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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 year."
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 progress.
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
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 delays.
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 Simandou.
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
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 from scratch.
"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 third parties.
"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
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
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
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 reviews.
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 sensitive time.
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 cash
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