Rio Tinto seals $20bn iron ore development project with Guinea

Rio Tinto pledged to press ahead with one of Africa's largest industrial projects after striking a deal with Guinea's government over the $20bn development of a giant iron ore deposit.

The agreement over Simandou's mineral resources could lead to the miner bringing a substantial supply of African iron ore to global markets within five years, while Guinea's mining minister said the development would be a "game changer" for one of the world's poorest countries.

"There will be before-Simandou and after-Simandou. With Simandou, our country is expected to have a double-digit growth rate very soon," Kerfalla Yansane, mining minister, told the Financial Times.

However, Rio and Guinea's government acknowledge the delayed project could slip beyond its fresh 2018 target date for commercial production.

Sam Walsh, Rio's chief executive, and Alpha Conde, Guinea's president, on Monday signed an investment framework to develop Simandou, cementing the company's return to favour in the country after it was stripped of its rights to part of the deposit in 2008.

Rio's plans to push ahead with Simandou come as the company has cut capital expenditure to pacify investors after years of costly expansion. It also comes as the price of iron ore has weakened amid doubts over demand. Iron ore is mainly used in steelmaking in China. In response Rio has tried to curb exposure to Simandou by agreeing to find outside parties to build the 650km railway and port that account for about two-thirds of the $20bn cost estimate, while accepting that others may use the infrastructure.

Multi-user access is crucial to Guinea's hopes of creating tens of thousands of jobs in a "growth corridor" along the railway.

Mr Yansane said the "tentative timeline" for first production was now the end of 2018. Rio's backer in the project, Chinalco, a Chinese state metals company, was "very keen to see this project getting off the ground", he said.

The deal gives Guinea a free 15 per cent stake in the project while giving Rio and its partners an eight-year income tax exemption once the mine opens.

Rio is on track to produce 290m tonnes of iron ore this year and 350mt in 2017. A further 100mt would come from Simandou when fully operational. While some analysts say miners could push the iron ore market into oversupply, Rio argues that the high-quality Guinean ore will help China produce steel while meeting environmental targets.

Rio's rights to Simandou's northern half were confiscated and handed to BSG Resources, the mining arm of Israeli tycoon Beny Steinmetz's business empire, in 2008. In April, the government cancelled the rights held by BSGR and Vale, its partner, after a two-year inquiry found BSGR had won them through corruption. BSGR denies the allegations and says it is preparing an arbitration claim against Guinea.

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