LAUNCESTON, Australia, Nov 4 (Reuters) – Rio Tinto’s decision to quit the world’s largest undeveloped iron ore deposit in Guinea is essentially a bet on how quickly and cheaply the new Chinese owners can develop the mine.
Investors have generally welcomed the sale of the Simandou project by Rio to Chinese metals producer Chinalco for between $1.1 billion and $1.3 billion, believing it rids the world’s No.2 iron ore miner of an expensive and risky project in a developing country.
Rio has certainly battled to get any momentum going for the project in the West African nation, struggling to find financing for the planned 50-million tonnes a year mine, 400 kilometre railway and deepwater port.
Given the price tag was likely to stretch to at least $20 billion, it’s hardly surprising that bankers baulked at the project, especially since virtually nobody believes there is going to be a global shortage of iron ore any time soon.
However, the main risk for Rio is if Chinalco is able to advance the project fairly quickly and start producing iron ore at a competitive cost. Then the Chinese company would be able to use its home-ground advantage when dealing with Chinese steelmakers, who buy about two-thirds of the global supplies of seaborne iron ore.
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