Known in the mining industry as a potentially major source of iron ore, the Simandou deposit in Guinea has been the subject of much controversy over the years. After businessman Beny Steinmetz successfully orchestrated a peaceful settlement with the Republic of Guinea, the deposit could finally be developed, and progress is being made to finally realize its full potential.
Years of political and corporate discord ended when the settlement was reached early in 2019, bringing the long delay in developing the Simandou deposit to an end. This hailed a new era in which there has already been much movement towards developing this world-class project as well as the port and rail systems needed for the associated logistics. It is anticipated that firing up iron production in this West African country will add a much-needed new source of quality iron ore to the global supply.
The re-emergence of the project could drastically affect the global iron ore market. Even if only half of the deposit is developed, over 100 million tons of high-quality ore could be produced and delivered. Due to the rapidly increasing demand for the resource in China, the country’s government-run Assets Supervision and Administration Commission is actively pushing for the project to move forward. The commission is responsible for all the largest government-owned enterprises in China.
Simandou is divided into four blocks, blocks 1 and 2 are controlled by SMB-Winning, a Chinese and Singaporean-backed consortium, and blocks 3 and 4 are controlled by Anglo-Australian multinational mining company Rio Tinto alongside Chinese partner, Chinalco.
The blocks controlled by the SMB-Winning consortium could be producing within five years, however the schedule of the other two blocks is slightly less clear. It has recently been reported that Chinalco has sold its 40% stake to Baowu, a giant Chinese steel company formed by the merger of Baosteel and Wuhan Steel. Chinalco will continue to hold a minority interest in the project through its 15% stake in Rio Tinto. As for Rio Tinto, while the company stands to generate an additional $1 billion in annual revenue through the development, it is carefully considering its next steps due to the massive amounts of capital required to extract and transport the materials from the deposit.
A possibility of a joint development has also been mentioned. Should the separate projects indeed consolidate, the total capital expenditure could be cut by a staggering $7 billion through sharing expenses like power, rail and port infrastructure development. While cutting capital intensity and operating costs could positively impact the development timetable, Rio Tinto has not yet agreed to the collaboration. However, whether Rio Tinto joins or not, industry experts believe that Simandou will most certainly be developed. After all, there is a massive incentive for China to make this happen as soon as possible.
Major movement in relation to Simandou has been observed in the financial markets. Several investment banks have intensified their research of the deposit. SMB-Winning has already announced that it would be moving ahead with a $14 billion plan to begin producing as much as 80 million tons of ore per annum with first shipments expected in 2026. JP Morgan has also shown interest in the project and has found that it is indeed moving forward, finally, whether Rio Tinto is involved or not.