$20bn Rio Tinto-Guinea deal on Simandou close

A deal between the Guinea government and Rio Tinto (LON:RIO) regarding the Simandou iron ore development will be signed before the end of the month says the CEO of the Anglo-Australian giant.

Rio and its partner – China's Chalco together with the World Bank – have been in negotiations with the government of the West Africa nation for months over funding and the structure of the associated infrastructure for the ambitious $20 billion project.

"This has taken some time to bring to fruition, and I think this signing will inject the project with renewed momentum," CEO Sam Walsh said in a speech in Washington reports The Australian:

"The infrastructure that brings Guinea's natural resource wealth to global markets can do so much more for the country," Mr Walsh said, pointing out that once Simandou is fully operational, it will contribute an estimated $US7.6bn to the Guinean economy each year, dwarfing the amount of aid payments the country receives.

Initially scheduled for next year, even with the new deal in place initial exports would only by the end of 2018. Rio acquired the rights for the vast mountain deposit more than 15 years ago.

Rio Tinto is developing the southern part of Simandou and has already spent more than $3 billion building open pits, but the scale and scope of the development had been placed in doubt by the fall in the price of iron ore and a looming supply glut.

At full production Rio's Simandou mine would export up to 95 million tonnes per year – that's a third of Rio's total capacity at the moment.

A sticking point in the negotiations was the route and funding of a railway to get the Simandou area ore to port.

According to previous reports the project plan calls for a new 700km railway across the country to the northern port of Conakry, Guinea's capital.

Because of the economic benefit to Guinea this route was chosen in stead of a much shorter and cheaper railway to the deep Buchanan port in neighbouring Liberia to the south.

The northern part of the Simandou concession was held by BSG Resources and Brazilian giant Vale (NYSE:VALE), but the Guinea government withdrew the mining permit in April, accusing BSGR of obtaining its rights through corruption in 2008.

Rio Tinto has filed its own lawsuit against both Vale and BSGR for what it qualifies as a "steal" of its previously-owned concessions.

Fellow Anglo-Australian miner BHP Billiton has decided to pull out of the country and is in the process of selling its stake in a nearby iron ore project called Nimba.