Rio Tinto restarts Simandou iron ore project

UK-Australian mining firm Rio Tinto has resurrected plans to develop its high-grade Simandou iron ore project in Guinea and raised the prospect of a joint venture with Chinese consortium SMB-Winning, putting pressure on Rio Tinto's rivals in the Pilbara region of Western Australia.

Rio Tinto has done very little work on its block 3 and 4 tenements in the Simandou region since writing $1.8bn off the value of the project in 2016 and allowing a non-binding agreement to sell its 44.05pc controlling stake to China's Chinalco to lapse in 2018. But with iron ore prices above $100/t and a trend towards increased demand for higher-grade ores, such as those held at Simandou, the firm is restarting work on project, including looking at a joint venture with SMB-Winning to fund the infrastructure required.

The SMB-Winning consortium comprises Chinese aluminium producer Shandong Weiqiao, China's Yantai Port, transport and logistics company UMS International, and Singapore's Winning Shipping. It beat Australian iron ore producer Fortescue Metals to secure the rights to develop blocks 1 and 2 of Simandou last year.

Simandou, which is estimated to contain 2bn t of iron ore, requires a 650km railway across Guinea and a deepwater port on the country's coast to be constructed, and Rio Tinto chief executive Jean Sebastian Jacques thinks that a joint venture with SMB-Winning to develop this infrastructure may make sense. The time has come to look at the economics of the project again, Jacques said.

The prospect of Simandou bringing over 100mn t/yr of high-grade iron ore into the seaborne market is already affecting the strategies of large Pilbara iron ore mining firm BHP, which will focus on cost reduction and reliability rather than expansion.

At an average grade of 65pc Fe the Simandou fines and lump would be able to attract a significant premium to the 60-62pc Fe ore shipped from the Pilbara, and the premium could be set to increase as steelmakers look to higher-grade feed to reduce pollution and increase efficiencies.

Argus last assessed the 62pc Fe price at $123.45/dry metric tonne (dmt) cfr Qingdao on 28 August, down slightly from a recent high of $128.60/dmt on 20 August. It assessed the 65pc Fe price at $135.05/dry metric tonne (dmt) cfr Qingdao on 28 August, down slightly from a recent high of $137/dmt on 20 August.

Chinalco owns 39.95pc of the Rio Tinto-controlled blocks 3 and 4 at Simandou and the government of Guinea owns 15pc.

By Jo Clarke