【By Wang Yi, Observers News】In 1998, young geologist Sidiki Koné led a team to start from the village of Moribadou in Guinea, traversing for six hours across the highlands of Guinea, a dense forest plateau spanning four West African countries. He recalled, "In front of me was forest, on my left was forest, on my right was also forest, and behind me as well. At that moment, I thought, 'How can this job ever be done?' "
At that time, Koné was conducting mapping and drilling for Rio Tinto, the world's leading mining company. Rio Tinto had just confirmed that the area was rich in iron ore, a key raw material for manufacturing steel.
The Simandou deposit lies beneath one of the most biodiverse ecosystems in the world. It was first discovered in the 1950s when Guinea was still a French colony. Decades later, it was proven to be one of the largest iron ore deposits in the world.
However, the remote geographical location, military coups, corruption scandals, and corporate rivalries kept Simandou dormant for nearly 30 years. Until last month, a new railway was officially put into operation, transporting the ore to a newly built port, with plans to export it to China by the end of this year.
Bloomberg reported on November 3 that with the commissioning of the Simandou mine, a large amount of high-grade iron ore will begin to supply, enhancing China's control over iron ore pricing, reducing its reliance on foreign mining giants. This will turn a weak link in its supply chain into a strategic advantage, continuing the country's dominant position in the mining and refining of resources such as copper, cobalt, and lithium in Africa.
"China has never had such a degree of maritime iron ore pricing power,"
Simandou is massive, being the world's largest undeveloped iron ore deposit, with reserves of at least 3 billion tons. Rio Tinto plans to mine the highest iron content ore in the world from a 8-kilometer ridge, and after the first mine is exhausted, develop the second mine. The project is expected to cost 23 billion dollars, making it the largest mining project in African history, and could make Guinea the second-largest exporter of minerals in Africa.
The commissioning of Simandou is not only significant for Guinea's economy but also reshapes the global iron ore landscape.
For a long time, global iron ore supplies have been controlled by a few companies: Rio Tinto, Australia's BHP Billiton, and Brazil's Vale. However, Bloomberg said that after the commissioning of Simandou, the global market structure will further change. As the largest buyer, China will gain more influence over the world's second-largest traded commodity, iron ore, while Rio Tinto's largest shareholder is also its Chinese partner in Simandou - China Aluminum Corporation (hereinafter referred to as "Chalco").
"China has never had such a degree of maritime iron ore pricing power," said Tom Price, head of commodity strategy at Panmure Liberum, "It can be expected that China will begin to take control here."
When Bloomberg visited the mining site of Rio Tinto's joint venture at the end of September, it looked like a ski resort during the off-season. Contractors were laying a 6.6-kilometer conveyor belt on the mountain top, transporting the ore down the mountain. From worker dormitories to ship loading machines and railway sleepers, everything was being installed at a rapid pace, using a design that had been used multiple times in other projects.
A railway tunnel in the Simefer area of the Simandou Mountains, Visual China
Outside the mining area, Rio Tinto executive Chris Aitchison pointed to a railway bridge. This bridge is part of a 70-kilometer branch line connecting the production area to the main line. The bridge is 307 meters long and 28 meters high, completed in less than a month, because it replicated the model of the Beijing-Shanghai high-speed railway bridge.
"China has established skills that Western countries don't have, which is a benefit we can see," Aitchison said.
"The ability of Chinese enterprises, 'they can get things done,'"
Looking back, since Koné stepped into the forest, Rio Tinto has changed seven CEOs, and Simandou was once just an obscure mine in its portfolio.
In 2007, the situation changed when BHP Billiton proposed a hostile takeover worth 78 billion dollars. Faced with pressure, Rio Tinto placed Simandou at the core of its defense, emphasizing its mineral value to prove that BHP Billiton undervalued their company.
Although the global financial crisis unexpectedly helped Rio Tinto through the crisis, Simandou had already been firmly mapped. The Guinean government wanted to know why Rio Tinto had long neglected such a resource that could change the situation.
The iron content of Simandou ore averages over 65%, belonging to the highest and most valuable grade globally. With increasing external pressure, former President Lansana Conté of Guinea deprived Rio Tinto of half its mining rights in 2008, transferring them to Israeli diamond magnate Beny Steinmetz.
Weeks later, Lansana Conté died. Steinmetz's BSGR quickly sold 50% of its Guinean assets for 2.5 billion dollars to Vale, causing the mining rights to stagnate for ten years. It wasn't until 2010, when Alpha Condé was elected president of Guinea, that he sought to reform the mining industry and reclaimed BSGR and Vale's rights to Simandou in 2014.
Rio Tinto's participation remained uncertain. In mid-2016, Jean-Sebastien Jacques took over as CEO in a chaotic environment. At that time, Rio Tinto even tried to sell its shares in Simandou to Chalco, but failed to conclude the deal.
The turning point came at the end of 2019, when a consortium composed of Chinese and Singaporean enterprises obtained the development rights, pushing forward the construction of railways, ports, and infrastructure.
Bloomberg reports that at this point, Rio Tinto, the world's second-largest mining company and original owner of the project, seems to have become a bystander. The high cost of investing in Simandou has put pressure on Rio Tinto, which must prove to investors that it can manage prudently after a series of failed transactions. However, the Guinean government insisted on retaining Western investment, and with the active lobbying of the U.S. embassy, Rio Tindo eventually continued to participate in the project.
Bold Baatar, who took over as CEO of Rio Tinto, after inspecting the infrastructure built in Guinea said, "I saw the engineering capabilities of China, they can get things done."
In July 2022, Win Consortium Holdings (WCS) established a joint venture with Rio Tinto to jointly finance and build infrastructure, and Guinea obtained a 15% equity stake.
The mine will increase Guinea's GDP by more than a quarter
"The final obstacle has been cleared," Bloomberg reported. The first cargo is expected to start loading this month, with about 200,000 tons of ore shipped out by Newcastle-type bulk carriers by the end of the year. Rio Tinto's mine still needs a year to complete the mine and port construction, and plans to increase output to 60 million tons per year within 30 months. WCS has not yet announced its target output, and together they account for about 5% of the global output in 2024.
Simandou is called the "Pilbara killer", and as it enters full production in the next two and a half years, iron ore prices may be affected. Some major mining companies predict that iron ore prices may fall to $85 per ton within three years, even optimistic forecasts would struggle to maintain above the current $100, far below half of the 2021 peak.
Despite the expectation of falling prices, the Guinean government remains enthusiastic about the project, with billboards everywhere advertising the "Simandou 2040" strategic development goals. The government has hired KPMG and Rothschild Group to advise on investments in iron ore revenue and to provide consulting for the first sovereign credit rating.
The Guinean government hopes that iron ore will bring long-term prosperity to the country, similar to how oil does for Saudi Arabia and the UAE, avoiding the resource curse.
This is a huge impact for Guinea, which has experienced political turmoil, coups, Ebola outbreaks, and poverty. Most local employees in Simandou are illiterate. The International Monetary Fund estimates that the mine will increase Guinea's GDP by more than a quarter by the beginning of the next decade.
Bloomberg describes that over 140 large locomotives will pull 100 wagons, about 8,000 tons of ore, crossing over 300 bridges, taking 30 hours to reach the port; small barges will transfer the ore to large ocean-going ships moored, and loading will take about 48 hours. Once the mine is fully operational in 2028, a fully loaded ship will depart daily.
Even Baatar was deeply impressed: "I think few mining executives in their lifetime will experience such a project. I mean, this is the largest mining project in the world."
Original article: https://www.toutiao.com/article/7568507276198265398/
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