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Rio Tinto’s (LON:RIO) Simandou iron ore development in Guinea is likely to miss its 2015 production target date by at least three years.
The Australian reports the partners on the ambitious $20 billion project – world number two miner Rio Tinto, China’s Chalco together with the World Bank – have signed a draft agreement with the government of the West Africa nation that calls for initial exports only by the end of 2018.
Rio Tinto is developing the southern part of the vast mountain deposit and has already spent more than $3 billion building open pits, but the scale and scope of the development has been placed in doubt by the fall in the price of iron ore and a looming supply glut.
At full production Rio’s Simandou mine would export up to 95 million tonnes per year – that’s a third of Rio’s total capacity at the moment.
A sticking point in the negotiations was the route and funding of a railway to get the Simandou area ore to port.
According to the newspaper the agreed plan calls for a new 700km railway across the country to the northern port of Conakry, Guinea’s capital.
Because of the economic benefit to Guinea this route was chosen in stead of a much shorter and cheaper railway proposed by holders of the northern part of the Simandou concession, BSG Resources and Brazilian giant Vale, to the deep Buchanan port in neighbouring Liberia to the south.
All work on the BSGR-Vale section has been halted amid an anti-corruption probe.
BSGR was awarded the rights days before the death of Guinea dictator Lansana Conté in 2008 after spending more than $160 million exploring the prospect.
Conté had not long before stripped the Simandou blocks from Rio Tinto, which had held the exploration rights since the 1990s.
In 2010 BSGR sold a controlling half of its concession to Vale for $2.5 billion, but after forking over the first half a billion dollars, the Rio de Janeiro company halted payments.
Rio Tinto in 2010 brought in Chalco for the project and in April 2011 struck a deal with the Condé government, paying $700 million and granting the government a 35% stake to resolve all outstanding issues.
Fellow Anglo-Australian miner BHP Billiton has decided to pull out of the country and is in the process of selling its stake in a nearby iron ore project called Nimba.
2 Comments
Steve
Does anyone believe this will actually proceed with Rio at the helm? They are just holding onto it to bulk up their reserves number. The economics of the project do not make sense.
Miner in Mauritania
Even more with the revision of mining code that doesn’t appear to change much in the substance……we pulled out of the country till they make up their mind.