Rio Tinto has crossed the final hurdle to start work at its $35.4 billion iron ore mine situated in a remote African jungle inhabited by endangered chimpanzees, satisfying its investment conditions for the project.
The global resources giant, headquartered in Melbourne and London, expects to dig up 1.5 billion tonnes of iron ore over the next 26 years in Guinea’s Simandou mountains, a sensitive rainforest habitat for rare western chimpanzees.
The Simandou mountains in Guinea contain high-grade iron ore.Credit: Rio Tinto
Rio said on Tuesday it now had all the regulatory approvals for the mine it jointly owns with Chinese state enterprises, having received the green light from the Guinean and Chinese governments.
Rio has previously said it was keenly focused on the environment, sustainability and governance (ESG) aspects of its Guinea operations after stepping up efforts to protect culturally and environmentally sensitive sites.
This follows the disastrous destruction of 45,000-year-old rock caves in Western Australia’s Juukan Gorge.
The deal between Rio and its Chinese partners to fund the mine is now unconditional. Simandou will become the world’s largest high-grade iron ore deposit when it hits first production in 2025, ramping up to 120 million tonnes a year at full capacity of which Rio will take 27 million tonnes annually.
The 46,000-year-old culturally significant rock shelters at WA’s Juukan Gorge that were damaged by Rio Tinto.Credit: The PKKP and PKKP Aboriginal Corporation.
The ore deposit in south-eastern Guinea is shared between a number of Chinese state-owned enterprises, a Singaporean company, Rio’s Simfer consortium and the Guinea government. Rio owns 53 per cent of Simfer alongside four Chinese state enterprises: Chinalco, Baowu, China Rail Construction Corporation and China Harbour Engineering Company.
Rio chief executive Jakob Stausholm said the Guinea project is “advancing at pace.” The mining giant will spend $9.2 billion to fund its share of the $17 billion 600 kilometre border-to-border rail track and deep water port on the Atlantic coast, needed to get the mine working and galvanise its iron ore output.
“Simandou will deliver a significant new source of high-grade iron ore that will strengthen Rio Tinto’s portfolio for the decarbonisation of the steel industry, along with trans-Guinean rail and port infrastructure that can make a significant contribution to the country’s economic development,” Rio’s executive lead for the project, Bold Baatar, said.
The approvals for Simandou have come through as Rio Tinto said on Tuesday that its iron ore output in Pilbara had slipped two per cent to 79.5 million tonnes in the second quarter.
Mine stockpiles in the Pilbara filled up over the June quarter following a six-day hiatus from a train crash in May, but Rio managed to increase shipping two per cent by running down port stockpiles.
The miner said the global economy remains resilient with industrial production recovering, China’s manufacturing is growing and the outlook in the US improving.
However, it warned that China’s crude steel production has contracted five per cent year-on-year, despite a big year-on-year increase in its steel exports. The country’s domestic steel consumption is also faltering, it said.
The Asian powerhouse swallows about 75 per cent of the world’s seaborne iron ore.
China’s steelmakers have been cutting prices while maintaining imports and are losing money, but that is keeping iron ore prices elevated and supporting miners’ profits,
Iron ore prices increased by 4 per cent over the quarter, although the $US112 per tonne average monthly price for 62 per cent grade ore was nine per cent lower than in the first quarter.
Investment bank RBC Capital Markets analysts said Rio’s June quarter results were “generally in line with our estimates but below consensus.”
Rio’s updated guidance is likely to lead to reduced earnings per share, they said. Meanwhile, Rio’s mined copper production guidance is now expected to be in the bottom end of the range and the guidance for alumina has been lowered because of problems with a gas pipeline supplying its Gladstone plant.
Investment house Morningstar said on Monday miners are balancing their need to spend more money chasing mergers while making sure shareholders get good returns.
“Shareholders are still being rewarded for favourable prevailing prices and profits. Forward dividend yields are generally high for the iron ore and coal companies, less so for the gold miners,” it said.
Rio shares were down two per cent to $117.39 in afternoon trading.
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