Rio Tinto Group (RIO), the world’s second-largest mining company, will fail to meet a targeted 2015 start date for production from the $20 billion Simandou iron-ore project in Guinea, according to the nation’s mines minister.
Rio agreed in 2011 that output would start from the mine, which it has described as the world’s largest untapped deposit of iron ore, within four years, minister Mohamed Lamine Fofana said today in London. “The reality is this cannot be respected, that’s why we are really in open discussions with Rio, taking into account the complexity of this project,” he said.
While Rio has had an interest in the ore-laden Simandou mountain since 1997, it’s yet to export any ore from the site, which has since attracted investment from Brazil’s Vale SA, Aluminum Corp. of China and Israeli billionaire Beny Steinmetz. Guinea today revealed the cost of the mining project had more than doubled from a 2011 estimate of $9 billion.
“We’re working hard with the government of Guinea on finalizing the investment framework, which is key to being able to develop this complex project,” Rio said today by e-mail, declining to comment on any changes to timing or cost. Talks include discussions on projected production dates, it said.
The West African nation’s minister of economy and finance Kerfalla Yansane said the country’s relationship with Rio was once fragile, and trust had since been rebuilt. Guinea plans to meet executives from London-based Rio from June 19 to 22 to discuss moving forward with the project, Fofana said.
The two sides are seeking to agree on investment, clarifying the government’s involvement in funding the construction of railways and a port. Rio has said it has already spent $2.3 billion at the site.
Rio said in April it was waiting for the government to secure its share of the financing. Fofana said today that the existing accord provides Guinea with the option, rather than an obligation, to offer funds.
The country’s former mines minister said in an April interview that Rio is unlikely develop the mine as Guinea struggles to fund the transport links. The project has been “effectively frozen” and will remain so for the foreseeable future, said Mahmoud Thiam, mines minister from 2009 to 2010.
“The Simandou project is not a simple project,” and all funding options will be considered, he said. “The best wish of the government is to have the Simandou mountain evacuated by the same infrastructure because this mutualization will reduce substantially the cost of investment by one mining company.”
The government said Rio has accepted its request that the rail line be open to other users. The nation is developing an “infrastructure master plan” for the most efficient transportation of its resources to coastal regions for export.
Guinea’s $5.1 billion economy is forecast to expand 3 to 5 percent this year. Growth may reach 10 to 15 percent in the future should Simandou be developed, Yansane said.
The rights to part of Simandou are at the heart of a U.S. probe into whether BSG Resources Ltd., the mining company controlled by Israel’s Steinmetz, paid bribes to win licenses. The government is continuing a formal review into the permits, Fofana said today.
BSGR acquired rights to part of the Simandou project in 2008 after Rio was ordered by the government to give up a section of its license area. BSGR sold 51 percent of its Simandou stake to Vale (VALE) in 2010 for $2.5 billion.
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