Rio Tinto Inks Deal to Unlock Massive Simandou Iron Ore Project

  • In Business
  • 2022-07-28 01:01:58Z
  • By Bloomberg

(Bloomberg) -- Rio Tinto Group said it's formed a joint venture with the Guinea government and Winning Consortium Simandou to develop infrastructure including a railway and port, in a breakthrough that should help unlock the world's biggest untapped iron ore deposit.

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"The parties will now work on next steps including shareholding agreement, finalizing cost estimates and funding, and securing all necessary approvals and other permits and agreements required to progress the co-development of infrastructures," Rio said in a statement.

Efforts to develop the massive Simandou project in Guinea have been stymied for years by a litany of disputes over ownership and infrastructure, and by political changes in Guinea. The deal comes just hours after Rio Chief Executive Officer Jakob Stausholm said in an interview that "we might be very close" to a deal.

Simandou is divided into four blocks, with blocks 1 and 2 controlled by the Winning Consortium Simandou, backed by Chinese and Singaporean companies, while Rio Tinto and Aluminum Corp. of China, known as Chinalco, own blocks 3 and 4.

"This milestone paves the way to progress the shareholder agreement, and secure necessary financing to construct a strategic corridor with more than 600 kilometres of rail infrastructures extending from south to south-west of the Republic of Guinea, as well as port infrastructure in the Forécariah prefecture in Maritime Guinea," Rio's statement added.

Simandou offers a potentially huge new source of supply for Rio, the world's largest iron ore producer, while China sees the project as key to easing its steel industry's dependence on Australian output.

The world's top steel-producing nation recently embarked on one of the biggest shake-ups of the global iron ore market in more than a decade by setting up a new state-owned group, designed to be a hub for huge overseas mine investments -- including Simandou -- and buying the steelmaking material from international suppliers.

Earlier this year, the two consortiums at Simandou struck a deal to jointly build a railway linking the mine to a planned port. As part of the deal, the government received a 15% stake in the infrastructure, matching its ownership stake in the mines. Yet talks about how the rail line will be paid for had dragged on.

Negotiations had been centered over whether the government should have to pay for its share of the rail and port building costs, according to people familiar with the situation. Rio and the Winning consortium had offered an interest-free loan to cover the government's costs, while the government pushed for a free carry for its stake, the people said.

The railway could cost more than $10 billion, according to earlier estimates, although an updated cost forecast is not expected until after an agreement is struck. No monetary figures for the new joint venture were given in the statement.

The Guinean government had sought to force the hand of the companies involved. Earlier this month, the government ordered both consortiums to halt activity in the country, citing their failure to reach a deal on collaboration. Mining Minister Moussa Magassouba also said the country was prepared to develop the project without the two consortiums if an agreement wasn't forthcoming.

Getting Simandou under development would be a second major win for the CEO, after striking a deal with Mongolia earlier this year on Rio's flagship copper project. Since taking the helm just over a year ago, the CEO has prioritized getting stalled projects moving, while rebuilding the company's reputation after a series of missteps.

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