With the Guinean government having stripped Value and Israel’s Beny Steinmetz’s BSGR group of their controversially acquired rights to the Simandou North iron ore province earlier this year, a queue of major miners appears to be forming to replace them.
The Wall Street Journal reported on Friday that Glencore executives met senior Guinean government officials last month to express interests in the deposit.
BHP Billiton and India’s ArcelorMittal are also said to have made their interest known, while Rio Tinto – which once owned the licences to the two exploration blocks concerned and which, with China’s Chinalco, the World Bank and the government is planning to develop the southern half of the Simandou orebody – is also almost certain to have put its hand up, too.
The flurry of interest follows the government’s April announcement that it would revoke Vale and BSGR’s licence – the subject of litigation by Rio against those companies in the US – and an expectation that it will swiftly move onto deciding how to deal with the licences to develop the northern half of Simandou.
The Simandou orebody is regarded as the world’s best undeveloped iron ore deposit. The Simandou South blocks controlled by Rio are expected to eventually produce 100 million tonnes a year of ore grading between 60 and 68 Fe. The northern blocks could produce a similar amount of similar quality ore.
Late last month Rio, Chinalco and the World Bank’s IFC signed off on a framework with the government for the development of their project, which has a tentative date for initial production of 2018.
The project, which involves a 650-kilometre railway, tunnels, bridges, roads and a new deep-water port, could cost about $US20 billion.
The framework envisages the infrastructure components being owned by new investors rather than the partners in the mine itself. If those investors can be found, the prospect of developing the northern half of the deposit would obviously be considerably enhanced and the timing accelerated.
Rio originally won exploration rights to the entire Simandou deposit in 1997 and then spent the next nine years exploring it. In 2008 it was blind-sided when the then Guinean president, the late President Lansana Conté, expropriated them and awarded them to an Israeli billionaire, Beny Steinmetz.
A year later he sold 51 per cent of his interest to Brazil’s Vale for $US2.5 billion, although Vale had only handed over $US500 million before the new Guinean government, elected in 2010, began reviewing how mining licences had been awarded by the Conté regime. That ultimately led to the decision to strip Vale and BSGR of the rights to the northern parts of Simandou.
Rio has taken legal action in the US against Vale and BSGR in which it claims that BSGR had bribed Guinean officials to get its hands on the licences previously held by Rio and that Vale had feigned interest in a Simandou joint venture with Rio to get access to confidential geological and technical information that it shared with BSGR to support their bid to “misappropriate” Rio’s rights.
The partners in the Rio-led southern half of the development are now putting together a “bankable” feasibility study for their development that they hope to have completed within a year.
It would make sense for the Guinean government, given that Guinea’s GDP is only about $US12 billion – a bit over $US1000 per capita – to look at the options for developing the northern half of the project in conjunction with the existing project, given the implications it might have for the infrastructure components of the Simandou South project (which envisages third party usage) and their appeal to prospective infrastructure investors.
Glencore isn’t an iron ore producer and has publicly stated it isn’t interested in greenfields investments but the lure of a tier-one resource is near irresistible for the big miners, even in an environment where the Simandou ore might begin coming into the market at a point where there is a substantial surplus of supply over demand.