Rio Tinto gets closer to building game-changer African iron mine
Rio Tinto Group is accelerating work towards potential development of the giant Simandou iron ore project in Guinea, as half-year earnings showed the steel-making ingredient dominated the second-biggest miner’s profits.
There’s been a longstanding question mark over Rio’s stake
in the massive African deposit. For years, a cast of owners including Israeli
billionaire Beny Steinmetz and authorities in the West African nation fought
over rights to develop Simandou. Even with those disputes now settled, Rio must
decide whether it’s prepared to spend the large amounts needed to extract and
transport the super-rich ore from its part of the project.
New studies with Rio’s Chinese partners are aimed at cutting
the capital intensity, operating costs and development timetable, with some
fieldwork to start this half, the London-based miner said on Wednesday in an
earnings statement.
Meanwhile, the Guinean-led and Chinese backed consortium
with rights to the other half of the project could be producing within five
years.
“Under all scenarios Simandou will be developed, with or
without Rio Tinto,” chief executive officer Jean-Sebastien Jacques said in an
interview on Wednesday. “There is a huge incentive for the Chinese to make it
happen now.”
After years of being largely forgotten by the mining world,
Simandou snapped back into the spotlight last year when Steinmetz ended a
seven-year dispute with Guinea’s government that saw him relinquish claims on
half of the mine.
The project’s reemergence could have big implications for
the iron ore market. Half of the deposit could deliver more than 100 million
tons a year of the highest-quality ore, which is increasingly in demand in
China. China’s State-owned Assets Supervision and Administration Commission,
which oversees the biggest government-owned enterprises, is actively pushing
forward with the project, people familiar with the situation said earlier this
year.
Simandou is divided into four blocks, with 1 and 2
controlled by the consortium backed by Chinese and Singaporean companies, while
Rio Tinto and Aluminum Corp of China, known as Chinalco, own blocks 3 and 4.
The renewed interest from China, as well as new owners for
the half not controlled by Rio, means the company will consider options
including joint development of the sites or their infrastructure.
“We will look at all options because it is an infrastructure
project and scale is important,” Jacques said. “I think it’s important for
people to understand what would be the benefits of putting together 1, 2, 3 and
4.”
Rio, which has surpassed Brazil’s Vale SA as the top
supplier of iron ore, could generate an additional $1 billion in annual revenue
by replacing some lower-grade exports from Australia with better-quality
material from Guinea, Goldman Sachs Group Inc. analysts including Paul Young
wrote in a July 23 note.
Forming a joint venture between two separate projects at the
vast site could also cut total capital expenditure by as much as $7 billion,
through the sharing of costs for rail, port and power infrastructure, the
Goldman analysts said.
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