Rio Tinto says Simandou deal close after wrangles over railway

Simandou mine, Guinea – Image courtesy of Rio Tinto

Rio Tinto Group said it’s close to a breakthrough in a landmark deal to unlock the world’s biggest untapped iron ore mine.

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. Negotiations between investors and the Guinean government to build a railway for exporting ore may now be nearing a resolution, said Rio Chief Executive Officer Jakob Stausholm.

“We might be very close,” he said in an interview after the company reported first half results on Wednesday. “It could happen very quickly.”

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.

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 and buying the steelmaking material from international suppliers.

Earlier this year, the two consortiums at Simandou struck a deal to jointly build a 650 kilometer (404 mile) 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 have dragged on.

Rio Tinto’s negotiating team, led by executive Bold Baatar, is currently in the capital Conakry, where talks with the parties are ongoing, Stausholm said. He declined to comment on the specifics of the discussions.

Negotiations have 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. Rio had been willing to renegotiate the point but the Winning group’s stance was less clear, the people said. 

Spokespeople for Winning and Guinea didn’t immediately respond to requests for comment.

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.

The Guinean government has 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.

“I don’t have much concern,” said Stausholm. “If we’re not able to sign a deal in the foreseeable future I’ll be more concerned.”

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.

(By Thomas Biesheuvel and Alfred Cang, with assistance from Ougna Camara)


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