Rio Tinto (ASX, LON,NYSE: RIO) is suddenly in a rush to develop the giant and controversial Simandou iron ore project in Guinea, as half-year earnings support an investment case for the steel-making material.<\/p>\n
Iron ore took, once again, the lion\u2019s share of the second-biggest miner\u2019s profits for the six month to June 30<\/a>. The commodity has defied predictions for a fall, climbing 19% this year to above $110 a tonne on the back of strong Chinese demand and supply disruptions in Brazil.\u00a0<\/p>\n \u201cUnder all scenarios Simandou will be developed, with or without Rio Tinto,\u201d chief executive Jean-S\u00e9bastien Jacques told Bloomberg News. \u201cThere is a huge incentive for the Chinese to make it happen now,\u201d he said, referring to the industrial activity increase in the Asian giant.<\/p>\n Beijing is actively pushing forward with the project and a decision should come soon, sources familiar with the process told MINING.COM.<\/p>\n The state-owned Assets Supervision and Administration Commission (SASAC), which oversees the largest government-owned enterprises in China, is currently fine-tuning details. That includes how the project will be funded, the sources added.<\/p>\n Jacques noted the company has been working with its Chinese partners to try determining the costs of developing their half share of Simandou.<\/p>\n The deposit is comprised of four blocks. Blocks 1 and 2 are controlled by a consortium backed by Chinese and Singaporean companies<\/a>. \u00a0Rio Tinto owns 45.05% of Blocks 3 and 4, with China\u2019s Chinalco holding a 39.95% and the Guinean government a 15%.<\/p>\n For over a decade, it seemed that Guinea\u2019s 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.<\/p>\n In 2008, one of Guinea\u2019s former dictators stripped Rio Tinto\u2019s rights over two of the four blocks the deposit had been divided on and handed them to Israeli billionaire Benny Steinmetz\u2019s BSG Resources (BSGR).<\/p>\n The world\u2019s No. 1 iron ore 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.<\/p>\n That deal came under scrutiny in 2016, forcing the company to fire two senior managers<\/a> 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\u2019s Serious Fraud Office<\/a>.<\/p>\n Several investigations over bribery<\/a> and corruption<\/a> followed, until a settlement between Steinmetz and Guinea was reached<\/a> early last year, ending the bitter and long-dragged out dispute involving Rio Tinto, Vale and BSGR.<\/p>\n As part of the agreement, Steinmetz\u2019s company agreed to walk away from the asset, but retained the right to mine the smaller Zogota deposit<\/a>.<\/p>\n Simandou could dampen iron ore prices once it reaches full production. The deposit is not just massive \u2014 it holds two billion tonnes of iron ore \u2014 but the output is expected to have some of the highest grades in the industry.<\/p>\n Developing the rich ore under a jungle-covered mountain range presents additional challenges.<\/p>\n The financial burden of building a 650-km (400-mile) railroad stretching across Guinea to ports has always been a roadblock for developers. Estimates peg the cost at as much as $13 billion. With Chinese funding, the project becomes much more feasible.<\/p>\n China\u2019s resource dependence on Guinea has increased in recent years. In 2017, Beijing agreed to loan President Cond\u00e9\u2019s administration $20 billion over almost 20 years in exchange for bauxite concessions.<\/p>\nDisputed riches<\/strong><\/h2>\n
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