China gearing up for earlier Simandou start-up

Cloudy outlook

Rio Tinto’s (LON:RIO) and Chinese giant Chalco’s Simandou iron ore development in Guinea may start producing sooner than previously thought.

Chalco which is listed in Hong Kong is transferring its $1.8 billion investment in Simandou to its state-owned parent company, which according to The Australian indicates that China may be gearing up to start spending more on the ambitious $20 billion project.

World number two miner Rio Tinto owns 51% of the ambitious project, Chalco 45% and the World Bank the remainder.

Last month the partners signed a draft agreement with the government of the West Africa nation that calls for initial exports only by the end of 2018, three years later than initially scheduled, but Guinea and Chalco are believed to want to bring that forward by at least a year.

Simandou is being built to produce 95 million tonnes per year and has the potential to shift the balance in the global iron ore trade.

Rio Tinto is developing the southern part of the vast mountain deposit and has already spent more than $3 billion building open pits.

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

The draft plan calls for a new 700km railway across the country to the northern port of Conakry, Guinea’s capital. Guinea has the right to take up to 35% of  Simandou and 51%  of the proposed railway and  port project.

Because of the economic benefit to Guinea the Conakry route was chosen in stead of a much shorter and cheaper railway proposed by holders of the northern part of the Simandou concession, BSG Resources and Brazilian giant Vale, to the deep Buchanan port in neighbouring Liberia to the south.

All work on the BSGR-Vale section has been halted amid an anti-corruption probe.

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