Mr Stein said those equipment choices were smaller than typically used in Australia’s Pilbara iron ore province and would need to be replaced or complemented if the Simandou proponents want to achieve their goal of eventually shipping close to 100 million tonnes from Guinea.
“Several key equipment choices include ore car axle weights, truck size, small modular crusher size and trans-shipper size. This has been driven by Winning’s experiences at the Guinea Alumina Corporation project, which is fine for bauxite, but sub-size compared to the Pilbara,” he said.
Slow development
Mr Stein said an increased focus on environmental, social and governance (ESG) standards at Simandou had slowed development and driven the proponents to invest in low-cost equipment and infrastructure until those ESG concerns were solved.
“The key ESG risks that need to be satisfied include many sensitive environmental areas and flora, sensitive host communities that share infrastructure envelopes, increased procurement transparency requirements and increased local content requirements,” Mr Stein said.
“This may have delayed initial progress sought by the SOE [Chinese state-owned entities] parties and Winning, who have been the key protagonists.
“As such, given the increased country risk and delays, certain conservative capital allocation strategies [ie capital light equipment choices] have been made to limit on ground risk and seek proof of concept.
“This has led to slower and lower planned equipment efficiencies to what we could expect under a Pilbara-like efficiency.”
Mr Stein said selection of the cheaper and smaller equipment would help the Simandou proponents achieve the Guinean government’s goal of starting iron ore exports by March 2025, but would make it more difficult and expensive for the project to expand.
“Truck sizes, ore car axle loads and transhipping volumes all put in place bottlenecks in the system that will require capital to unlock further down the track,” he said.
Upgrades required
The equipment choices prompted CLSA to lower its forecast for the volume of iron ore that will be exported from Simandou in 2030; Mr Stein had previously forecast between 140 million and 160 million tonnes in that year but now assumes between 100 million and 120 million.
But Mr Stein stressed that revised forecast assumed the Simandou proponents spent money in coming years to replace the small equipment with the type typically used in the iron ore industry.
If the proponents don’t conduct that second round of investment to bring equipment up to size, Mr Stein said the volumes of iron ore shipped from Simandou in 2030 would likely be closer to 60 million tonnes.
The Simandou proponents are building a river port at Morebaya rather than an ocean port at the Guinean capital of Conakry.
Mr Stein said the Simandou proponents would need to invest in a deep water port if they wanted to grow exports above the 120-million-tonne-a-year range.
“This is significant capital and will require a market state that will incentivise additional volumes (ie higher demand given China’s steel peak) or failure of the incumbents to supply and sustain capacity,” he said, regarding incumbent iron ore producers BHP, Fortescue, Vale and Rio.
“More likely in CLSA’s view is this volume from Simandou disrupts the status quo which incentivises the likes of BHP, Vale, RIO and [Fortescue] to seek incremental productivity growth [as announced to the market] with the mid-cap producers following suit.
“This will drive a market equilibrium around $US65 a tonne real which is a price good enough for the customer and the producers.”
Australia’s biggest iron ore exporter, Rio Tinto, is leading one of the Simandou consortia and the company’s high public profile in the US, Canada, Australia and the United Kingdom arguably means it is subject to greater external pressure overESG mattersthan other Simandou proponents which are unlisted companies or Chinese state-owned.
More demand
Rio is also the only Simandou proponent with an established iron ore export business; the company produces the commodity in Western Australia and Canada and the value of those businesses could decline if big volumes of new supply were to emerge from a new province such as Simandou.
“Rio Tinto’s involvement may have been a frustrating force in the process, as increased ESG requirements by the Guinean government have limited progress,” Mr Stein said.
But others such asArrow Minerals boss Hugh Bresser thinknew high-grade supply from Simandou would trigger demand for more low-grade iron ore from Western Australia as a blending stock.
Mr Bresser previously worked on Australian iron ore growth projects for BHP and is now trying to develop Arrow’s iron ore project at Simandou North in Guinea.
Winning Consortium Simandou and Rio Tinto have been approached for comment.
Really -DYOR
