Rio Tinto Limited (ASX: RIO) is Australia's biggest and the world's second largest iron ore miner. It has iron ore operations stretching from Canada to the Pilbara in Western Australia and soon, it seems, its global presence will extend to Africa.
Although Rio already has some of the highest grade low-cost iron ore projects in the world, the miner's long-awaited Simandou project looks to be nearing a significant milestone. Rio Tinto CEO Sam Walsh said he expects an investment framework to be signed within a month: "Later this month, we expect to sign the investment framework that formalises our partnership with the government of Guinea, Chinalco and the IFC [International Finance Corporation]."
This is great news for Rio shareholders and the people of Guinea because it will enable Rio and its partners to put the project's proposed commercial and legal design before the Guinean parliament for ratification. Once approved, construction can begin and according to Mr Walsh, should take about five years to reach first production.
The Simandou project is believed to be the world's largest untapped high grade iron ore deposit. Rio estimates it will have a production run rate of 100 million tonnes per year and a 40-year mine life, contributing around $US7.6 billion to the local economy (more than it receives in aid payments in one year) and, after an income tax "holiday" it will pay $US1.2 billion in royalties and taxes.
Rio currently holds 50% of the rights to two of four Simandou blocks along with joint venture partners Chinalco (45% ownership) and the World Bank's International Commission (5% ownership). However as part of the agreement made with Rio, the government could, if it chooses, take 15% ownership free of charge, or as much as 35% with an investment.
Troubled past, bright future
Rio held all the Simandou blocks for many years and has already spent $US3 billion on the project. However, originally two of the four Simandou blocks were stripped from Rio by former Guinean Dictator Lansana Conté. It also had to contend with unusual business practices which resulted in Rio suing iron ore heavyweight Vale (NYSE: VALE) in a US court.
Nevertheless if the investment framework is signed and passed by the Guinean parliament, Simandou could be operational by the end of this decade and bring a huge amount of economic benefits for all its stakeholders and the people of Guinea.
