Rio, Guinea sign off on structure for Simandou infrastructure
Simandou back on track as partners and government sign off on infrastructure company to build and own port and rail.
Rio Tinto has finalised the corporate structure for the port and rail infrastructure for the massive Simandou iron ore mine in Guinea, paving the way for work to resume on the deposit.
The agreement creates a path for construction of the giant Simandou iron ore deposits, as well as the massive 600km railway and port infrastructure needed to get its high-grade ore to market.
The government of Guinea had previously issued a stop work order to both the Rio-led syndicate developing one half of Simandou and the Chinese-backed Winning syndicate that controls the other half, amid wrangling over how ownership of the infrastructure portion of the development would be structured.
On Thursday Rio said the three groups had incorporated a new company in Guinea, La Compagnie du TransGuinéen (The TransGuinean Company), as its ownership vehicle.
“It has been fully registered and established in Guinea and is intended, following negotiation of definitive tripartite entity arrangements, the company will be the central structure for the co-development of the rail and the port components of the Simandou iron ore development project,” Rio said on Thursday.
The establishment of the company, and the ownership structure, represents a significant step forward for the project and is a clear sign tensions with the government of Guinea have eased.
But Rio said the details of how the company will operated are still to be thrashed out in ongoing negotiations with Guinea‘s government and its partners.
“Following the incorporation of the joint venture, the parties will now work on next steps including shareholding agreement, finalising cost estimates and funding, and securing all necessary approvals and other permits and agreements required to progress the co-development of infrastructure,” Rio said.
Rio indicated that at least one earlier point of tension had been resolved, however, with agreement seemingly reached that the rail line will be open for the transport of other goods, and perhaps even the use of other mining companies hoping to operate along its 600km corridor.
Rio copper boss Bold Baatar – who is also in charge of Simandou – said the corridor “presents a significant opportunity for the economic growth of the Republic of Guinea, in addition to the mining activities it will support.”
“It is also a very important moment for Guinea and for Guineans, for whom the project‘s southern infrastructure corridor has the potential to bring significant benefits for regional economic development by leveraging international project and ESG standards,” he said.
Speaking after Rio released its half-year financial results on Wednesday, ahead of the announcement that a Simandou deal had been reached, Rio chief executive Jakob Stausholm told The Australian his only “red lines” during negotiations was that Rio would have an ownership stake in the port and rail infrastructure, and that it be built in accordance with the “highest ESG standards”.
Mr Stausholm played down recent tensions with the Guinean government, saying it was best to get disagreements out of the way early in the process.
“We just need to be sure that all parties are comfortable, and sometimes difficult discussions might actually make the execution much better, because it‘s so important that we all understand what we’re trying to achieve – and particularly what are the needs of the people of Guinea and the government of Guinea,” he said.
Rio has not put a figure on the likely capital cost of Simandou, but chief financial officer Peter Cunningham said on Wednesday its likely spending on the project was included in Rio’s capital guidance spending figures of about $US3bn a year over the next three years on growth projects.
But ongoing discussions might be complicated given the complex structure of the ownership arrangements for both the rail infrastructure and the two Simandou deposits.
The Rio-led consortium – Simfer Jersey Ltd – will own 42.5 per cent of the new infrastructure entity, as will Winning’s consortium. The government of Guinea will hold 15 per cent, and will not be required to kick in for its construction costs under a “free carry” arrangement.
Rio Tinto owns 53 per cent of Simfer Jersey, with a Chinalco-led joint venture of Chinese state-owned entities – including Chinalco (75 per cent), Baowu (20 per cent), China Rail Construction Corporation (CRCC) (2.5 per cent) and China Harbour Engineering Company (CHEC) (2.5 per cent) – the rest.
The Winning Group is a consortium led by Singapore’s Winning International Group, with other shareholders including China Hongqiao Group and Guinea’s United Mine Supply Group.
The government of Guinea also owns 15 per cent of each half of the Simandou deposit.
Rio shares were down $1.42 to $95.56 at midday.
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