Simandou deal consummated
Resource Hotspot 299
Rio Tinto has formally announced that it is proceeding with a deal to introduce Chalco as a joint venture partner in its massive Simandou iron ore project in south-eastern Guinea. This follows the signing of a memorandum of understanding between Rio Tinto and Chalco’s parent Chinalco announced on 19 March 2010.
Africa continues to represent a major potential supplier (and threat to Australia) in the global seaborne trade of iron ore.
Simandou is a world-class iron ore mining project. Since the Mining Concession was granted in 2006, Rio Tinto has spent more than US$650 million on exploration, environmental, community development and evaluation work necessary to develop a world-class mine.
The project currently employs more than 1,100 people in Guinea, including direct and indirect employees. The current mine, rail and port plan anticipates creating tens of thousands of jobs during the construction phase and more than 4,000 full-time jobs during the operational phase. The mine would be managed by Rio Tinto.
Once fully operational, the mine is expected to produce more than 70 million tonnes of high-grade iron ore annually.
The deal also continues the process of repairing its relationship with Rio Tinto’s biggest shareholder, Chinalco – coming a year after Rio Tinto walked away from a $US19.5bn alliance in favour of a rights issue and an iron-ore joint venture with BHP Billiton to pay down debt.
Under the terms of the agreement, Rio Tinto’s 95% interest in the Simandou project will be held in the new JV. Chalco will acquire a 47% interest in the new JV by providing US$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 US$1.35 billion, the effective interests of Rio Tinto and Chalco in the Simandou 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.
Both Rio Tinto and Chalco are keen to progress the project as soon as possible and are working with all stakeholders to expedite the process. The formation of the JV will be finalised in consultation with the Guinean Government and following satisfaction of various regulatory requirements.
The Guinean Government holds an option to buy up to 20% of the project and has recently expressed a willingness to exercise that option. Any interest acquired by the Guinean Government would proportionally reduce the effective holding in the project of Rio Tinto, Chalco and the IFC.
However, the relationship between Rio Tinto and the Government has been strained by past events, such as a ruling that stripped it of the northern section of area proposed for mining.
