Monsters of Rock: Simandou, iron ore’s ‘Rolls Royce’, is back in the garage
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The chooks are coming home to roost after Guinea’s September Coup d’Etat, after the military’s ‘transitional government’ sensationally ordered a halt to work on the Simandou iron ore mine.
Simandou is a monster a multi-billion tonne deposit of ultra high grade direct shipping ore which will require hundreds of kilometres of new railway to develop.
It has been expected to proceed in a couple parts. First is Blocks 1 & 2, awarded to a consortium backed by China a couple years ago.
They’re the ones doing the heavy lifting on the multi-billion dollar railway line and port infrastructure in a bid by China to reduce its reliance on iron ore from Australia and to a lesser extent Brazil, and improve the self-sufficiency of its steel supply chain.
The other two blocks, 3 & 4, are 45% owned by iron ore giant Rio Tinto (ASX:RIO) with the balance owned by China’s Chinalco and the Guinean Government.
Rio’s been in the game since 1997 but has found developing Simandou an absolute chore.
Previous studies to develop the mine were rumoured to have come with price tags so high the cost was too much for even Rio to shoulder.
It has revived its interest in recent years on the back of higher iron ore prices and its need to improve the grade of its ore mix. Rio executive Bold Baatar last year described Simandou as the “Rolls Royce of iron ore.”
Well, that Rolls Royce has been parked up in the garage after some pretty clear comments from a spokesman for former post coup interim president and military strongman Mamady Doumbouya last week on national TV.
“He therefore ordered the cessation of all activity on the ground pending the answers to questions posed to various actors and the clarification of the operational mode by which the interests of Guinea will be preserved,” the spokesman said.
Rio revealed in a meeting with UBS analysts last year it planned to make an investment decision on Simandou in 2022.
But efforts to develop the mine have been stymied for years by costs, market conditions and unpredictable Guinean government policy, highlighting the challenges for western iron ore producers operating in West Africa.
Rio CEO Jakob Stausholm met with Guinea’s post-coup government in December, and has expressed interest in sharing infrastructure with the SMB Winning Consortium developing the other two blocks to get its share of the project off the ground.
That dragged down the materials index on a day of broader success on the local bourse.
Weaker than expected Chinese credit data may have impacted sentiment for iron ore, with futures down today.
RBC’s Kaan Peker said construction steel demand was expected to be weak in the first half of this year, but is on an upwards path.
“Our base case is for Chinese construction steel demand to remain low in 1-2Q YoY, with data to continue pointing to a slowdown in the property sector in February,” he said in a note.
“Despite this, China’s steel production continued to rise as winter steel output cuts in northern China ended, with rebar price increases seen since late February (cost push and improved export market).”
Energy stocks were largely unchanged but there were big gains for Stanmore Coal (ASX:SMR), which has seen prices for PCI coal top US$600/t in recent weeks.
$890 million capped Neometals (ASX:NMT) was also up around 11% after announcing a battery recycling partnership with German auto giant Mercedes Benz.