Guinea approves railroad and port plan for Simandou

Simandou in Guinea. (Image: Google Earth.)

Guinea’s government has approved a multi-national group’s plan to build a railroad and deep-water port to export output from the massive Simandou iron ore deposit to key markets including China, the world’s top consumer of the commodity.

The consortium, which includes Singapore’s Winning Shipping, Guinean mining logistics firm United Mining Supply (UMS), Chinese aluminium producer Shandong Weiqiao and Guinea’s government, won a tender last year to develop blocks 1 and 2 in the northern area of Simandou.

Guinea said at the time the consortium had committed to build a 650km railway and a deep-water port and that it aimed to bring the two blocks into production by 2025.

Total cost of the project is now pegged at $16 billion, up from the $14 billion originally estimated.

Allowing miners to ship ore via closer ports in neighbouring Liberia would reduce that cost, but Guinean authorities had repeatedly said they would only allow Simandou exports to leave from a local port.

Battle for riches

At two billion tonnes of iron ore with some of the highest grades in the industry, Simandou is one of the world’s biggest and richest reserves of the steelmaking material, but it has a controversial past.

In 2008, one of Guinea’s former dictators stripped Rio Tinto’s rights over two of the four blocks the deposit had been divided on and handed them to Israeli billionaire Beny Steinmetz’s BSG Resources (BSGR).

Rio was able keep the two southern blocks, but only after paying $700 million to the government in 2011. That guaranteed the miner tenure for the lifetime of the Simandou mine.

That deal came under scrutiny in 2016, forcing the world’s no. 2 miner to fire two senior managers over a questionable $10.5 million payment made to a consultant who helped the company secure the two blocks and alerted authorities, including the US Department of Justice and the UK’s Serious Fraud Office.

BSGR and Steinmetz were also subject of several investigations over bribery and corruption accusations, but that ended with the deal inked last year.

A London arbitral court later ruled that BSGR had to pay $1.2 billion to Vale, its former partner in Guinea, due to “fraud and breaches of warranty” in inducing the Brazilian miner to enter the joint venture.

The tribunal based its decision partly on the fact that the government revoked the concession in 2014 after finding that BSGR had obtained it by bribing officials.

Chinese presence

The northern blocks became available part of a settlement between Guinea’s government and BSGR last year.

As part of the agreement, Steinmetz’s company agreed to walk away from the asset, but retained the right to mine the smaller Zogota deposit. Niron Metals, an investment vehicle co-founded and headed by the former Xstrata boss Mick Davis, is planning to develop Zogota.

Rio Tinto holds a 45% stake in blocks three and four of Simandou, and is currently mulling options to move forward with it. State-controlled Chinalco owns 40% and the Guinea government 15%. 

China’s resource dependence on Guinea has increased in recent years. In 2017, Beijing agreed to loan President Condé’s administration $20 billion over almost 20 years in exchange for bauxite concessions.

Analysts say Guinea’s population has so far seen little benefit from Chinese investment.