Guinea insist it will not accept big changes to Chinalco iron ore deal

Simandou a local community in Guinea, is one of the world's biggest high-quality iron ore deposits

Guinea will not accept any major changes to the terms of the Simandou iron ore project that Chinalco bought from Rio Tinto, including building a 650-km railway rather than taking a shorter route via its neighbors, the mines minister said on Wednesday.

“We have no intention of changing the fundamentals,” mines minister Abdoulaye Magassouba told Reuters in an interview at his office in the capital Conakry.

“Effectively we want the same deal as with Rio. If they want some reasonable changes at the margin, that’s something we could look at.”

Rio had a 46.6 percent stake in two of the four blocks that make up Simandou, while state-owned Chinese metals producer Chinalco had 41.3 percent and the Guinea government 7.5 percent.

The other two blocks are fully owned by Guinea but mired in litigation between the state and mining company BSG Resources.

In October, Rio announced it had signed a preliminary deal to sell its Simandou stake to Chinalco, injecting impetus into the long-stalled scheme.

Simandou is one of the world’s biggest high-quality iron ore deposits, but taking it in the remote, forested corner of West Africa where it is located and exporting it out of Guinea’s coast is a massive undertaking that will cost at least $20 billion in infrastructure upgrades.

The task involves building 650 km (400 miles) of railway, 35 bridges, 24 km of tunnels and a deep sea port, challenges that have led many to conclude that taking a shorter route through neighboring Liberia or even Ivory Coast would be more viable.

Magassouba said negotiations with Chinalco had not touched on the possibility. He said the railway would revamp Guinea’s economy by providing a way of getting other mineral and agricultural products to market, and could double GDP.

“The only option for Simandou is to go through Guinea. A bankable feasibility study has shown that this is profitable,” he said. “This is not a subject up for discussion.”

He added that Chinalco “have not said, have not insinuated, have not murmured” that they want to do anything that fails to respect the policy of the government, adding that the fiscal terms of the deal were also not up for debate.

It was not immediately possible to reach Chinalco for a reaction.

One major issue has been doubt over demand for iron ore because the steel market is chronically oversupplied due to a massive deposit in Western Australia. However, Chinalco, being Chinese state-owned, is likely to be able to take a longer-term view than a private enterprise, industry insiders say.

Magassouba said in the meantime, the priority was bauxite, the main ore of aluminum, which is profitable and does not require such massive investments. Guinea holds a third of the world’s supply.

“Today, the first priority is bauxite. It’s what the market wants,” he said, adding that Guinea exported 30 million tonnes last year, up from 18 million the previous year.

The country was on track to hit its target of 60 million tonnes by 2020, he said.

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