AMD General Discussion, page-184

Simandou edges ever closer to development, as Bloomberg reports Guinea’s national transition council has approved a JV agreement on port and rail infrastructure for the giant iron ore minesThe deposits are known as the ‘Pilbara Killer’ due to fears its development could depress prices of iron ore sold by Australian companies, including Simandou part-owner Rio TintoMC Mining tells shareholders to take no action over coal takeover bid

Simandou, the mammoth iron ore development in West Africa known colloquially as the ‘Pilbara Killer’ appears to be a step closer to fruition amid reports its Junta Government has approved a JV agreement for Rio Tinto (ASX:RIO) and a host of Chinese partners to build port and rail infrastructure for the development.

The project is regarded as the largest undeveloped deposit of iron ore globally and has sat idle due to market volatility, corruption and government instability since Rio Tinto discovered the 65% Fe plus iron ore bounty in the Simandou Ranges in the 1990s.

It has long been stalled over issues related to the route to market. While it is located within Guinea, the closest port to the multi-billion tonne iron ore deposits is through neighbouring Liberia.

But the two consortia behind the four block Simandou mines will instead be building a 650km long rail in Guinea which will skim the Sierra Leone border and ship the ore to China through a new port south of the capital of Conakry at Morebaya.

The JV agreement underpinning that was approved by the Guinean National Transition Council — a decision making body which has governed the country since a military coup in 2021 — over the weekend, according to Bloomberg. It is anticipating the completion of the project by December next year.

However, it is understood the sign off is viewed as a minor step in the approvals process, with Chinese approvals likely to be the biggest milestone to come.

Rio’s next major market update should come with its full year results on February 16.

Angst over Pilbara Killer

The project has long been a source of angst for Australian investors, viewing the project as an opportunity for China to wean itself off its symbiotic reliance on the Pilbara’s legendary hematite deposits.

The total market for seaborne iron ore sits at around 1.5Bt, the bulk of that shipped to China, which produced more than 1Bt of crude steel in each of the past four years.

There are concerns that as China’s steel demand begins to drop off and emissions standards tighten, it will look to replace Australian iron ore — most of which grades under the 62% Fe benchmark — with higher grade material from Simandou.

The port is expected to have a capacity of 120Mt, with the two southern blocks owned by Rio Tinto and its top shareholder Chinalco to begin production in 2025 and ramp up over 30 months to 60Mt. The other two blocks to the north are held by the Winning Consortium, with China’s largest steelmaker Baowu also playing a role alongside the Guinean Government.

Rio Tinto’s share of the asset will come in at 27Mt, under a tenth of the scale of its Pilbara iron ore business, which will ship 323-338Mt in 2024.

The Simfer JV, which Rio is a part of, contains a resource of 2.8Bt at 65.5% Fe, a product which should generate DSO premiums largely reserved for the high grade iron ore produced in Brazil by Vale.

The mine’s development is also tied into Rio’s decarbonisation push. Higher grades of iron ore require less coal and energy to be refined into steel, saving carbon emissions in the blast furnace.

Rio has also stated it plans to produce products eventually at Simandou that will be sent separatedly blast furnaces and direct reduced iron plants. DRI steel mills — which require iron ore of low impurity and normally utilise pellets derived from processed magnetite concentrate — could theoretically be carbon free if they can be adapted to run off green hydrogen.

Currently all the major producers have plans to increase tonnages incrementally out of the Pilbara, with demand for iron ore remaining strong enough to keep prices well above long term averages at over US$130/t late last year and early this year — despite major frailties in China’s real estate market.

Iron ore was fetching US$125.50/t on the Singapore Exchange yesterday, and US$132.12/t for the most traded Dalian contract in China.

The Simfer JV share of Simandou is expected to come in at US$11.6 billion, with Rio to spend US$6.2b.

At the time the capex figure was revealed in December, RBC’s Tyler Broda and Kaan Peker said their supply and demand models had Simandou ramping to 100Mt by 2029, supplying 6.2% of global export volumes by 2027.