A China-backed joint venture between Guinea鈥檚 Societe Miniere de Boke (SMB) and聽Singapore鈥檚聽Winning International Group scored a big win in the iron ore world after securing on Wednesday rights to develop the northern area of Simandou, one of the world鈥檚 largest untapped deposits of the steelmaking ingredient.
The $14 billion bid submitted by the SMB-Winning consortium, whose investors include Chinese aluminium producer Shandong Weiqiao and the Yanta茂 Port Group,聽edged out Australia鈥檚 Fortescue Metals Group鈥檚 (ASX:FMG) $9 billion offer.
Guinea, which launched an international tender for blocks 1 and 2 of Simandou in mid-July, said the consortium had committed to build a 650km railway and a deep-water port on the country鈥檚 coast to ship the ore to key markets including China, the world鈥檚 top consumer of the commodity.
Simandou is one of the world鈥檚richest reserves of high-grade iron ore, with an estimated 2 billion tonnes.聽Beijing needs high grades, which reduce pollution from processing
聽鈥淭he Simandou Project will be crucial for Guinea鈥檚 future,鈥� Sun Xiushun, chief executive of SMB-Winning, said in the statement. 鈥淲ith the Transguinean railway, Guinea will now have a real lifeline linking four Guinean regions, accelerating administrative and economic decentralization and strengthening the country鈥檚 rail network.鈥�
For some analysts, such as Eric Humphery-Smith from Verisk Maplecroft,聽the outcome of the tender is hardly surprising. 鈥淚t was clear from the beginning that SMB was more likely to commit seriously to the Trans-Guinean Railway than FMG 鈥� a deal breaker for this project,鈥� he said.
The question on everyone鈥檚 lips, Humphery-Smith noted, is whether the owners of Simandou North and South can come together to make the railway a reality.
鈥淭he main dividing line will be their respective financial input; an updated deposit appraisal at Simandou North is likely necessary before a deal can be struck,鈥� he wrote.
The northern blocks became available early this year as part of a settlement between Guinea鈥檚 government and Israeli billionaire Beny Steinmetz鈥檚 BSG Resources (BSGR), which ended a bitter and long-dragged out dispute involving Rio Tinto, Vale SA and BSGR.
As part of the agreement, Steinmetz鈥檚 company agreed to walk away from the asset, but retained the right to mine聽the smaller Zogota deposit.
Battle for riches
At two billion tonnes of iron ore with some of the highest grades in the industry, Simandou is one of the world鈥檚 biggest and richest reserves of the steelmaking material, but it has a controversial聽past.
In 2008, one of Guinea鈥檚 former dictator stripped Rio Tinto鈥檚 rights over two of the four blocks the deposit had been divided on and handed them to BSGR.
Rio Tinto, which first acquired the exploration rights at Simandou in 1997 and retains a stake in the southern blocks, has so far failed to either develop or sell the resource
Rio was able keep the two southern blocks, but only after paying $700 million to the government in 2011. That guaranteed the miner tenure for the lifetime of the Simandou mine.
That deal came under scrutiny in 2016, forcing the world鈥檚 No. 2 miner to聽fire two senior managers聽over a questionable $10.5 million payment made to a consultant who helped the company secure the two blocks and alerted authorities, including the US Department of Justice and the聽UK鈥檚 Serious Fraud Office.
BSGR and Steinmetz were also subject of several investigations over聽听补苍诲听, but that ended with the聽deal inked early this year.
A few weeks later, a London arbitral court told BSGR to pay $1.2 billion to Vale, its former partner Guinea, due to 鈥渇raud and breaches of warranty鈥� in inducing the Brazilian miner to enter the joint venture. The tribunal based its decision partly on the fact that the government聽revoked the concession in 2014聽after finding that BSGR had obtained it by bribing officials.
Complex puzzle
SMB is Guinea鈥檚 leading producer of bauxite, key in the making of aluminum. More importantly, the company is said to have strong political ties in the West African country.
鈥淐hairman Fadi Wazni is rumoured to be close to the president鈥檚 son Mohamed Alpha Cond茅. In a country where business and politics all too often overlap, more than one tender is needed to change a deep-rooted culture,鈥� Humphery-Smith warned last month.
Rio Tinto holds a 45% stake in blocks three and four of Simandou, which it is聽actively planning聽to develop. State-controlled Chinalco owns 40% and the Guinea government 15%.聽
Both companies are said to be trying to persuade authorities to let them use ArcelorMittal鈥檚 railway to a port in neighbouring Liberia.
China鈥檚 resource dependence on Guinea聽has increased in recent years. In 2017, Beijing agreed to loan President Cond茅鈥檚 administration $20 billion over almost 20 years in exchange for聽bauxite聽concessions.
Analysts say Guinea鈥檚 population has so far seen little benefit from Chinese investment.
(With files from Reuters.)