Guinea to Exercise Option to Buy Stake in Rio's Simandou Iron-Ore Project

Guinea said it will exercise a right to buy a fifth of Rio Tinto Group’s Simandou project, described by the company as the world’s top undeveloped iron-ore deposit, as a dispute over ownership of the West African site escalates.

The government sent a letter yesterday to Rio, the world’s third-largest mining company, informing the producer of plans to take the stake in blocks 3 and 4 of the site, Mines Minister Mahmoud Thiam said in an interview in Conakry. Rio’s London- based spokeswoman Faeth Birch declined to comment today.

Rio controlled the concession until the state ordered it to hand over blocks 1 and 2 in December 2008 to closely held BSG Resources Ltd. In April, Brazil’s Vale SA, the world’s biggest iron-ore exporter, agreed to pay $2.5 billion for deposits in Guinea including those confiscated from London-based Rio.

Guinea has an option to buy 20 percent of the project, Rio said in a March statement, adding it had spent $600 million in pre-development work at the site. That month Aluminum Corp. of China agreed to pay $1.35 billion for 44.65 percent of the site. Any acquisition by Guinea would proportionately reduce the interests of other holders, Rio said at the time.

Rio fell 2.5 percent to 3,304.5 pence by 10:57 a.m. in London trading, valuing it at 76 billion pounds ($114 billion).

The company sent a “very arrogant” letter to Guinean President Sekouba Konate about Simandou that Konate “did not like,” Thiam said yesterday. Rio must respect its obligations in the country or risk losing its mining license, he said.

The company has always maintained “firm rights to the entire mining concession that was granted based on the 2003 Mining Convention between Rio Tinto and the government,” it said yesterday in an e-mailed statement.

To contact the reporters on this story: Alpha Camara in Conakry at acamara4@bloomberg.net; Jesse Riseborough in London at jriseborough@bloomberg.net

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