Rio Tinto ready to build Simandou after nearly 30 years of setbacks

Rio Tinto (ASX, LON: RIO) announced on Tuesday that it has obtained all necessary regulatory approvals to resume construction of its vast Simandou iron ore project, the world’s largest mining project, which it is co-developing with a Chinese consortium (WCS) in Guinea.

The project, which is expected to become the world’s largest and richest iron ore mine, will add about 5% to global seaborne supply once commissioned. Rio Tinto owns two of the four Simandou mining blocks through its Simfer joint venture with China’s Chalco Iron Ore Holdings (CIOH) and the Guinean government. Rio Tinto holds a 53% stake, while CIOH holds the remainder.

A second mine, the WCS project, will be built by Baowu — the world’s largest steel producer — in partnership with a consortium led by Singapore-based Winning International Group.

Rio Tinto first obtained an exploration permit for Simandou in 1997. Since then, the country has experienced two coups, four heads of state and three presidential elections.

The project involves the construction of a 552km rail line to transport high-grade iron ore from two new mines in the Simandou Mountains – one to be built and operated by Rio Tinto – to a new deep-water port on Guinea’s Atlantic coast.

“Only” $11.6 billion is missing to get started

Rio Tinto estimates the development will require initial funding of about $11.6 billion. The company’s annual investment from 2024 to 2026 has been set at about $10 billion, with the majority earmarked for Simandou, while spending on the Oyu Tolgoi project in Mongolia is tapering beyond this year.

The company noted that CIOH has fulfilled its financial obligations by making two payments to cover its share of capital expenditures for critical work carried out by Simfer.

Rio said the first payment of about $410 million was made on June 28, covering expenditures through the end of 2023, and the second payment of about $575 million, for 2024 expenditures, was made on July 11. These payments settle all expenditures incurred to date.

The infrastructure capacity developed jointly will be split equally between Simfer and WCS, with Simfer focusing on Blocks 3 and 4 for a 60 million tonne per annum mine, and WCS developing Blocks 1 and 2 of Simandou.

Simandou is expected to start commercial production by the end of 2025, adding an annual supply of around 120 million tonnes of high-quality iron ore once full capacity is reached.

Rio Tinto, which on Tuesday reported second-quarter iron ore shipments below analysts’ estimates, said its share of planned capital investments remaining to be spent at Simandou now stands at $5.7 billion, starting in early 2024.

Simandou has faced construction delays due to legal disputes, local political changes and the challenges and expenses of building 600km of rail and port infrastructure.