After 27 years of delays, setbacks, and scandals, the world’s largest mining project – a $20bn iron, rail, and port development in an isolated corner of West Africa – is expected to begin this year.
In 1997, Rio Tinto, listed in the UK, obtained the first exploration license in the Simandou Mountains in south-eastern Guinea. The mountains are located 550km away from the capital. Since 1997, the 13 million-strong country has seen two coups d’etats, four heads and three presidential elections.
Rio Tinto had six CEOs in that period, and has lost half of its licence. It also fought long court battles with corporate rivals. US authorities settled allegations of corruption, and the company even tried to abandon the project entirely, but the sale fell through.
Rio Tinto, anglo-Australian mining company, plans to start the largest project of its history in 2024 after receiving the final approval from Beijing.
Bold Baatar, Rio Tinto’s Bold Baatar, said in an interview that there was nothing of this size and scale anywhere else.
Baatar is the executive who has overseen the complex commercial agreements for the project for the last seven years, despite being the official head of the copper industry.
Too expensive for any single miner to develop alone, the project is now a partnership between Rio Tinto, the Guinean government and at least seven other companies, including five from China.
Rio Tinto is partnering with Chinalco, the world’s biggest aluminium producer to build a single iron ore project. The mine will be called the Simfer Project.
Baowu will build a second mine, known as the WCS Project, in partnership and with a consortium headed by Singapore’s Winning International Group.
The parties will also co-finance construction of the 552km railway, which will run through the interior of Guinea’s mountains to the sea. They will also develop a deepwater harbour on the Atlantic coast.
Rio Tinto, the Chinalco consortium and its mine must also pay for an additional 70km of rail spur in order to connect it with the mainline. Rio Tinto is expected to pay $6.2bn for its share of the cost, which is more than their annual capital expenditures in the last five years.
Baatar’s complex partnership structure at Simandou is a model for a new era of co-development that will be required to source the massive volumes of metal needed to build the future green economy.
After 150 years of industrial mining, the easy-to-access ore bodies are almost all developed. Complex projects that require large amounts of capital and ingenuity are left.
Baatar stated that “historically, if you look at mining, each mine had its own infrastructure.” He added that at Simandou, “the capital is too large for a single party”.
After a series of issues, Rio Tinto decided to abandon the project seven years ago. It agreed to sell its share to Chinalco up to $1.3bn. Beijing, the government body that approves foreign investments and divestments of state-owned companies, did not approve the deal. The project was still on Rio Tinto’s books.
Baatar says that the high-grade ore from Simandou is even more attractive today, due to the need to decarbonise iron and steel.
He said that “the fundamental shift over the past few years is that the world has become more united on climate change.”
Steelmaking, which uses coke in blast furnaces to make iron and then steel from it, is a highly carbon-intensive process. It accounts for about 8% of the global carbon emissions.
In order to reduce emissions, the industry is looking at alternative methods, such as direct reduction iron technology, in which ore is treated with hydrogen and carbon dioxide instead of coke. These processes require high quality iron ore which is becoming increasingly difficult to obtain in large quantities.
Rio Tinto’s plan to mine Simandou ore has an iron content that is among the highest in world. Baatar calls the ore “the caviar of iron ore”.
Baatar stated that Simandou could help to decarbonise China’s steel industry.
He added, “We think that a part of the ore we are looking at would be very suitable for direct reduction iron.” “China’s decarbonisation is the only way to decarbonise the global steelmaking industry.”
According to the World Steel Association, China will produce 1 billion tonnes of steel by 2022. This represents more than half of global production. India was the second largest producer with 154mn tonnes.
Rio Tinto has already begun the groundwork along the rail corridor. Once Beijing approves Chinalco’s investment, Rio Tinto will begin mine construction. The first ore will be shipped by 2025. Production is set to reach 60mn tonnes per year in 2028. This represents about 5% of the world’s seaborne iron ore.
Guinea is under military rule, adding to the confusion. A junta headed by Colonel Mamady doumbouya overthrew Alpha Conde after he changed the constitution in order to run for a 3rd term.
Baatar did not seem to be affected by the political situation. “We’ve been in Guinea for more than 50 years. We have worked with various governments, and different forms of government. The legacy of institutional memory is strong, as well as the commitment to honouring contracts.