May 27 (Bloomberg) -- Rio Tinto Group, the world’s second-biggest mining company, agreed financial terms with the government of Guinea for a potential $20 billion iron-ore mine, port and rail project that may start by the end of this decade.
The accord will underpin talks with new investors for the rail and port component of developing the Simandou resource, Rio and its project partners Aluminum Corp. of China Ltd., International Finance Corp. and the government of Guinea said yesterday in a joint statement. The parties gave no commitment on when production will start.
Simandou is the world’s largest untapped iron-ore resource and Rio has estimated the mine could produce 100 million tons of the steelmaking ingredient a year. The project could double the West African nation’s current gross domestic product and add 45,000 jobs in the country, according to the statement.
The accord doesn’t commit Rio to building the project and analysts have said a legal dispute over the ownership of adjacent ground at Simandou could delay first production into the next decade. The agreement signed yesterday covers two of four mining permits for an ore-rich area in the southeast of Guinea.
“With transparent and fair deals, our mining sector has the potential to be a game-changer for Guinea,” President Alpha Conde said in the statement. “This project also represents a symbol of our continent’s tremendous efforts to meet its infrastructure challenges and build inclusive growth.”
The Guinea government has estimated that developing the project could cost $20 billion, including constructing rail links and harbor installations to handle the ore. Guinea will gain a 7.5 percent stake in the project when the so-called investment framework is ratified in parliament, it said.
The accord allocates a 3.5 percent royalty to the government on ore exported from Guinea. It also stipulates that the port and rail assets will be transferred to the government after 30 years. Once the agreement is ratified in parliament, Rio and its partners are required to complete a financing study to confirm costs and a timeline for development, the statement shows. The accord doesn’t call for any payments.
Rio dropped 0.6 percent to 3,239 pence in London trading by 9:35 a.m. after earlier advancing 0.4 percent in Sydney.
Rio last month sued Vale SA, Israeli billionaire Beny Steinmetz and his mining company, saying they conspired to steal rights to the other two licenses at Simandou in 2008.
Guinea in April revoked rights to half the project held by a venture of Vale and Steinmetz’s BSG Resources Ltd., who have denied any wrongdoing. Prior to 2008, Rio Tinto held rights to all four blocks at Simandou.
Rio has previously said it is seeking to start production by 2018. The London-based company owns 46.6 percent of the Simandou resource covered in the agreement, Chinalco 41.3 percent, Guinea 7.5 percent and IFC 4.6 percent.
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