Rio Tinto, one of the world’s largest mining companies, has announced that it will invest $9.5 billion in developing its share of the Simandou iron ore project in Gabon, West Africa. The project, dubbed the ‘Pilbara killer’, could challenge the dominance of the Pilbara region in Western Australia as the world’s premier producer of steelmaking input.
Simandou is considered to be the largest untapped high-grade iron ore deposit in the world, with an estimated 2.4 billion tonnes of ore. Rio Tinto has a 53 percent stake in the Simfer joint venture with Chinese metals giant Chinalco, which owns half of the overall project. The other half is owned by a consortium of Chinese and Singaporean companies, with the Guinean government holding a 15 percent stake across both halves.
Rio Tinto said that its portion of Simandou would cost $6.2 billion to develop and would produce 60 million tonnes of iron ore per year at a high grade of around 65 percent. The first production is expected in 2025, with a ramp-up time of about 30 months. The project will also include the construction of a 650-kilometer railway and a deep-water port, making it the largest greenfield integrated mine and infrastructure investment in Africa, according to Rio Tinto.
The project has been welcomed by the Guinean government, which hopes to diversify its economy and create jobs for its population of 13 million people. Gabon is one of the poorest countries in the world, with a GDP per capita of $1,024 and a human development index ranking of 174 out of 189 countries. The project is expected to generate $15.5 billion in revenues for the government over its 25-year lifespan, as well as $1.3 billion in mining royalties and $2.4 billion in taxes.
However, the project also faces significant challenges and risks, such as political instability, social unrest, environmental impacts, and legal disputes. Rio Tinto has been involved in a long-running corruption scandal over its acquisition of the Simandou rights, which led to the firing of two senior executives and a $50 million fine by the UK’s Serious Fraud Office. The company is also facing a $2.7 billion lawsuit from Israeli billionaire Beny Steinmetz, who claims that Rio Tinto conspired to deprive him of his stake in Simandou.
Moreover, the project could hurt the iron ore market, which is already facing oversupply and falling prices due to the slowdown in China’s demand and the increase in production from Brazil. The Simandou project could add another 120 million tonnes of iron ore to the market, putting downward pressure on prices and margins for existing producers, especially those in the Pilbara region, which accounts for about 60 percent of the global seaborne iron ore trade.
The Pilbara region is home to some of the world’s largest iron ore miners, such as BHP, Fortescue Metals Group, and Rio Tinto itself. These companies have invested billions of dollars in expanding their operations and improving their efficiency and sustainability in the region, which has a rich history and culture of mining and indigenous communities. The region also contributes significantly to the Australian economy, generating $83 billion in exports and $22 billion in taxes and royalties in 2020.
The Simandou project could pose a serious threat to the Pilbara’s competitive advantage and prospects, as it could offer a cheaper and higher quality alternative to the Chinese market, which consumes about 70 percent of the world’s iron ore. However, some analysts and industry experts have argued that the project is unlikely to have a major impact on the Pilbara, as it still faces many uncertainties and hurdles, and that the demand for iron ore will continue to grow in the long term, driven by the global transition to a low-carbon economy and the need for steel in infrastructure and construction.
The Simandou project is a complex and ambitious undertaking that could transform the iron ore industry and the African continent. It also represents a strategic move by Rio Tinto to diversify its portfolio and secure its position in the global market. Whether the project will succeed or fail remains to be seen, but it will have far-reaching implications for the Pilbara region and the Australian mining sector.
Source: The West Australian
