Rio Tinto approves $ 1.3-bn investment on iron ore project in Guinea

Oct 21, 2011 12:00 AM

Rio Tinto, the world's second-largest mining company, is accelerating the development of the Simandou iron ore project in Guinea and has approved a further $ 1.328 bn to have the first shipment of ore rolling out by mid-2015.
The Anglo-Australian miner has approved spending $ 211 mm for continued studies and $ 1.117 bn for commitments for early works and procurement of long-lead items or heavy equipments that often takes long time to procure.

The added funding brings the total amount spent or committed to the project to $ 3 bn, including $ 700 mm paid to the Guinean government to secure the right to mine in two sections of the huge deposit. Of this amount, approximately $ 2 bn has been allocated to mine-related costs and $ 1 bn to infrastructure requirements.
The Simandou project is estimated to hold 2.25 bn tons of iron ore, and if developed, has the potential to become the world's third-largest mining area, after Australia's Pilbara and Brazil's Carajas.

Rio Tinto had earlier estimated the development cost at approximately $ 6 bn, which analysts now say is likely to be almost double that amount.
Currently, Rio Tinto subsidiary Simfer holds a 95-% stake and the International Finance Corporation (IFC), a member of the World Bank Group, holds the remaining 5 %. Last year, Rio Tinto and China's state-owned aluminum giant Chinalco signed a memorandum of understanding to form a joint venture, in which Rio Tinto's 95-% interest in Simfer would be transferred to the new JV.

Chalco will acquire a 47-% interest in the new JV by providing $ 1.35 bn on an effective ongoing earn-in basis. Once Chinalco has invested its $ 1.35 bn, the effective stakes owned by Rio Tinto and Chinalco in the Simandou project will be 50.35 % and 44.65 % respectively with the International Finance Corporation retaining its original 5-% holding.
Under the agreement, Chinalco will fund the ongoing development work over the next two to three years.

Rio Tinto settled a long-running dispute over Guinea's huge Simandou iron ore field, and as part of the April 2011 settlement, the government of Guinea has the right to take a stake of up to 35 % gradually over the next 20 years in the project, including 15 % at no cost.
As Guinea increases its stake in the Simandou project, the ownership of Rio Tinto, Chinalco and the IFC will be reduced proportionally.

Rio Tinto chief executive for iron ore and Australia Sam Walsh said, "This funding highlights Rio Tinto's commitment to honouring the settlement agreement reached with the government of Guinea in April this year, and maintains the rapid build-up of in-country infrastructure in order to deliver first shipments of ore by mid-2015.”
"Simandou is the best known undeveloped iron ore resource and one of the great greenfield mining projects worldwide. Development of this outstanding resource will create a major new iron ore producing province, on a par with the historic development of the Pilbara iron ore region in Australia."

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