Rio Tinto shelves $US20bn Simandou iron ore project
Rio Tinto is walking away from a $US20bn deal to develop the world’s biggest untapped deposit of iron ore.
A $20 billion project to develop the world’s biggest untapped deposit of iron ore has been shelved by Rio Tinto, in the latest twist in a long-running and contentious saga.
Simandou, in Guinea, has more than two billion tonnes of iron ore, and the colossal scheme has the potential to double the size of the west African country’s economy.
But Jean-Sebastien Jacques, who starts work today as chief executive of Rio Tinto, has told The Times that the enormous cost of developing the mine could not be justified in an iron ore market that is suffering from huge overcapacity.
Mr Jacques’s comments mark an abrupt change in tone from his predecessor, Sam Walsh, who had repeatedly insisted that the mine would be developed.
The move risks exacerbating relations with the Guinean government, which has responded by saying it would not let the project be derailed by “a global agenda that actually has nothing to do with the project economics”.
ASX-listed Rio Tinto shares had jumped by 1pm (AEST), gaining $3.58 per cent to $47.72 against a 0.31 per cent rise in the benchmark index.
The Simandou project has become a notorious example in the mining industry because of accusations that a rival of Rio Tinto corruptly gained control of half the concession. The accusation, which was upheld by a review by the Guinean government but denied by the company, has led to criminal inquiries and several civil court actions.
Mr Jacques said: “We’ve been very clear that it’s a very expensive project. We did deliver the BFS (bankable feasibility study) to the government as per the agreement a few weeks ago and we’ve been very clear that in the current market environment we don’t see a way forward in relation to Simandou.
“We’ve been absolutely on record on this one. It’s not the right time to develop this project from a Rio standpoint. The other stakeholders might have different perspectives on this one.”
Rio (RIO) has written off the entire value of the project on its balance sheet but said in February that the “accounting measure” had no impact on its commitment or the timing of the project.
Rio was granted the rights to explore the mountainous Simandou area in 1997. It was stripped of the northern half of the concession in 2008, ostensibly amid Guinean frustration at the length of time it was taking to develop the mine. The northern part of the concession was granted to BSG Resources, a mining group controlled by Beny Steinmetz, an Israeli diamond tycoon.
A government review found that BSG had bribed the wife of the Guinean dictator at the time to win control of the concession. It later sold half of its concession to Vale, the Brazilian giant, at a huge profit. BSG has always denied wrongdoing. The case is also the subject of a US criminal investigation.
Mr Jacques said that investing in Simandou was not top of Rio’s list of priorities: “The market conditions in iron ore are clear — there is overcapacity in the marketplace. So when you look at the capital intensity of the project and the current iron ore market conditions, the alignment of stars is not the right one from our perspective.”
A Guinean government official said: “We expect Rio Tinto to stick to its commitments in the investment framework. We are confident that a funding solution will be found with our partners based on a long-term perspective without delaying the project.
“We have had confirmation, as part of the BFS, from a reputable independent firm, that Simandou will be potentially, ‘in terms of cost competitiveness, the fifth most profitable iron ore mine in the world by 2025’.
“We expect all stakeholders to share our long-term view. Guinea will not let the Simandou project be driven by a global agenda that actually has nothing to do with the project economics. The (capital expenditure) is indeed a challenge, but we will overcome it.”
The Times
