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COMMENT
November 2016
MODERN MINING
3
R
io Tinto must be ruing the day it
ever got involved with Siman-
dou, the huge – more than 2 bil-
lion tonne – West African iron ore
project that is a geological marvel
but a nightmare in just about every other way.
As many readers will doubtless know by
now, the latest development relating to the
project is that Rio has terminated the contract
of its Energy & Minerals Chief Executive, Alan
Davies, while it investigates payments totalling
US$10,5 million to a consultant who provided
advisory services on the project. It says it was
alerted to these payments by e-mails generated
in 2011 but which only came to its attention in
August this year.
Davies, who has apparently spent much of his
professional career working on Simandou (and
who was the Rio executive holding accountabil-
ity for the project in 2011), has been replaced by
Bold Bataar, who has been with Rio since 2013.
Rio, as it happens, is exiting Simandou, a
project it acquired nearly 20 years ago. When the
group’s current Chief Executive, Jean-Sébastien
Jacques, took over from his predecessor, Sam
Walsh, in July this year, a two-year BFS on
Simandou South had just been completed.
However, Jacques made it clear from the outset
of his tenure that Rio would not be pursuing the
project and in late October the group announced
that it would be selling its 46,6 % stake to
Chinalco, one of its partners in the project.
Rio’s decision to sell mainly reflects the
current state of the iron ore market. Although
the price of the commodity has risen sharply
this year (it was almost US$80 a tonne at the
time of writing, compared to just under US$40
a tonne in January 2016), it is still well short
of the high of nearly US$192 a tonne achieved
in early 2011. There seems little chance of the
price regaining the 2011 level – or anything
near to it – in the short to medium-term and
even the long-term prospects are not good – in
fact, the consensus seems to be that there will
be an over-supply of iron ore in the market for
another decade.
Quite apart from the iron ore price,
Simandou was never going to be an easy project
to develop given its huge infrastructural needs
(a 650 km rail line with over 30 bridges, as well
as a deep-water port, are required) and some
observers have estimated its overall cost at a
staggering US$20 billion.
Moreover the project, located in Guinea (a
country not known for good governance), has
been plagued by controversy since at least
2008 when Rio was stripped of its rights to the
northern half of the Simandou concession after
it was accused by the Guinean government of
moving too slowly on implementation.
The rights to Simandou North were later
given to BSG Resources (BSGR), a mining com-
pany controlled by Beny Steinmetz. BSGR,
which literally acquired the project for noth-
ing (although it did invest US$160 million in
various works, including a feasibility study)
subsequently sold a half share to Brazilian iron
ore giant Vale for US$2,5 billion (although only
a portion of this was ever paid).
Recounting all the Byzantine twists and
turns of the Simandou story would be tedious
and take up more space than I have here but,
suffice it to say, that the case ended up in a US
court when in 2014 Rio sued both Vale and
BSGR (which by then had also fallen out with
each other), accusing them of racketeering and
claiming that they had conspired to steal its
rights to the project. The case was dismissed in
November last year, reportedly on a technicality.
Predictably, Beny Steinmetz has taken
delight in the latest turn of events, with reports
in the media quoting him as saying that he feels
“vindicated” and that he and BSGR – which
had its rights to Simandou North removed in
2014 by the Guinean government – have been
“fighting very powerful forces”.
For those interested in all the minutiae of
the Simandou saga, there are masses of mate-
rial available on the Internet including a
detailed account of the history of the project
by Eric Reguly in Toronto’s ‘Globe and Mail’
published in October last year. Also worth
reading, although by now slightly dated, is an
article in ‘The Economist’ entitled ‘Crying Foul
in Guinea’ which was published in late 2014. I
gather Simandou also features in ‘The Looting
Machine’, a recent (2015) book – which I’ve not
yet had time to read myself – by journalist Tom
Burgis which is said to be a hard-hitting exposé
of corruption in Africa’s resources sector.
Virtually no one – either individuals or
companies – emerges from the affair with any
credit and the project is an object lesson on just
how difficult developing new mines in the less
transparent African mining jurisdictions can
be. Certainly our continent offers unique oppor-
tunities due to its prolific mineral resources but
there are also huge obstacles to overcome, as
Rio Tinto has found to its cost at Simandou.
Arthur Tassell
Simandou was
never going to be
an easy project to
develop given its
huge infrastructural
needs and some
observers have
estimated its overall
cost at a staggering
US$20 billion.
Simandou –
the saga continues