Glencore has cleared a key hurdle in its ambition to become an iron ore miner, reaching a preliminary deal with the west African country of Mauritania for a $1bn contract for access to railway and port facilities.
The commodities giant is keen to expand into iron ore, a key ingredient of steel and a vital source of profits from rivals Rio Tinto, BHP Billiton and Vale of Brazil. The trader is seeking to develop three big projects in Mauritania, two in partnership with state-controlled miner Société Nationale Industrielle et Minière, which has exclusively exported the mineral from the country since the 1960s.
The railway contract is one of the three key obstacles to build the remote Askaf mine. Although Mauritania, which relies on iron ore for half its exports and a quarter of its tiny $4bn economy, wants to boost iron ore production, the two parties have spent two years negotiating access to railway.
Initially, SNIM asked Glencore far too high a price for access to its railway for the next 20-25 years, according to people familiar with the negotiations. But recently both sides reached a preliminary deal, pending some final discussions.
“They have now agreed with SNIM the price to use the railway per tonne [according to] international practice,” Mohamed Ould Khouna, Mauritania’s minister of oil, energy and mines, told the Financial Times in an interview in Nouakchott.
Glencore is also close to reaching a deal for a construction contractor, clearing the second barrier. But the company is still in negotiations with the Mauritanian government about the tax terms of the operation, the final third obstacle. The tax discussions could take months, according to people familiar with the talks.
Even if Glencore solves all the obstacles in the next few months, the mine is unlikely to start shipping iron ore before the end of the decade. But Abdellahi Ould Mohamed Oudaâ, chief executive of SNIM, hailed the deal with Glencore as an important step. “It’s very rare to find a mining opportunity like this with such exceptional advantages – a rail and port that are already functioning well – that exists nowhere else in Africa,” said Mr Oudaâ.
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