Following years of delays, Rio Tinto has announced it is close to finalising a $US20bn deal which will see the development of its massive Simandou project in the West African nation of Guinea.
The project is set to be the largest in Africa’s history, and according to Rio Tinto chief Sam Walsh, would see billions added to Guinea’s annual revenue through income tax and royalty payments.
"When fully operational, the annual economic contribution of Simandou to the Guinean economy is estimated to be $US7.6bn – that's 22 times the US$340m in international aid contributions to Guinea in 2012," Walsh said.
"It would be fair to say that this represents a new paradigm for Guinea."
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 said the project would create more than 45,000 jobs throughout the economy.
The $US20bn project will include a 650 km railway to carry iron ore from the Simandou mountain range to a yet-to-be constructed deep-water port on Guinea’s Atlantic coast.
Walsh said a formal investment framework with project partners Chalco, the World Bank and the government of Guinea was set to be signed last this month.
Rio and its partners will now look to sell the idea of helping build the rail and port aspect of the project to a “consortium of investors”.
President of the Republic of Guinea Alpha Condé said with a massive infrastructure investment, the project is of critical importance for the people of Guinea.
“It’s a nationwide priority that goes beyond the mines and far beyond our generations,” Condé said.
The deal will have to be ratified by parliament, and will hand the Guinea government a large stake in the project of 35 per cent over the next 20 years.
The announcement overnight is a clear sign of Rio’s continuing faith in iron ore, and sends a strong signal that the project could finally go ahead after years of turmoil.
Resource nationalism and conflict over infrastructure funding were have been the main impediments for the project’s progress.
Meanwhile block 1 and 2 of the Simandou ore body remained hotly contested.
Originally owned by Rio, the concessions were given to BSG Resources (BSGR), a firm controlled by Israeli billionaire Beny Steinmetz, which in turn sold half its rights to Brazilian miner Vale.
However the Guinea government last month revoked the mining leases amid claims or corruption and bribery, to which BSGR strongly denies any involvement.
In the wake of this rescinding of licences, BSGR has begun arbitration with the International Centre for Settlement of Investment Disputes against the Government of Guina and its president, Alpha Conde.
Meanwhile, Rio has filed a legal complaint against Vale and BSGR for the loss of the licences in the first place.
Rio Tinto claims that the defendants stole the mining rights for Simandou blocks 1 and 2 in 2008 and later entered an agreement with Vale who had already obtained propriety knowledge, after Rio spent more than a decade and hundreds of millions of dollars in developing the site.
In its filed complaint, Rio stated that negotiations between it and Vale started in 2008, and Rio provided the information regarding Simandou. It stated that “as Vale quickly surmised, gaining control of the Simandou deposit would strengthen Vale's position in the world's high-grade iron ore market, since the only other comparable source is Vale's own Carajas Iron Ore Mine in Brazil”.
Vale had denied any claims of wrongdoing.