Rio Tinto Approves Additional Funding for Simandou

Drilling at Simandou iron ore project in Guinea, West Africa, proceeds following Rio Tinto’s recent decision
to spend $170 million to advance the billion-dollar-plus project for an anticipated startup in five years.
(Photo courtesy of Rio Tinto).
Rio Tinto announced on August 2, 2010, approval of $170 million in spending to advance the Simandou iron ore project in Guinea, West Africa. The announcement followed the signing on July 29 of a binding agreement between Rio Tinto and Chalco to establish a joint venture to develop and operate the project. Rio Tinto and Chalco had previously signed a memorandum of understanding regarding a Simandou joint venture in March 2010.

The current Simandou funding will be directed toward optimizing the design of the mine, mine infrastructure, rail system, and port facilities, as well as additional drilling. The Rio Tinto announcement said the company welcomed a recent statement from the prime minister of Guinea that the government might consider an export route for Simandou production through Liberia to make the project more economic. However, current planning anticipates construction of a mine at Simandou with capacity to produce 95 million mt/y of high-grade sinter fines, a 650-km dedicated industrial railroad traversing Guinea to its Atlantic coast, a rail car-dumping facility, and a four-berth wharf located 11 km offshore from Matakang.

The project will be the largest integrated iron ore mine and infrastructure development ever undertaken in Africa. The current $170-million investment program will include upgrading road access from the town of Forecariah to the port site, building the construction wharf at the port, and building project facilities in Forecariah, including offices and a logistics base.

In announcing the decision, Rio Tinto Chief Executive–Iron Ore Sam Walsh said, “We expect to start mining operations within five years. Additionally, while we now identify a 95-million-mt/y operation as the optimal capacity for the initial development, we believe there is considerable scope to expand the project in subsequent years.”

Under the terms of the Rio Tinto/Chalco agreement, Rio Tinto’s 95% interest in the Simandou project will be held in the new joint venture. Chalco will acquire a 47% interest in the joint venture by providing $1.35 billion on an earn-in basis through sole funding of ongoing development work over the next two to three years. Once Chalco has paid its $1.35 billion, the effective interests of Rio Tinto and Chalco in the project will be 50.35% and 44.65%, respectively. The remaining 5% will be owned by the International Finance Corporation (IFC), the financing arm of the World Bank.

The Guinean government holds an option to buy up to 20% of the project and may exercise this option. Any interest acquired by the government would proportionally reduce the effective holding in the project of Rio Tinto, Chalco and the IFC.

As featured in Womp 2010 Vol 07 -