China is close to granting approval to some of its biggest
state-owned companies to start developing the northern area of Simandou, one of
the world’s largest untapped iron ore deposits in Guinea, sources familiar with
the process said on Thursday.
A joint venture between Guinea’s Société Miniere de Boke (SMB) and Singapore’s Winning International Group, whose investors include Chinese aluminium producer Shandong Weiqiao and the Yantaï Port Group, secured in November rights to an area of the massive iron deposit, under Guinea’s mountainous jungle.
But the partners have been unable to proceed as they need the official go-ahead from China’s State-owned Assets Supervision and Administration Commission (SASAC), which oversees the largest government-owned enterprises.
The prospect of seeing Simandou coming online within five years is seen as a threat by the world’s top iron ore producers.
For over a decade, it seemed that Guinea’s crown jewel
deposit would never be mined, as it was caught up in wrangles between companies
that held rights to it and authorities in the West African nation.
In 2008, one of Guinea’s former dictator stripped Rio
Tinto’s rights over two of the four blocks the deposit had been divided on and
handed them to Israeli billionaire Benny Steinmetz’s BSG Resources (BSGR).
The world’s No. 2 miner was able keep the two southern blocks,
but only after paying $700 million to the government in 2011. That guaranteed Rio
tenure for the lifetime of the Simandou mine.
That deal came under scrutiny in 2016, forcing the company
to fire two senior managers over a questionable $10.5
million payment made to a consultant who helped the company secure the two
blocks and alerted authorities, including the US Department of Justice and
the UK’s Serious Fraud Office.
Several investigations over bribery and corruption followed, until a settlement between Steinmetz and Guinea was reached early last year, ending the bitter and long-dragged out dispute involving Rio Tinto, Vale SA and BSGR.
As part of the agreement, Steinmetz’s company agreed to walk away from the asset, but retained the right to mine the smaller Zogota deposit.
Major new source
The prospect of seeing Simandou coming online within five
years is seen as a threat by the world’s top producers of the steelmaking
material. The deposit is not just massive — it holds two billion tonnes of iron
ore — but the quality the expected output will have some the highest grades in
the industry.
China is actively pushing forward with the project and a
decision should come “any time” as SASAC is fine-tuning details, including how
the project will be funded, the sources said.
Chinalco will be involved in the development, but SASAC is also
reaching out to other state-owned companies about building a port and a
650-kilometer (400-mile) railway.
Rio Tinto holds a 45% stake in blocks three and four of
Simandou, which it is actively planning to develop. State-controlled
Chinalco owns 40% and the Guinea government 15%.
Both companies are said to be trying to persuade authorities
to let them use ArcelorMittal’s railway to a port in neighbouring Liberia.
China’s resource dependence on Guinea has increased in
recent years. In 2017, Beijing agreed to loan President Condé’s administration
$20 billion over almost 20 years in exchange for bauxite concessions.
Analysts say Guinea’s population has so far seen little benefit from Chinese investment.
(With files from Bloomberg)