Ground Breakers: Rio Tinto's Simandou development is back on the cards after Guinea deal

The Simandou iron ore development over in Guinea has had more twists and turns than a game of snakes and ladders.

It promises to deliver as much as 200Mt of high grade iron ore a year into the seaborne market, or as little at 60Mt depending on who you believe.

Blocks 3 and 4 at Simandou are being developed by a Chinese-backed consortium called SMB Winning, also containing investors from France and Singapore along with Guinea’s state bauxite company.

Rio Tinto (ASX:RIO), which discovered the high grade iron ore resource viewed as the “Rolls Royce” of the industry for its super high in situ grades, owns the first two blocks with Chinese aluminium producer and Rio major shareholder Chinalco.

But it has gone undeveloped for years due to high capital estimates, volatile iron ore prices and Guinea’s unpredictable political class.

Work was halted most recently earlier this month after the military junta ruling Guinea after a coup last year said it wanted more out of the project’s owners.

Those issues seem to have been worked out in a deal thrashed out by Guinea, SMB and Rio on Friday, announced by mines minister Moussa Magassouba on State television on Saturday night.

He said the Guinean Government had negotiated 15% stakes in the rail, port and mines, with new infrastructure to become state property once it’s up and running.

Magassouba wants the infrastructure complete by the end of 2024 and commercial production under way by March 31 2025.

Don’t discount China. But that feels audacious given the long time frames normally associated with iron ore developments and the extraordinary scale of the infrastructure required, including a 670km train line through harsh Guinean outback and deepwater port, an investment estimated by Magassouba at US$15 billion.

Rio confirmed a “framework” had been agreed to move Simandou forward, having previously told analysts it expects to make an investment decision on its share of the mine this year.

“This is a positive step forward and demonstrates our ability and commitment to work with the Government of Guinea and Winning Consortium Simandou (WCS) to progress the Simandou project,” Rio Tinto copper chief executive Bold Baatar said.

“The framework clearly outlines the key principles for all parties to work together on the co-development of infrastructure and sets out how the project will be built to international ESG standards.

“We look forward to continuing to work with the Government and WCS to finalise a definitive agreement aligned with this framework, which brings us a step closer to achieving mutual prosperity for Guinea and all stakeholders.”

Rio Tinto (ASX:RIO) share price today:

St Barbara tumbles on Simberi outlook

St Barbara (ASX:SBM) can’t seem to catch a break at its once flying Simberi mine in Papua New Guinea.

A Covid outbreak that stalled the mine for months is now under control, but it’s had a massive impact on the gold miner’s forecasts.

St Barbs has reinstated guidance at Simberi, but will deliver just 25,000-30,000oz at all in sustaining costs of $3200-3600/oz, more than $1000/oz above near record gold prices currently on offer.

As many as 270 of the mine’s 600 staff were isolating or sick at one point, coming off six months in care and maintenance.

Group FY22 production will be 275,000-290,000oz at $1750-1850/oz with production from its Atlantic and Gwalia gold operations unchanged.

RBC Capital Markets analyst Paul Wiggers de Vries noted there was no update on the timing of a sulphide expansion at Simberi either.

“With Covid-19 plaguing Simberi it’s not surprising that St Barbara has not provided an update on the Simberi Sulphide project,” he said in a note to clients.

“However, the environmental amendment permit was expected by March and the FID in April 22.”

“We now see risk to these dates with St Barbara stating that they have having issues “securing expatriate maintenance specialists and operations management”. We continue to forecast no explicit value for the Simberi Sulphide project.”

The new guidance was well below consensus estimates of 38,000oz at $1886/oz, De Vries said.