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Rio's Simandou mine faces 3-year delay

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Rio's Simandou mine faces 3-year delay

Exports from Rio Tinto’s $US20 billion ($22.4bn) Simandou iron ore venture has been postponed for three years.

While the initial target was to start exporting in 2015, first exports have now been pushed back to the end of 2018, The Australian reported.

Rio Tinto and its joint partners, China’s Chalco and the World Bank, inked a draft deal with the Guinea government that outlines their goal of reaching a binding agreement by the end of 2013.

The draft outlines the finance and building of the 650 kilometre railway through Guinea to a port in Conakry, south of Guinea.

According to UBS analyst Glyn Lawcock, the Simandou venture’s worth would go down on the back of delays.

“If the project started in 2016, it would have an internal rate of return of 17 per cent – this would knock that back a little, but still in the mid-teens,” he said.

He said Rio partnering with Chalco and infrastructure builders meant the project was now less politically dangerous.

Resource nationalism and conflict over infrastructure funding were thought to be the main impediments for the project’s progress.

Rio had to pay $700 million in 2011 to keep the project. Under the deal the Guinean government can claim 15 per cent in the project at no expense.

Rio’s head of Simandou Alan Davies said in January the company could not proceed until funding issues were resolved. He dismissed claims the project had been frozen.

“The Simandou project is definitely not frozen and Rio Tinto continues to progress the project and is committed to its development. The current priority is finalising the investment framework and for the government of Guinea to secure its financing,” a company spokesman said.

Rio’s CEO Sam Walsh said the project partners and the government had decided the railway and port should be financed by a third party, meaning the government does not have to finance 51 per cent of the infrastructure.

He expects the details to be set by the end of next month, and passed through parliament by the end of the year.

Meanwhile, the Chinese government is examining financing the infrastructure, according to Bloomberg.

Simandou’s iron ore production could reach between 95 million and 100 million tonnes a year. Rio has the capacity to produce 237 million tonnes a year at its Western Australian Pilbara ventures.

“Rio Tinto continues to work constructively with the government and the Simandou partners to progress the investment framework and funding strategy for the Simandou project in line with the settlement agreement in 2011,” Rio’s spokesman said earlier this month after the company published its first-half profit report.

Australian Mining reported on West Africa’s untouched resources and asked whether it is the new Pilbara.

As per Vale, Guinean iron ore projects are deemed “one of the best underdeveloped iron ore deposits in the world in terms of size and quality”.

WA Premier Colin Barnett is looking to work with the African governments to boost their mining sector.

He is looking at signing formal deals with Africa’s trading blocs and sending experienced public servants from WA to collaborate with government officials in Africa.


 

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