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INTERVIEW: Rio needs investment agreement to take Simandou forward, says Alan Davies
January 10, 2013 - 09:44 GMT
A consortium led by Anglo-Australian mining major Rio Tinto is awaiting the conclusion of investment talks with Guinea’s government before continuing development of the $10 billion-plus Simandou iron ore project.
To date, Rio Tinto and its partners have spent a total of $3.6
billion on Simandou, which is among the biggest and
highest-quality untapped reserves of iron ore in the
But Alan Davies, the miner's diamond and minerals ceo, told
Metal Bulletin sister title Steel First that Guineau's
government is yet to formally agree the funding for its share:
a 51% stake in Simandou's port and rail infrastructure.
"The top priority is to get an investment agreement," Davies
said in an interview at Rio's towering steel and glass office
in London. "The investments we are making are in accordance
with the stage of the project and will be ongoing over the next
While all the funds are in place for Rio's consortium to fulfil
its side of the project, Davies said Rio and its partners in
the Simandou project need the agreement with the
government - which will determine how the cost of
developing infrastructure to transport ore from Simandou will
be funded - to be in place for the project to
Rio Tinto is confident that Guinea's government will have the
necessary funding in place for the investment agreement to be
signed by the end of this year.
"We are aligned with the government, they have approved the
scope of the project," Davies said.
"We need the investment agreement in place to take this
further. There's no deadline but we believe it will be signed
over the course of 2013," he added.
Volatile global iron ore prices over the past year, fluctuating
Chinese demand for the steelmaking raw material and changing
regulatory goalposts have made investors and fellow miners
jittery about the Guinea iron ore story.
And the country's controversial mining licence review prompted
Brazilian iron ore major Vale to halt work on its $2.5 billion
share of the Simandou project until it gets the regulatory
green light from the government.
BHP Billiton is looking for a buyer for its Nimba iron ore
project in the north of Guinea as part of a wider divestment
A perceived slow-down in Rio's work on Simandou, coupled with a
reduction of personnel on site has prompted rumours that the
Anglo Australian miner could soon follow suit.
On its website, Rio affirms its commitment to Simandou but
counters that "as with any project", it is in the interest of
all partners to remain "vigilant on spending".
The miner's capital expenditure for 2013 has not yet been
revealed. The likelihood that Simandou's costs will push
significantly higher than the $10 billion mark is likely
however, given increasing costs and the possibility of project
Davies says that the miner's spending is in line with the
project's progress to date and that a recent decrease in people
on the ground is in-line with the company's plan to cut
contractor spending and concentrate on training local Guineans
to work on the mine.
Simandou: the story so far
Tucked away in the remote south-eastern corner of Guinea, the
deep red earth of the Simandou deposit is ringed by mountains
and tracts of lush, virgin and largely inaccessible
Rio Tinto and its partners the Aluminium Corporation of China
(Chalco) and the World Bank's International Finance Corporation
hold the mining licences to the two southernmost blocks of
The consortium faces a similar challenge to the bulk of
putative West African iron ore miners: how to get the product
on to the seaborne market and ultimately to the world's largest
consumer of the steelmaking raw material, China.
Ravaged by years of military rule, chronic underinvestment and
political instability, Guinea does not have the necessary
existing infrastructure in place to transport bulk commodities
from remote inland mines to the coast, meaning that miners
wanting to tap into the country's rich resources have to start
"It is in the interests of Guinea to see the country's assets
developed," Davies said.
"There's a lot of preparatory work which needs to be done to
start on the main infrastructure," he added.
Early works have started on the construction of roads, base
camps and service docks in eastern Guinea and Rio expects
construction work on the port, mine and rail line to begin this
Davies stressed the fact that each stage of the project was
interdependent and reliant on the investment agreement.
The miner is eager to highlight what progress has been made on
the project in the past twelve months.
Rio and Chalco formalised their Simandou jv agreement in April
2012, with the Anglo-Australian miner confirming a further $1
billion investment in the project in June.
In October the Guinean government safeguarded Rio's
infrastructure plans by declaring Simandou a project of
national interest for the country, meaning that the areas of
land needed to develop rail and ports could not be bought by
"This infrastructure will be of national significance with all
project partners contributing proportional to their
shareholding," Davies said. "It will be a multi-user line and
will provide access to other industries."
Rio is not yet in talks with other potential users of the line.
Rio Tinto was one of the first miners to realise the potential
of Guineau's mineral wealth, and its engagement with the
country has spanned the rule of a dictator, two military juntas
and Guinea's first elected government.
Rio Tinto won the rights to mine the entirety of the iron-rich
mountain of Simandou in the 1990s under the military
dictatorship of Lansana Conté.
The Conté government stripped half the concession from
Rio Tinto in 2008 after accusing the miner of 'licence
squatting', and instead awarded the rights for free to Israeli
diamond magnate Beny Steinmetz, via his company Beny Steinmetz
Group Resources (BSGR) in 2009.
The move prompted accusations of bribery and corruption, fanned
by the massive $2.5 billion payout made by Vale for a 51% stake
in BSGR's claim.
As part of its bid to stamp out corruption in Guinea's mining
industry, the government of Alpha Conde, Guinea's president
since 2010, is reviewing the licences of every contract awarded
by Guinea's previous leaders. The aim is to determine which
licence holders have the capacity and intention to explore and
bring projects to production.
Among the licences under review is BSGR's claim. The Israeli
miner has hotly contested allegations of corruption and accuses
the government of trying to illegally seize its claim.
Rio Tinto has no such worries. The miner paid $700 million to
Guinea in 2011 for the 'resolution of all outstanding issues'
relating to its portion of Simandou, meaning that it will be
unaffected by any further changes to the mining code or future
With mutterings of military unease, strengthening political
opposition and upcoming legislative elections on the horizon,
Condé's overhaul of Guinea's mining industry comes at a
When asked if Rio Tinto would be interested in re-staking its
claim over the other half of the Simandou project, Davies is
The miner is concentrating on bringing its existing stake in
the project into production, he said.
"We don't play a political game, we deal with the government of
the day," he added.
Despite the myriad challenges faced, Rio Tinto remains
optimistic that Simandou will start production on schedule and
indeed, predicts that first test shipments of ore from the
project will hit the seaborne market by early 2014.
"[These shipments] will allow us to develop the Simandou brand
in the market," Davies said.
The high quality Simandou product has already attracted
interest from European and Asian mills, especially those
producing high-quality specialty steels.
Davies describes the product as "most similar to a Carajas
material ultra high DSO of 66-67% Fe".
Once the financing has been secured for Rio's route to market
for its ore, work can begin apace at Simandou.
Until then, market observers await the results of Guinea's
mining review and the government's hoped-for infrastructure
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