Rio Tinto agrees to terms with Guinea on Simandou project

May 27, 2014

Rio Tinto and the government of Guinea agreed to financial terms on the Simandou iron project. The mine and its rail and port components could be valued as high as $20 billion, Rio Tinto said in a joint statement with partner Aluminum Corp. of China and the government of Guinea.
The project could start by the end of this decade, Bloomberg reported. 

Simandou is the world’s largest untapped iron-ore resource and Rio Tinto has estimated the mine could produce 100 million stpy. The project could double the West African nation’s current gross domestic product and add 45,000 jobs in the country, according to the statement.

The accord doesn’t commit Rio Tinto to building the project and analysts have said a legal dispute over the ownership of adjacent ground at Simandou could delay first production into the next decade. The agreement covers two of four mining permits for an ore-rich area in the southeast of Guinea.

“With transparent and fair deals, our mining sector has the potential to be a game-changer for Guinea,” President Alpha Conde said in the statement. “This project also represents a symbol of our continent’s tremendous efforts to meet its infrastructure challenges and build inclusive growth.”

The Guinea government has estimated that developing the project could cost $20 billion, including constructing rail links and harbor installations to handle the ore. Guinea will gain a 7.5 percent stake in the project when the so-called investment framework is ratified in parliament, it said.

The accord allocates a 3.5 percent royalty to the government on ore exported from Guinea. It also stipulates that the port and rail assets will be transferred to the government after 30 years. Once the agreement is ratified in parliament, Rio and its partners are required to complete a financing study to confirm costs and a timeline for development, the statement shows. The accord doesn’t call for any payments.

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