Chinese reportedly eye stake in ‘Pilbara-killer’ Simandou iron ore deposit
The giant ‘Pilbara-killer’ Simandou iron ore deposit in Guinea could be closer to development.
The giant “Pilbara-killer” Simandou iron ore deposit in Guinea could be closer to development, amid reports Chinese steelmaking giant Baowu is preparing to take a stake in its proposed $US20bn ($30.2bn) development.
Chinese media outlet Caixin said on Tuesday Baowu would lead the acquisition of the stake held in one half of the deposit by China’s Chinalco, the long-term partner of Rio Tinto in Simandou’s development.
The report said Baowu could be joined in the project by other Chinese state-owned majors, including Shougang Group and China Minmetals Corp, with the consortium seeking to raise $US6bn to fund its share of the development.
Chinalco owns 40 per cent of blocks 3 and 4 of Simandou, with Rio Tinto holding 45 per cent and the Guinean government controlling 15 per cent.
Earlier this month the Guinean government ticked off on an early-stage plan for the development of the other half of the deposit, currently controlled by China-backed consortium SBM-Winning, which beat Fortescue Metals for the right to its development last year.
Caixin did not cite any of the sources of its information, and none of the companies it listed have yet made public disclosures to shareholders.
But the suggestion builds on reports from China in late 2019 saying China’s state-owned Assets Supervision and Administration Commission, which oversees investments made by the biggest government-owned enterprises, was preparing to give the go-ahead for investment in Simandou, where the required capital to build a mine and 650km railway line is tipped to top $US20bn.
Simandou is seen as the best undeveloped iron ore deposit in the world, containing more than 2 billion tonnes of the steelmaking material grading at 65 per cent iron, and is tipped to produce 90-150 million tonnes a year if fully developed, up to 14 per cent of China’s current iron ore needs.
Pilbara producers BHP and Fortescue have long feared the entry of Simandou into the market as it would push the Australian product down the quality pecking order compared to African and Brazilian product.
Wood Mackenzie metals and mining vice-chairman Julian Kettle said he believed Chinese backing for Simandou was almost inevitable, even leaving aside current tensions between Beijing and Canberra, to reduce the market dominance of Rio, BHP, Vale and Fortescue. “Simandou is always an interesting one, because as soon as you get to $US75 a tonne you can justify Simandou,” he said.
“I think the Chinese will do it, just to reduce the dominance of the big four. Just to have something in their card deck to say ‘we’ve got 100 million tonnes here’ — at least at the margin it provides them with a bit of negotiating power. China needs Simandou to provide that alternative supply and reduce” big four dominance.
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