Simandou Iron Mine, Turning A Corner!

Simandou iron Mine incident has ushered in a turning point!

周二晚间,矿业部长Moussa Magassouba said on state television that the government had signed a framework agreement with Rio Tinto, Chinalco and the SMB Winning Consortium, Reuters reported. This means the simandou project, which has been suspended for two weeks, can finally resume.

It is understood that the agreement mainly involves the construction of 670 kilometers of railway from Simandou to a new deep-water port, which Musa said would cost 15 billion dollars. Musa also said the government had negotiated a 15 percent stake in railways, ports and mines, and that the new infrastructure, which will become guinea's national assets, must be completed by December 2024 and commercial production must begin by March 31, 2025.

It also means that the miners have made compromises.

The world's most promising undeveloped iron ore

Simandou, located in guinea's southwestern hinterland, is the world's largest and highest quality undeveloped iron ore deposit. The mine is divided into two halves: the north consists of zones 1 and 2, and zones 3 and 4 are located in the south. According to western Securities Research Report, Simandou iron mine has a total resource of 5 billion tons, of which 2.25 billion tons is iron ore. In addition, the mine has a high iron ore grade of about 66%-67%, well above the global average.

▲ Simandou iron ore deposit source: MINING

Over the years, simandou's development has been hampered at times by legal disputes and political instability.

Simandou has changed hands several times because of guinea's complicated situation and is now owned mainly by Rio Tinto, Chinalco, Win Alliance and the Guinean government.

Rio has held a 45.05% stake in the southern half of the mine, areas 3 and 4, since 1997. At present, the other 39.95 percent of the southern half is owned by Chinalco, with the remaining 15 percent owned by the Guinean government. The northern half was won in A $14 billion bid in November 2019 by the Winning Alliance, which holds 85 percent of the northern half and the Government of Guinea holds the remaining 15 percent.

Project interruption beginning and end

On March 11, Guinea's military government ordered a halt to all activities at Simandou, saying it was "unclear how the mine would serve the national interest".

According to Jiemian News, shipments of Simandou ore could have been made via Liberia, via its ports, on a short and low-cost route. But guinea's government says that even with the increased costs, any mine developer will have to build a railway across the country to ensure simandou's iron ore is exported from guinea's own ports.

▲ Simandou Iron Ore project schematic source: Jiemian News

The MINING website reported that the winning alliance had started building a 650-kilometer railway to connect Simandou to the port, but the Government and miners remained at odds over the construction of infrastructure such as the railway and port. Guinea's government has put pressure on the miners to invest more in infrastructure by suspending the project.

According to Reuters, the miners' new agreement with guinea's government includes the construction of a 670km railway, which means they have made a compromise. Infrastructure projects must be completed by December 2024, while commercial production must begin by March 31, 2025, said Guinea's Mining minister Moussa. "It's a tough plan considering the scale of infrastructure that needs to be built," the MINING website said, citing industry sources.

这不仅仅是一个铁矿

According to the General Administration of Customs, China imported 1.124 billion tons of iron ore (sand) in 2021, down 3.9% year-on-year, but still maintaining a high level. The average import price was us $164.3 / ton, up 61.6% from 2020. At the same time, due to the role of financial capital speculation and other factors, the price of imported iron ore in 2021 fluctuates significantly. Although the domestic market can adjust through inventory, it is still impossible to get rid of the impact of international market fluctuations.

In addition, China's imported ore sources are more concentrated, Australia and Brazil together account for more than 80%. With last year's strained relations between Australia and China serving as a wake-up call for domestic mining companies, strengthening domestic scrap recycling and expanding international resource cooperation is crucial.

In terms of iron ore, only 73 million tons of China's overseas production capacity, accounting for 6% of the country's annual imports, according to the China Industry Economic Information Network. There is still a big gap between Japan and Developed countries such as South Korea and Japan in the proportion of overseas equity ore. However, Japan and South Korea, the world's third largest steel producer and sixth largest steel producer, basically rely on imports of iron ore, but the proportion of equity ore is more than 50%.

In 2019, global iron ore production was highly concentrated, with the top 10 iron ore producers accounting for 82 percent of the world's iron ore reserves and 79.7 percent of annual global iron ore production, according to S&P. Simandou iron ore as the world's largest reserves, the highest quality of undeveloped iron ore, its importance can be imagined.

Once simandou is fully operational, it is expected to produce 100m tonnes of iron ore a year, with zones 1 and 2 producing 60m tonnes and 3 and 4 40m tonnes, according to analysts at jpmorgan. Simandou itself would become the world's fifth-largest iron ore producer, after FMG, Vale and BHP Billiton, if it went into full production, the MINING website reported.