Rio Tinto approves further funding at Simandou

RNS Number : 3760Q

Rio Tinto PLC

18 October 2011

 



Rio Tinto approves further US$211 million study funding and US$1.117 billion early commitments in next stage of the Simandou iron ore mining project in Guinea

18 October 2011

Rio Tinto is accelerating the development of the Simandou iron ore project in Guinea with the approval of a further US$211 million for continued studies and US$1.117 billion of funding for commitments for early works and procurement of long-lead items. This funding will allow the project to move forward towards first shipment of ore by mid-2015.

Work is progressing on obtaining the required regulatory approvals with project partner Chalco, which, once granted, will trigger formation of the Joint Venture and the earn-in payment of US$1.35 billion. Finalisation of the infrastructure investment framework, expected in early 2012, will also trigger the Government of Guinea's requirement to contribute its share of infrastructure project expenditure incurred to that time.

Rio Tinto chief executive Iron Ore and Australia Sam Walsh said "This funding highlights Rio Tinto's commitment to honouring the Settlement Agreement reached with the Government of Guinea in April this year, and maintains the rapid build-up of in-country infrastructure in order to deliver first shipments of ore by mid-2015.

"Simandou is the best known undeveloped iron ore resource and one of the great greenfield mining projects worldwide. Development of this outstanding resource will create a major new iron ore producing province, on a par with the historic development of the Pilbara iron ore region in Australia."

The project is now gaining significant momentum, with construction works well underway. Work has already begun on the marine off-load facility near the preferred port site of Ile Kabak, 50 kilometres south east of Conakry, enabling the introduction of heavy equipment for construction. In-country support services such as air-charter, extensive camp works and associated infrastructure are also in progress, as is the commencement of earthworks for the extensive 650 kilometre rail corridor.

Notes to editors
Today's decision brings the total amount that has been spent or committed to the Simandou project to US$3 billion, including the US$700 million settlement payment. Of this amount, approximately US$2 billion has been allocated to mine-related costs and US$1 billion to infrastructure requirements.   

The current interest in the Simandou project is held by Rio Tinto subsidiary Simfer whose shareholders are Rio Tinto (95 per cent) and the International Finance Corporation (IFC), a member of the World Bank Group (five per cent).

Once the joint venture (JV) agreement with Chalco is complete, Rio Tinto's 95 per cent interest in Simfer will be held in the new JV. Chalco will acquire a 47 per cent interest in the new JV by providing US$1.35 billion on an effective ongoing earn-in basis.

Cont…/

Prior to the Government's participation, once Chalco has earned-in its US$1.35 billion, the effective interests of Rio Tinto and Chalco in Simfer will be 50.35 per cent and 44.65 per cent respectively. The remaining five per cent will be owned by the IFC.

As part of the April 2011 Settlement Agreement, the Government of Guinea has the right to take a stake of up to 35 per cent in the project, including 15 per cent at no cost to the Government, as follows:

§ From the grant of the Presidential Decrees: 7.5 per cent non-contributing stake and 10 per cent fully contributing stake at historic cost in the mining project.

§ Five years from the grant of the Presidential Decrees: a further 7.5 per cent non-contributing stake.

§ 15 years from the grant of the Presidential Decrees: five per cent fully contributing stake at market value.

§ 20 years from the grant of the Presidential Decrees: five per cent fully contributing stake at market value.

As the Government of Guinea increases its stake in the Simandou project, the ownership of other shareholders will be reduced proportionally.

A new rail line through Guinea and a new Guinean port will be constructed to transport ore from mine to ship. The infrastructure will be jointly owned by the Government of Guinea and the other Simfer partners, with the Government able to hold a maximum stake of 51 per cent. Participants in the infrastructure joint venture will be required to fully fund their proportion of the infrastructure capital cost.

The new infrastructure joint venture will appoint Simfer as operator for the rail and port. The rail line will be available for passenger and freight trains and Simfer, as operator of the joint venture, may haul other mineral producers' ore subject to commercial agreement. Simfer will have the status of a foundation customer, and will therefore retain priority use of the infrastructure.

The infrastructure will revert to full Government ownership once it is fully amortised, after 25 and before 30 years. Simfer will retain its status as a foundation customer. On transfer of the project infrastructure to the Government, it will put the management of the infrastructure to international tender. Simfer will be one of the parties invited to tender. Any user charges for access to Simfer will continue to reflect its status as a foundation customer.

About Rio Tinto

Rio Tinto is a leading international mining group headquartered in the UK, combining Rio Tinto plc, a London and New York Stock Exchange listed company, and Rio Tinto Limited, which is listed on the Australian Securities Exchange.

Rio Tinto's business is finding, mining, and processing mineral resources. Major products are aluminium, copper, diamonds, thermal and metallurgical coal, uranium, gold, industrial minerals (borax, titanium dioxide and salt) and iron ore. Activities span the world and are strongly represented in Australia and North America with significant businesses in Asia, Europe, Africa and South America. 

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