China to Approve Developing Guinea’s Giant Simandou Iron Ore Mine
London — China is close to giving the go-ahead for some of
its biggest state-owned companies to develop the giant Simandou iron ore mine
in Guinea, potentially paving the way for the project to be built after years
of legal wrangling.
China’s State-owned Assets Supervision and Administration
Commission (SASAC), which oversees the biggest government-owned enterprises,
is pushing forward with the project, the
world’s biggest untapped iron ore deposit, according to people familiar with
the plans who asked not to be identified as the talks are private.
For years, it seemed the rich ore under a jungle-covered
mountain range might never be dug up. Simandou was practically forgotten by the
wider mining industry as owners including Rio Tinto Group, Israeli billionaire
Beny Steinmetz and authorities in the West African nation fought over rights to
develop it.
That all changed in 2019 after Steinmetz ended a seven-year
dispute with Guinea’s government that saw him relinquish claims on half of the
mine. It’s now in the hands of a Guinean-led and Chinese-backed consortium that
wants production to start within five years.
The re-emergence of Simandou has spooked executives at the
top iron ore miners. Half of the project could deliver more than 100-million
tonnes a year of the highest quality ore just as the outlook for the material
sours and Chinese demand plateaus.
Rio Tinto shares fell 2.2% in London, adjusted for the stock
trading without the right to its latest dividend, amid broad declines among
mining companies. BHP Group lost 2.5% on the same basis.
Simandou is divided into four blocks, with blocks 1 and 2
controlled by a consortium backed by Chinese and Singaporean companies, while
Rio Tinto and Aluminium Corporation of China, known as Chinalco, own blocks 3
and 4.
China is keen to help develop the deposit as it looks to
secure more high-quality supplies, and also wants to expand its footprint in
West Africa, according to the people. China's SASAC has not formally approved
the project, but is working out the details on how it will proceed and how the
project will be funded, the people said.
Chinalco will be involved in the development and the SASAC
is talking to other state-owned enterprises about building costly port and rail
infrastructure, the people said. China Development Bank is likely to provide
some of the funding and Asian Infrastructure Investment Bank is also being
considered, the people said.
Nobody immediately answered faxes or calls to SASAC,
Chinalco or China Development Bank seeking comment.
The cost of building a 650km railway stretching across
Guinea has always been a roadblock for developers, with estimates reaching as
high as $13bn. With Chinese funding, the project becomes much more feasible.
Chinese involvement in Simandou would create a dilemma for
Rio. A rival developing the deposit would threaten the market for Rio’s most
important commodity. Yet it could struggle to win shareholder support to pour
billions of dollars into Guinea if it wanted to join the development.
Rio CEO
Jean-Sebastien Jacques was in Beijing, China, in January to met SASAC’s
chair to discuss bolstering co-operation between the mining giant and China’s
state-owned groups, according to a statement from SASAC.
The largest iron ore exporters, including Vale, expect a
long-term shift by China’s mills to favour higher-quality raw materials, even
as growth in steel output plateaus. Using premium grade ores can allow plants
to boost efficiency and comply with tougher curbs on pollution. Simandou’s ores
contain 65% to 66% iron, above the industry’s benchmark 62% iron content
products, according to Rio filings.
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