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Rio Tinto (ASX: RIO) announced Wednesday it has reached an agreement with the government of Madagascar on future fiscal arrangements for QIT Madagascar Minerals (QMM) and renewed their partnership for its sustainable operation.
QMM extracts ilmenite – an industrial whitener – from mineral sands near the town of Taolagnaro. QMM is 80% owned by Rio Tinto and 20% owned by the Madagascar government.
Last year, at its annual general meeting in London, investors questioned Rio repeatedly about the Madagascar mineral sands operation after a 2019 study found water downstream contained high concentrations of uranium and lead, potentially endangering local residents who depend on a nearby lake and river for drinking water.
QMM had to release water from the mine site into the surrounding environment due to unusually heavy rainfall in the first months of 2022. Dead fish were found after the water release, but the company’s tests on the fish found no signs of toxicity or contamination with heavy metals.
Madagascar media reported that communities living near QMM had protested at a nearby town hall and that the water ministry was investigating the water release.
Chairman Simon Thompson said at last year’s AGM that Rio was planning a water treatment plant and developing clean water projects for the communities around the mine.
The miner has invested $1 billion in QMM since the first agreement in 1998. While the agreement remains in place for the duration of QMM’s mining activities, the fiscal component was subject to renegotiation after 25 years.
The new agreement will enhance the benefits received by the people of Madagascar and support a sustainable future for the QMM mine, providing certainty for Rio Tinto on the fiscal arrangements, the company said.
Under the terms of the agreement, there will be an increase in the royalty rate from 2% to 2.5%, and QMM will issue its first dividend to the government of Madagascar in 2023.
A $12 million dividend will be invested by the government in the 109-kilometre rehabilitation project of the National Road 13 (RN13). Rio Tinto will also contribute up to $8 million to the road. The project will bring significant improvement to the region by facilitating the movement of people and critical supplies to hard-to-access areas.
Rio Tinto has agreed to cancel $77 million in advances made to the government of Madagascar to finance their funding of QMM. The state will now hold a 15% free carry ownership of QMM and maintain its 20% voting right, with no obligation to contribute to capital funding or exposure to dilution.
QMM will also increase support for local communities by doubling its annual contribution to fund programs of interest.
“Rio Tinto is committed to the responsible development of its mineral sands extraction business in Madagascar,” Rio Tinto iron and titanium managing director, Sophie Bergeron said in the statement.
“This agreement is a significant milestone to support a long-term future for QMM and reaffirms our commitment to provide increased benefits for all parties, including the communities of Madagascar.”
