Rio gives away gi­ant iron ore field once worth fight­ing for

China Daily (USA) - - BUSINESS - By BLOOMBERG

The gi­ant Si­man­dou iron ore mine in Guinea caused count­less headaches for Rio Tinto Group, but it was al­ways worth the fight. Not any more.

Rio turned its back on Si­man­dou, one of the world’s largest un­tapped iron ore de­posits, by sign­ing a non­bind­ing agree­ment with part­ner Alu­minum Corp of China to hand over its stake. Rio may re­ceive as much as $1.3 bil­lion should the mine be built.

For an un­de­vel­oped piece of moun­tain, Si­man­dou has a sto­ried past in­clud­ing a US Depart­ment of Jus­tice cor­rup­tion probe in­volv­ing di­a­mond bil­lion­aire Beny Stein­metz. The mine’s for­tunes also of­fer an ex­am­ple of the sit­u­a­tion fac­ing the wider in­dus­try— after years of prof­li­gate spend­ing, the sec­tor is aban­don­ing new projects in a new era of lower iron ore prices.

“Out with a fiz­zle, not out with a bang,” said Hunter Hill­coat, an an­a­lyst at In­vestec Plc in Lon­don. “It’s a pretty sad in­dict­ment of the su­per cy­cle.”

Rio Tinto, the world’s sec­ond-big­gest miner, had been ex­plor­ing Si­man­dou since the 1990s, lured by a re­source that’s now es­ti­mated at 2 bil­lion met­ric tons of iron. The de­posit came to promi­nence in 2007 as Rio fought off a hos­tile takeover bid from larger ri­val BHP Bil­li­ton Ltd. At the time, Rio used the re­source as an ex­am­ple to ar­gue that the com­pany was un­der­val­ued, call­ing the project the world’s “top unde- veloped” de­posit.

“It was a rush for the bestqual­ity as­sets you could get,” saidHill­coat. “There was never go­ing to be enough iron ore to sat­isfy the world’s de­mand on the pro­jec­tions peo­ple had at the time.”

Rio has been fight­ing for rights for the as­set since 2008, when the govern­ment stripped the­com­pany of­some of its li­cense area. Stein­metz’s BSG Re­sources Ltd bought rights to the project that year. Later, Vale SA agreed to ac­quire 51 per­cent of the project from BSGR for as much as $2.5 bil­lion in 2010.

BSGR’s grip loos­ened when aUS grand jury be­gan look­ing at whether bribes were paid by Fred­eric Cilins, who had links to the firm, to a wife of for­mer Guinea Pres­i­dent Lansana Conte. BSGR was ul­ti­mately stripped of the li­cense in 2014, with a Guinean govern­ment com­mit­tee say­ing it found ev­i­dence of cor­rup­tion in the award of the project. BSGR al­ways de­nied any wrong­do­ing.

The devel­op­ment of Si­man­dou was ham­pered by West Africa’s Ebola cri­sis in 2014 and the col­lapse in iron ore fi­nally ended Rio’s in­ter­est. Prices slumped 67 per­cent from a peak of more than $190 a ton in 2011 as China’s slow­down sent com­modi­ties tum­bling. The world was awash with sup­ply after Rio, BHP and Vale had rapidly in­creased pro­duc­tion.

ZHOU DAN / XIN­HUA

An em­ployee in the min­ing area of Si­nos­teel Cor­po­ra­tion’s Aus­tralian sub­sidiary where Rio has a 60 per­cent stake. met­ric tons of iron Si­man­dou is es­ti­mated to have

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