Modern Mining November 2016

COMMENT

Simandou – the saga continues

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career working on Simandou (and who was the Rio executive holding accountabil- ity for the project in 2011), has been replaced by Bold Bataar, who has been with Rio since 2013.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.

November 2016  MODERN MINING  3