Rio Tinto Limited sells stake in iron ore mine worth US$50 billion

Rio Tinto Limited (ASX: RIO) sells stake in Simandou iron ore mine to partner Chinalco

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Rio Tinto Limited (ASX: RIO) has announced plans to sell its Simandou iron ore project to China's Chinalco, the world's largest iron ore consumer.

Simandou, in Africa's Guinea, is estimated to be the world's largest untapped iron ore reserves with 2 billion tonnes of iron ore worth an estimated US$50 billion. Earlier this month, World Bank subsidiary the International Finance Corporation (IFC) announced it was selling its 4.6% stake in Simandou to partners Rio and Chinalco.

At that stage, Rio held a 46.6% stake, Chinalco 41.3% and the Guinea government holds another 7.5% of the project (totalling 95.4%).

According to Reuters, once fully operational, Simandou has the potential to double Guinea's annual GDP. But getting the project to the operational phase will be expensive. Because of its remote location, an estimated US$20 billion in funding will be required to construct the mine, 130 kilometres of roads and more than 600 kilometres of railway. That is because the Guinea government wants to use its own ports to ship the ore rather than using a shorter route to ports in nearby Liberia.

Rio has had trouble finding the finance to fund the project, and CEO Jean-Sebastien Jacques said in August, "There is no obvious way to take Simandou to the next phase."

Rio is expected to receive between US$1.1 and US$1.3 billion for the sale of its stake in the mine.

That outcome appears to be a good one for a number of reasons.

  • Rio doesn't have to come up with financing for the mine and can concentrate on its other operations including expanding production at the world's third-largest copper mine, Oyu Tolgoi in Mongolia.
  • Simandou has been plagued with allegations of bribery and corruption. Guinea is ranked 139 out of 168 countries and territories by Transparency International on perceived level of corruption.
  • The iron ore market depends heavily on the steel market – which is "chronically oversupplied" according to Reuters.
  • Iron ore prices have been rising, but many analysts expect prices to fall to more sustainable levels between US$40 and US$50 a tonne. The spot price is currently US$64 a tonne.
  • Even at current iron ore prices, funding for the project may be difficult to find.

In early trading, Rio's share price was 1.1% higher at $54.35, while fellow miners BHP Billiton Limited (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG) were up 0.5% and 1.3% respectively.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »