China Said to Mull Funding Rail for Rio’s Simandou Iron Project

China has begun looking at funding a railway and port that would service Rio Tinto Group’s Simandou iron project in Guinea and cost more than $10 billion, said four people with direct knowledge of the matter.

The agency overseeing companies owned by China’s central government has gauged interest from state rail and port builders and also contacted China Development Bank Corp. about providing financing, said the people, who asked not to be identified as they weren’t authorized to speak publicly about the matter.

Guinea’s inability to fund the rail line from its coast to Simandou, described by Rio as the world’s largest untapped deposit of iron ore, has “effectively frozen” the project, former mines minister Mahmoud Thiam said in April. State-owned Aluminum Corp. of China Ltd. paid $1.35 billion for a 44.65 percent stake in the project in 2010 as part of the nation’s bid to secure the resources needed to fuel its economy.

The Guinea government currently has an obligation to finance 51 percent of the 650-kilometer (400-mile) railway and port, which President Alpha Conde said in June the nation was willing to pass to another party. Rio Chief Executive Officer Sam Walsh said at briefing in London last week that the world’s second-largest miner reached an agreement with Guinea that would allow a third party to fully fund the transport links.

State Companies

China’s State-owned Assets Supervision & Administration Commission is speaking to companies about the railway and port project, the people said. It wasn’t clear which companies had expressed interest, they said. Guinea has said it isn’t able to fund the transport links and Rio has said it won’t provide any additional money for the project, the people said.

Alkhaly Yamoussa Bangoura, mines adviser to Guinea’s president, said by telephone yesterday that China was involved in the project when ask if funding for the rail link may come from the nation. He declined further comment.

Rio, which has had an interest in the ore-laden Simandou mountain since 1997, has yet to export any ore from the site. Guinea ordered the miner to give up part of its license area in 2008, leaving Rio with control of blocks 3 and 4. BSG Resources Ltd. acquired rights to the sections Rio lost and then sold a 51 percent stake in that area to Vale SA in 2010 for $2.5 billion.

Aluminum Corp. of China Ltd., known as Chalco, signed an agreement in July 2010 to form a venture with Rio for development of its section. Under the agreement, Rio’s 95 percent stake in the project was placed into the venture. Chalco paid $1.35 billion for 47 percent of the unit, thereby giving it an effective 44.65 percent interest in the mine and Rio a 50.35 percent stake.

— With assistance by Steven Yang

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE