July 30th, 2010 | Caijing Rio Tinto, Chinalco Sign Agreement for Guinea Iron-Ore Project JV
The agreement will allow Chalco to aquire a 47 percent stake in the new JV by providing 1.35 billion U.S. dollars through sole-funding of ongoing development work over the next two to three years.
Anglo-Australian mining giant Rio Tinto PLC and China’s state-owned Chalco Thursday have signed a binding agreement to establish a joint venture to operate an iron ore project in Guinea, in West Africa.
The binding agreement followed the signing of a memorandum of understanding between Rio Tinto and Chalco’s parent Chinalco announced on 19 March 2010. The agreement covers all aspects of how the JV and project itself will operate and be governed, including planning, construction and management of the mine and associated rail and port infrastructure, according to Rio Tinto’s statement on its website.
The agreement will allow the new JV to hold 95 percent of the Rio Tinto’s interest in the Simandou project. The remaining five percent will be owned by the International Finance Corporation (IFC), the financing arm of the World Bank.
Chalco will acquire a 47 percent stake in the new JV by investing 1.35 billion U.S. dollars through sole-funding of ongoing development work over the next two to three years. Once the 1.35 billion is paid, Chalco and Rio Tinto will hold 44.65 percent and 50.35 percent stakes respectively in the Simandou project.
After scrapping the deal to purchase Rio Tinto last June, Chinalco’s further attempt in cooperation with Rio Tio by the Simando project– judging by the quality of the project and the assets– seems to be a second best option.?
Rio Tinto said earlier that Simandou has a resource of 2.25 billion tonnes of iron ore, and if developed, it may reach as much as 5 billion tones. Annual output is estimated at 70 million tones of high-quality iron ore when it comes into operation. The Chinese market will be given priority to the iron core.
The Guinean Government holds an option to buy up to 20 percent of the project, said Rio Tinto in Thursday’s announcement. The government has recently expressed a willingness to exercise that option, which would reduce proportionally reduce the effective holding in the project of Rio Tinto, Chalco and the IFC, it said.
A critical reason for Rio Tinto to introduce Chinalco as strategic partner is political concerns,?said Economic Information Daily, a newspaper published by the Xinhua News Agency, citing an expert. Rio Tinto obtained the rights to the Simandou projecdts early in 2003, while questioned about its validity of mining rights by Guinean officials in 2008.
Developing our relationship and business links with China is a key priority for Rio Tinto. This agreement takes our relationship with China and our largest shareholder Chinalco to a new level, building on a line of successful partnerships between Rio Tinto and China dating back to the start of the Channar iron ore joint venture in the Pilbara a generation ago,?said Jan du Plessis, Chairman of the Rio Tinto.
The formation of partnerships is integral to our business engagement with China. We are confident that the knowledge and experience gained from these other ventures will help make this joint venture our most successful yet undertaken with a Chinese partner,?he added.
Jan du Plessis, Chairman of Rio Tinto and Xiong Weiping, President of Chinalco Thursday attended a signing ceremony in Beijing. Government officials from China, Guinea, the United Kingdom and Australia were represented at the event.