Rio inks Simandou agreement

RIO Tinto and its partners Chinalco and the International Finance Corporation have signed the investment framework with the Guinean government for the massive $US20 billion ($A21.6 billion) Simandou iron ore project.
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Simandou. Copyright 2014 Rio Tinto

Kristie Batten

The agreement provides the legal and commercial foundation for the project, which will be the largest combined iron ore and infrastructure project ever developed in Africa.

The government will submit the agreement to Parliament to seek its ratification, allowing the bankable feasibility study to be finalised within 12 months.

“With massive infrastructure investment, this project is of critical importance for the people of Guinea,” Guinean President Alpha Conde said.

“It’s a nationwide priority that goes beyond the mines and far beyond our generations.

“With transparent and fair deals, our mining sector has the potential to be a game changer for Guinea.

“This project also represents a symbol of our continent’s tremendous efforts to meet its infrastructure challenges and build inclusive growth.”

Rio CEO Sam Walsh thanked Conde for his support and described the signing of the agreement as a milestone.

The massive project comprises a 100 million tonne per annum mine, a 650km trans-Guinean multi-user railway from the mine to the coast and a new deepwater port.

Rio is leading a process to bring together a consortium of investors to fund the infrastructure components.

The agreement gives the Guinean government a 7.5% stake in the project, with the option to increase the stake to 35% over 20 years.

Rio owns 46.6%, Chinalco holds 41.3% and the IFC holds 4.6%.

A 30% income tax rate will be applicable to the project and royalties will be payable at 3.5% free-on-board.

The partners will also have to contribute 0.25% of annual turnover to local communities.

Simandou has the potential to double Guinea’s gross domestic product and could generate up to 45,000 jobs.

Rio said the final capital costs and timeline to first production would be finalised in the BFS.

Shares in Rio were unchanged at $A60.95.