Rio Tinto goes for growth with US$6.2B commitment to Simandou iron ore project in West Africa

About Rio Tinto

Rio Tinto Limited (Rio Tinto, the Group, ASX: RIO) was established in 1873 and today is a global resource business operating in 35 countries and employing more than 520,000 people. Its shares are listed on both the London Stock Exchange and the Australian Securities Exchange, although it is managed as one company with a single board of directors.

Rio Tinto on iron ore growth path

Rio Tinto is firmly in growth mode with iron ore remaining the mainstay of the Australian producer as it announced this week that its share of one of the world’s largest iron ore projects would top US$6.2 billion.

The project, based in the Simandou mountain range of West African nation, Guinea, will be the main avenue of Rio Tinto’s growth in the next five years. This latest cost estimate is 16 percent higher than the US$5.5 billion estimate of analysts earlier this year. The cost estimate includes mine development costs and the cost of associated co-developed rail and port infrastructure, including 600 kilometres of new multi-use rail. The infrastructure will enable the export of 120 million tonnes of mined ore each year.

Simandou iron ore project

The Simandou mine is the world’s largest untapped high-grade iron ore deposit, with an estimated Total Mineral Resource of 2.8 billion tonnes. A Mineral Resource estimate includes discovered and undiscovered ore deposits in the ground and so is a crude estimate. A Mineral Reserve on the other hand is a far more strict and reliable assessment of a Mineral Resource.  A Mineral Reserve must be fully evaluated and be economically minable based on financial feasibility, location, grade, and geological characteristics like mineral content, depth, shape and quantity. Mineral Reserves are typically defined as either proven or probable reserves. Rio estimates that 2.8 billion tonnes of the estimated Mineral Resource at Simandou is convertible into an estimated 1.5 billion tonnes of Ore Reserves, which implies an economical mine life of 26 years, at an average grade of 65.3 percent iron metal with low impurities.

The project is being undertaken in partnership with a Chinese-based consortium and other parties including the Republic of Guinea. Much of the Simandou iron ore is expected to be shipped to China for steel production. First production is scheduled for 2025, ramping up over a 30-month period to an annualised capacity of 60 million tonnes per year, of which 27 million tonnes will be Rio Tinto’s share. The project is not yet fully sanctioned by the Rio Tinto Board and remains subject to regulatory approvals, although it is believed that board sanction is imminent.

Looking Ahead

Rio Tinto’s participation in the world’s largest known high-grade iron ore resource diversifies the Group’s iron ore portfolio which is currently focused on the Pilbara region and the Group’s Canadian mining interests. The partnership with the resource rich Republic of Guinea and with China. the world’s largest importer of iron ore, is a strategic move that builds scale and provides consistently strong cash flows for decades to come.

Commodity prices have stabilised in the current half-year and are tracking close to or just below historical averages since 2010. Together with Rio Tinto’s balance sheet strength, and total commodity demand growth of around 4 percent compound per annum, shareholders can expect consistent value accretion in the decade ahead.