The Simandou iron ore deposit located in the Simandou mountain range in south-eastern Guinea is believed to be the world’s biggest untapped high-grade iron ore deposit. It is also one of the most easily extractable iron ore deposits in the world.
Despite its discovery in 2002, the massive ore body has remained dormant due to prolonged legal battles involving charges of corruption and bribery for securing mining rights, the military dictatorship in the West African country until 2010, as well as the huge infrastructure cost to develop the project.
Although Rio Tinto completed a bankable feasibility study (BFS) for the southern half of the Simandou deposit in 2016, the proposed 100 million tonnes per annum (Mtpa) project couldn’t proceed due to falling iron ore prices.
Interest in the Simandou deposit has been revived, after the Chinese-backed SMB-Winning Consortium secured mining rights for the northern half of the deposit in an international bid in November 2019.
SMB-Winning has agreed to build 650km of railroad and a deep-water port in Guinea as part of an £11.6bn ($15bn) investment for the Simandou North project.
Once in full production, Simandou North and Simandou South together can produce more than 200 million tonnes (Mt) of good quality steelmaking iron ore a year.
Location, geology, and reserves
The Simandou deposit is located on the 110km-long Simandou hill range, approximately 650km south-east of Guinea’s capital city Conakry.
The deposit comprises banded iron formations (BIFs) within Paleoproterozoic and supracrustal sedimentary sequences in the southern block of the West African Craton. The deposit contains friable hematite and goethite haematite.
Each half of the deposit is estimated to contain approximately two billion tonnes of recoverable high-quality iron ore reserves grading 66%-68% Fe.
Simandou North and Simandou South ownership details
The two northern blocks (blocks 1 and 2) are owned by SMB-Winning Consortium (90%) and the Government of Guinea (10%).
SMB-Winning Consortium comprises Singapore-based shipping company Winning International Group, Chinese aluminum producer China Hongqiao Group, Guinea-based integrated logistics company UMS and China-based Yantai Port Group.
Simandou South (blocks 3 and 4) is owned by Simfer, a joint venture between Rio Tinto (45.05%), Aluminum Corporation of China (Chinalco 39.95%) and the Government of Guinea (15%).
International Finance Corporation (IFC), an arm of the World Bank, earlier held a 4.6% stake in the Simandou South, which it sold in October 2016.
The troubled history of the Simandou iron ore project
The Simandou prospect was divided into four exploration blocks, namely blocks 1 and 2 (Simandou North) and blocks 3 and 4 (Simandou South), and Rio Tinto was granted all four exploration licenses covering an area of 1,488 km2 in 1997.
Simandou exploration licenses were renewed with a reduced total area of 738 km2 in 2000, while the presence of massive commercial-scale high-grade iron ore at the deposit was confirmed in 2002. A mining convention for the Simandou deposit was signed between Rio Tinto and the government in the same year.
Although Rio Tinto received mining concession for the entire deposit in 2006, it was stripped of the mining rights over two northern blocks (block 1 and 1) in 2008. These two blocks were handed over to BSG Resources (BSGR), a company owned by Israeli diamond tycoon Beny Steinmetz, in the same year.
In April 2010, Brazilian iron ore miner Vale entered into a joint venture agreement with BSGR to acquire 51% interest in the Simandou North asset for £1.6bn ($2.5bn) out of which £330m ($500m) was immediately paid.
On the other hand, Rio Tinto completed an £860m ($1.35bn) deal for a joint venture partnership with China’s state-owned Chinalco for the development of the Simandou South project in July 2010.
However, the past mining deals were scrutinised for corruption and irregularities under the government elected in December 2010.
Rio Tinto was able to retain two southern blocks (blocks 3 and 4) after paying the government £465m ($700m) as part of a settlement agreement signed in 2011.
Vale decided to shelve the project in October 2012, while BSGR and Steinmetz were subjected to several investigations over bribery and corruption accusations for securing the mining rights.
The long-running legal dispute came to an end after BSGR agreed to hand over the mining rights over Simandou North back to the government, while retaining the right to mine the smaller Zogota deposit and exporting iron ore from Zogota using a Liberian route, in a settlement agreement reached in February 2019.
Guinea launched an international tender for the northern blocks of Simandou in July 2019. The bidders for Simandou North included SMB-Winning as well as Australian iron ore company Fortescue Metals.
Simandou North development plan
The SMB-Winning Consortium expects to develop a 110Mtpa iron ore mine in two phases at a total estimated cost of £11.6bn ($15bn).
The first phase of the Simandou North project is expected to incur an investment of £6.2bn ($8bn), including £3.8bn ($5bn) on a 650km railroad, £1.2bn ($1.5bn) each for the mine development and for a port at Matakong.
In phase one, the project is expected to produce 60Mtpa of iron ore in 2026.
Phase two development is expected to involve another £3.8bn ($5bn) investment to double the capacity of the railway, and £1.5bn ($2bn) for opening new ore bodies and expanding the deep-water port facility for supporting 110Mtpa iron ore operation.
The rail line to be built as part of the project is also expected to support Guinea’s other iron ore projects including the Simandou South.
Simandou South project details
An investment framework agreement for Simandou South was signed by the project partners in May 2014 following the completion of an economic impact assessment by Rio Tinto in 2013.
The first BFS for the Simandou South mine as well as the rail and port infrastructure for the project were submitted to the Government of Guinea in December 2015, while the final versions of the BFS were submitted in May 2016.
The BFS envisaged a 100Mtpa integrated iron ore mining operation over an estimated mine life of 40 years. The proposed project involved the development of two open-pits, the Ouéléba pit (53Mtpa) and Pic de Fon pit (47Mtpa) at Simandou South, and the construction of a 630km railway and a port, for a total investment of £13.6bn ($20bn). Construction on the Simandou South project was expected to start in 2018.
However, in the same year in 2016, the Rio Tinto-led consortium temporarily scrapped the Simandou South project siting falling iron ore prices in the global market as the reason.
The major reason to withhold the project was the insistence of the Guinean government to build a more than 630km-long trans-Guinean railway network and a deep-water port in Matakong as part of the project, despite the alternative shorter route for iron ore export through neighbouring Liberia.
Rio Tinto also wanted to exit the project by selling its entire stake in Simandou to Chinalco. It signed non-binding heads of agreement for the same with Chinalco in October 2016.
However, the agreement lapsed in October 2018 and in the same month, Rio Tinto updated that it was exploring other options to realise the value of the project.
It is anticipated that the South Simandou project partners might come together with the SMB-Winning Consortium to jointly develop the railway.
An updated appraisal of the Simandou North iron ore deposits will, however, be required before any such deal can be finalised.
Contractors involved with Simandou South feasibility studies
SRK Consulting and AECOM were engaged for the Simandou South mine feasibility studies, while China Harbour Engineering Company (CHEC) and China Railway Construction Corporation (CRCC) were engaged for the feasibility studies for the rail and port infrastructure for the Simandou South project.