New hurdle at Rio’s stalled Simandou mine as Guinean minister issues stop work order
Work at Rio Tinto’s majority-held Simandou iron ore mine has halted after the Guinean government issued a stop work order.
Rio Tinto risks being stripped of its stake in the giant Simandou iron ore deposit after the Guinean government upped the ante in its high stakes game of brinkmanship.
It is the second dispute with the government of a country in which Rio has invested significant funds and has long-term plans, after Serbia in January revoked the miner’s licence to a planned lithium mine.
But despite a stop work order – and threats to remove both Rio and a Chinese-backed group from the project – it is not clear whether the Guinea’s threat to find alternative partners for the long-delayed project is credible or just a ploy to improve the commercial terms of its involvement.
At stake is a share in the multi-billion tonne high-grade deposit, said to be the best undeveloped iron ore project in the world.
Guinean mines minister Moussa Magassouba this week ordered a halt to all work at Simandou, and said the government is prepared to eject both Rio and the Chinese-backed Winning consortium from Simandou over a fresh row about the development of $US12bn ($17.7bn) worth of infrastructure needed to bring iron ore from the giant deposit to market.
Mr Magassouba said in an interview that Simandou would be developed “with or without” the involvement of the Rio and Winning, threatening to again look for new developers for Simandou.
“Sufficiently responsible financially and technically companies are waiting,” he said.
Separately, in a July 3 letter ordering a halt to further work at the project, Guinean authorities accused the two groups of “inertia” and of “obstructing” the development of the project.
Mr Magassouba said the latest dispute is centred around Guinea’s 15 per cent share in both the Simandou mining operations and also – importantly – in the jointly-developed port and rail infrastructure needed to carry the project’s iron ore to market.
While Guinean mining laws mandate the state retains a 15 per cent stake in the mining operations, Mr Magassouba said the two consortiums are at odds with the government over its stake in the infrastructure component of Simandou – a rail and port development that has long been a point of tension between Guinea and successive owners of the deposits.
The quickest route to port from Simandou would be through neighbouring Liberia, but Guinea has insisted its iron ore instead be transported along a 670km long railway line to its own ports – a decision that adds tens of billions to the cost of developing the deposit and has presented a major stumbling block to its development.
But the Guinean government has traditionally seen the transnational railway line as a nation building project, not just a transport route for Simandou ore, and previous administrations have viewed it as a way to open up other stranded deposits near Simandou itself, as well as a potential carrier for agricultural and other goods.
The government last ordered a stoppage of work on Simandou in March, to force the Winning and Rio consortiums to agree to jointly develop the infrastructure.
Negotiations over that agreement have broken down, leading to the latest acrimony. But the outcome of the process is expected to be a separate company – jointly owned by the government and the two consortia – that would own the infrastructure.
That structure throws up its own complexities, however, given the government says it wants its 15 per cent stake to be “free and non-dilutable” through to completion – particularly if it then wants to be able to take a share of profits made by the infrastructure company.
That is believed to be a major point of tension in the negotiations as it would force the two consortia to run the infrastructure arm as a profit-making company charging commercial tariffs, rather than simply operating the port and railway on a cost basis, a decision that would likely add to export costs from Simandou.
It would also lift the prospect of other parties being allowed to access the railway line – something Pilbara iron ore miners have fiercely resisted because it poses a major threat to the efficiency of the massive logistics chain needed to take hundreds of millions of tonnes of ore to port each year.
Disputes over freight and tariff rates have previously killed off proposals to build third-party rail lines in the Pilbara, last championed by Queensland coal hauler Aurizon in the dying days of the last iron ore boom, and sounded the death knell for the $10bn Oakajee port and rail project, once slated to open up a new iron ore district in Western Australia.
Neither Rio or Winning have made any public comments on the threats, and it is not clear whether they will yield to pressure to give ground on the terms of the agreement with Guinea’s government.
The Guinean government has previously said it wants to see Simandou export its first ore by 2025. But despite Mr Magassouba’s threat that other potential developers are waiting in the wings, any move to remove Rio and Winning would only further delay the entry of Simandou to the market.
It is also unclear who would be prepared to step in, given Winning is backed by major Chinese state-owned entities and was only granted its share of Simandou in 2019, after an open tender process run by Guinea’s government.
Rio chief executive Jakob Stausholm in May told the company’s annual meeting that he had not “given up” on the Serbian project, known as Jadar. “Quite frankly it’s a perfect project,” he said.
“We certainly understand the concerns of the local community, but it’s our belief that actually those concerns are very largely addressed by the environmental and impact assessments that we have carried out,” he said.
Rio has already spent about $US450m on work developing the massive deposit, which was to be the flagship of its growth strategy into the battery minerals sector.
The license cancellation came after significant local protests.