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Rio to consider potential Guinea offering

Rio Tinto (ASX: RIO) has a poor history of acquisitions and management of projects but – this time – it wasn’t their fault.

In the West African country of Guinea, Rio has held onto licences for its huge Simandou iron ore deposit for 13 years, but in 2006 it was was stripped of half its mine. Blocks numbered 1 and 2 were taken and given to BSG Resources (owned by Israel billionaire Beny Steinmetz), which has left many questions to be answered.

The Guinean and U.S. governments have begun criminal investigations into the sale of the blocks but both BSG and Steinmetz have argued it was legal and say they would defend their actions in court. BSG President Asher Avidan said, “Rio is not interested in developing these assets, they want to prevent others from doing so in order to maintain a competitive advantage.”

Rio CEO Sam Walsh said that if the lots became available he would be interested. Rio is in talks with the Guinean government to move the project from its settlement agreement and into an investment framework. Rio paid $700 million to the government in 2011 when it signed the agreement and gave it a 35% stake in Rio’s Simandou mine and a 51% stake in the port and rail infrastructure. It has been estimated the project could possibly cost up to $20 billion to develop.

Foolish takeaway

Iron ore companies such as Rio, BHP (ASX: BHP) and Fortescue (ASX: FMG) have risen in share price in recent weeks, buoyed by a resilient iron ore price. However it is unlikely to last, with many commodities analyst’s predicting downwards pressure to be put on the spot price thanks to oversupply and weak demand from China. This Fool is steering clear of iron ore stocks and is instead looking for companies with huge growth potential and high yields.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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