article in australian, page-5

This for Simandou


Rio Simandou project tipped to cost $20bn
MATT CHAMBERS THE AUSTRALIAN NOVEMBER 16, 2013 12:00AM


Source: TheAustralian
RIO Tinto's giant Simandou iron ore project in Guinea is expected to cost $US18.3 billion ($19.7bn) and will be designed to produce for 35 years, according to an internal report released by the major Chinese partner in the project.

Hong Kong-listed Chalco, which is selling its stake in Simandou to its Chinese parent Chinalco, has revealed detailed cost and development plans for what could be Africa's biggest mine development -- if it goes ahead.

Chalco confirmed August reports in The Australian that first exports from the project had been delayed more than three years to December 2018.

"As far as the company is aware, the estimated total capital requirement for the Simandou project amounted to approximately $US18.3bn," Chalco said in documents detailing its stake sale.

"The expected first commercial production date is in December 2018, being delayed from June 30, 2015, as originally scheduled, to 3.5 years later."

The latest documents say Chinalco will pay Chalco $US2.067bn for the stake (down from a previous estimate of $US2.2bn).

This represents a total value for Simandou, in which Rio Tinto has a 50 per cent stake, of about $US6.8bn.

Rio values its Simandou stake on its books at $US588 million.

The valuation may raise some eyebrows given the high iron ore price of $US96.27 a tonne used by the valuers.

While iron ore prices have been holding up strongly at above $US130 a tonne in recent months, most analysts are basing their calculations on long-term prices of $US70 to $US80.

Completion of the project, where $US3bn has already been spent, is contingent on an investment framework being negotiated and an infrastructure funding plan, given Guinea has decided not to participate in financing the port and railway.

Chalco also revealed the joint venture's production plan for the giant mine.

In its first year of production, 2019, the mine is forecast to produce 39 million tonnes of iron ore a year, ramping up to 100 million tonnes by 2024. Production would then slip back down towards 50 million tonnes per year on current resources by the 2054 end of the mine's life.

In the valuation Chalco came to, a 4 per cent discount rate was applied to the project "due to poor stability of the political situation of Guinea and high operating risk of the Simandou project".

Separately yesterday, another of Rio's projects in a high-risk country, the $US11bn Oyu Tolgoi copper and gold project in Mongolia, failed to reach a project financing deadline of the end of the year because of a dispute with the government.

The deadlock means Turquoise Hill, which is 51 per cent owned by Rio, will need to go ahead with a $US2.4bn rights issue to repay Rio loans.

The rights issue gives Rio the chance to boost its stake in Canadian-listed Turquoise Hill, which owns 66 per cent of Oyu Tolgoi.

Rio has gradually lifted its stake in Turquoise Hill, which was previously called Ivanhoe Mines and run by Robert Friedland, by providing funding for Oyu Tolgoi.