SINGAPORE (Reuters Breakingviews) – A rare mining snub from China sends a bearish signal on iron ore. State-run giant Chinalco has stepped back from a 2016 deal to take control of the $23 billion-plus Simandou project in Guinea from partner Rio Tinto.
That’s a headache for the Anglo-Australian heavyweight and a blow to West Africa’s mining ambitions. It’s also a hint that even Beijing sees cooler long-term demand ahead for the steel ingredient.
Simandou is perhaps the world’s largest untapped deposit of iron ore. Rio’s portion alone could potentially satisfy nearly 10 percent of Chinese import demand, and it is top-quality material to boot. But it is also the most troubled. The Guinean government confiscated part of the reserve in 2008.
Since 2016, there are corruption probes too, after Rio notified authorities of unexplained payments and fired top executives. And developing the remote site will require a mammoth investment in infrastructure.
Under Chief Executive Jean-Sébastien Jacques, Rio has been clear that the mine, where its own investment has largely been written off, is more trouble than it is worth. Even if it was built, it would deliver too much iron ore too late for a market that looks increasingly sated, even in China.