After almost three decades of challenges, Rio Tinto announced it has received all necessary regulatory approvals to begin construction on the Simandou iron ore project in Guinea. The project, co-developed with a Chinese consortium, is poised to become the world’s largest and highest-grade new iron ore mine, adding around 5% to the global seaborne supply once operational.
Rio Tinto first secured an exploration license for Simandou in 1997. Since then, the country has experienced two coup d’états, four heads of state, and three presidential elections. The prolonged political instability contributed to the project’s delays, but Rio Tinto now seems ready to move forward.
The Simandou project involves constructing a 552km rail line to transport high-grade iron ore from two new mines in the Simandou mountains to a new deep-water port on Guinea’s Atlantic coast. This infrastructure is crucial for getting the iron ore to international markets.
Rio Tinto holds a 53% stake in the Simfer joint venture, which controls two of the four Simandou mining blocks. The other partner, China’s Chalco Iron Ore Holdings (CIOH), holds the remaining stake. The other two blocks will be developed by a second consortium led by Baowu, the world’s largest steel producer, in partnership with Singapore-based Winning International Group.
The estimated cost to develop the Simandou project is about $11.6 billion. Rio Tinto’s annual capital investment from 2024 to 2026 is pegged at around $10 billion, with most of this allocated to Simandou as spending winds down on the Oyu Tolgoi project in Mongolia.
CIOH has already fulfilled its financial obligations by making two payments for its share of capital expenditures. The first payment of around $410 million, covering expenses up to the end of 2023, was made on June 28. The second payment of about $575 million, for 2024 expenditures, was made on July 11. These payments cover all expenses incurred to date.
The project has faced delays over the past 27 years due to legal disputes, local political changes, and the challenges and expenses of building a 552km rail line and a port. However, with financial commitments secured and regulatory approvals in place, construction is set to move forward.
The infrastructure capacity developed will be split equally between Simfer and the WCS consortium. Simfer will focus on blocks 3 and 4 for a 60 million tonne per year mine, while the WCS consortium will develop blocks 1 and 2. The project aims to start commercial production by the end of 2025, adding an annual supply of around 120 million tonnes of high-quality iron ore once it reaches full capacity.
Rio Tinto recently reported second-quarter iron ore shipments below analyst estimates. Despite this, the company’s share of expected capital investment remaining to be spent on Simandou from the beginning of 2024 is $5.7 billion. The investment is expected to drive significant growth in Rio Tinto’s iron ore production capacity.
The Simandou project has been long-awaited due to its potential to transform Guinea’s economy. The country holds some of the world’s largest and highest-grade iron ore deposits. The development of these resources is expected to bring substantial economic benefits, including job creation and increased revenue for the government.
Rio Tinto’s commitment to the Simandou project reflects the company’s strategy to secure high-quality iron ore resources. Iron ore is a raw material for steel production, and the demand for steel is expected to remain strong due to ongoing urbanization and infrastructure development worldwide.
