By Alexis Flynn
LONDON --A landmark agreement on Monday has brought an end to
three years of contractual wrangling over how best to develop
Africa's biggest mining project, a $20 billion iron-ore deposit
nestled in the remote forests of Guinea.
But even though Monday's deal resolves years of contractual
uncertainty, it sets a new challenge: Finding deep-pocketed
investors willing to spend tens of billions of dollars building the
railroad and port needed to make the huge deposit economically
viable.
For months, Rio Tinto and its partners Aluminum Corp. of China
Ltd., or Chalco, and the International Finance Corp., the
private-sector arm of the World Bank, have been in talks with
President Alpha Condé's reformist government to figure out a way
for the Simandou mine to be financed and executed.
Rio Tinto currently holds a license to mine around half of the
deposit, around $10 billion worth of iron ore at current prices.
The infrastructure and mining project will cost an estimated $20
billion to build, of which two-thirds is infrastructure costs.
Part of the new plan unveiled on Monday is to create a new
consortium to fund and manage the construction of a 650 kilometer
railway from the mine to Guinea's Atlantic coast, as well as
building a deep-water port to ship the iron ore to China and
Europe.
Rio Tinto and its partners will now pitch this idea to potential
financiers. Investors will be offered decades of steady yields,
generated through tariffs charged on goods transported by rail, all
the while helping one of the world's poorest countries transform
its economy.
"We are already in serious talks with around 30 different
institutions," said the person, who wasn't authorized to speak
publicly on the matter.
Sovereign-wealth funds, private equity, iron-ore customers and
export credit agencies are among those who have been approached,
said the person, though they declined to specific which ones.
In a phone interview, Guinea's Mining Minister Kerfalla Yansané
said U.S. giant General Electric had already expressed an interest
in participating in the new consortium.
GE couldn't wasn't immediately available for comment.
Concluding a financing deal could finally push the mine into
production by early 2019, bringing in foreign investment and
creating tens of thousands of jobs.
"This project is of critical importance for the people of
Guinea. It's a nationwide priority that goes beyond the mines and
far beyond our generations," said Mr. Condé.
By linking a publicly listed multinational with a Chinese
state-owned company and a global development financing body,
Monday's deal breaks new ground in bringing together a disparate
set of groups whose African interests don't always converge.
"Today is an important milestone in the development of this
world-class iron ore resource for the benefit of all shareholders
and the people of Guinea," said Rio Tinto Chief Executive Sam
Walsh.
The pact, which will have to be ratified by parliament,
consolidates a dizzying array of existing agreements signed with
Mr. Condé's predecessors. It also hands Guinea a significant share
of the project, potentially growing to a 35% stake over the next 20
years.
Simandou has had a fraught history since Rio Tinto first secured
exploration rights in 1997.
Already stymied by the lack of rail and port infrastructure,
plans to turn it into a working mine have been further complicated
by political upheavals, commodity-price volatility and contractual
wrangling.
Mr. Condé, a veteran opposition leader elected in 2010 on a
promise of securing fairer deals for Guinea's mineral riches, has
sought to promote an agenda of transparency and good governance.
However, Guinea's recent history contains enough examples of broken
government promises to make some funders cautious.
The architects of the deal, senior executives at Rio Tinto and
the IFC, say that was part of the reason they sought to conclude a
clear and legally watertight framework agreement before raising the
financing.
"This agreement is bankable, if it gets ratified by parliament.
It's a very solid framework. We haven't had that yet. It enables us
to have discussions with potential lenders," said the executive at
the IFC.
Write to Alexis Flynn at alexis.flynn@wsj.com
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