined and finished. Soda cans, aluminum foil, railings, and many household furnishings are produced using aluminum.
Any disruption in the bauxite supply should continue to place upward price pressure on prices of aluminum, and producers at every stage.
Discovered in the 1990s, Guinea has one of the largest untapped iron ore deposits on the planet. The 70-mile range is said to contain 8.6 billion tons of ore that contains about 65% iron on average.
The location of this range is inland and in a remote area of the country. The infrastructure needed to begin building a rail system or other means of transport would be massive and costly.
Although the country is rich in ore deposits, it is not now impacting supply of the basic material as the region is not now, nor is it expected to be mined any time soon.
Gold / Diamonds
Other minerals that make it to the world markets from Guinea are diamonds and gold. While just the threat of an interruption in bauxite from Guinea has caused aluminum prices to rise, the amount of these materials currently produced by Guinea are not significant.
It produced about 56.9 tonnes of gold in 2020, according to the World Gold Council, and is the seventh-largest miner of the precious metals on the continent. Nordgold, which operates one gold mine in Guinea accounted for 17% of Nordgold's total production in 2020.
Guinea has proven reserves of 30 to 40 million carats worth of diamonds and perhaps an additional 500 million carats of probable reserves according to the government. The country exported 270,157 carats of diamonds in 2018 with a value of $20 million. The Guinean government has said it exported 136,072 carats of diamonds in 2020.
The military coup in Guinea had an immediate benefit to global aluminum prices. Guinea ships around 22% of global bauxite. The turmoil comes at a time when global demand, as well as production problems related to aluminum, have already created upward price movement. This most recent turn of events has sent the price to a ten-year high.
Other minerals that are part of Guinea exports are currently at such a small scale that the impact won’t be felt on a global scale.
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