The Chinese government is close to backing Rio Tinto’s newest mine in the heart of a remote African rainforest inhabited by endangered chimpanzees.
Rio, a global resources giant headquartered in Melbourne and London, expects to dig up 1.5 billion tonnes of iron ore over the next 26 years in Guinea’s Simandou mountains, a sensitive habitat for rare western chimpanzees. It’s on track to tap into the world’s largest high-grade iron ore deposit by 2025, stimulating the company’s future growth and expenses.
The Simandou mountains in Guinea contain high-grade iron ore.Credit: Rio Tinto
The deposit in south-eastern Guinea is shared between a number of Chinese state-owned enterprises, Rio’s Simfer consortium and the Guinea government. Rio has finally put a cost on the giant mine, saying it will spend $6.2 billion to galvanise its iron ore output and fund its share of the $US23.2 billion ($35.4 billion) project.
A Chinese railway builder, constructing the 600 kilometre border-to-border track needed for the ore to reach a deep water port on the Atlantic coast, was exposed two years ago for blasting explosives without plans to protect the apes and their habitat.
Chief executive Jakob Stausholm said the miner was keenly focused on the environment, sustainability and governance aspects of its Guinea operations. Rio has stepped up efforts to protect culturally and environmentally sensitive sites after the disastrous destruction of 45,000-year-old rock caves in Western Australia’s Juukan Gorge.
“We have come up with a solution around the mine that really takes into consideration ESG matters, protecting the rainforests with the chimpanzees. It actually leads to much higher cost, but we just have to draw a line and get these things right,” Stausholm said.
Production from Simandou at full capacity will reach 120 million tonnes a year. Rio’s share will be 27 million tonnes.
RBC Capital Markets analysts Tyler Broda and Kaan Peker said if the mine’s production begins in mid-2025 and fully ramps up by 2027, it will account for 6.2 per cent of forecast seaborne iron ore volumes.
“We already forecast sizeable long-term iron ore surpluses and the sanctioning of this project is likely to reinforce longer-term bearish iron ore outlooks,” they said.
The western chimpanzee is critically endangered.Credit: Getty
But Stausholm said iron ore mines around the world were running down reserves and Simandou’s output would be comfortably absorbed by steelmakers without affecting prices.
“It’s a different product from in the Pilbara [in Australia]. This is the highest grade iron ore on the planet. The only product that it goes into heads-on competition with is the iron ore from northern Brazil.”
The miner’s shares rose slightly in afternoon trade on the Australian exchange to $126.63.
Rio’s Chinese partners are likely to greenlight the project soon. “I do think we are pretty close to getting approval from the Chinese authorities. Sanction is imminent,” Stausholm said. The project still needs the go ahead from Rio’s board, China and Guinea.
The low-impurity ore extracted from Simandou has an average grade of 65 per cent and is suitable for electric arc furnaces, a form of green steelmaking that will significantly help Rio’s customers reduce their planet-warming carbon emissions, Stausholm said.
Rio told investors it was well-positioned to capture demand from the rush into commodities that will power the world’s decarbonisation and limit damaging global warming. Copper use, critical to the energy transition, is forecast to grow by 4 per cent year-on-year to 2035.
Rio said its capital expenditure would reach $10 billion a year over the next three years as it increased iron ore output. It lowered its decarbonising spending guidance to 2030, from $7.5 billion to between $5 billion and $6 billion, a consequence of deferring its electric fleet rollout and signing renewable power purchase agreements, an operating expense.
“The guidance changes will be, as it seems is customary for the mining industry at this time of year, negative,” RBC’s analysts said. Lower copper, titanium and Canadian iron ore production were likely to drive a modest downgrade, they said.
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