(Newswire.net — October 6, 2020) —
Exciting Developments in African Iron Ore Mining
After years of controversial court battles, an agreement was reached about the development of the Simandou iron ore deposit. All parties concerned and the government of the Republic of Guinea made a peace deal supported by former French president Nicolas Sarkozy and businessman Beny Steinmetz. This marked the beginning of an era in which the Simandou iron ore deposit will finally be developed to its full potential.
Preparing for Big Change
Although its mineral wealth was discovered years ago, the Simandou deposit was never developed as corporate and political disagreements ran through the courts for a period that stretched over several years. The long delay finally came to an end in early 2019 when an agreement was made. This was a welcome change to the mining industry, and to manufacturers in need of iron supplies.
Soon after the much-awaited announcement of the deal, the project was fired up and participants began preparing to execute a successful, world-class development. This includes constructing mining facilities as well as the necessary support systems like railways and other logistical developments.
Igniting the Global Supply
As this project gains traction, the mining world is looking forward to West Africa contributing to a significant upsurge in the global iron ore market. Even if only part of the Simandou deposit is developed, more than 100 million tons of top-quality iron ore can be produced and delivered. This is very much needed, especially in China where there is a rapidly rising demand for iron ore to be used in large-scale manufacturing of commodities. For this reason, the Chinese government is actively advocating for the Simandou development to move ahead as quickly as possible. As the driving force behind China’s most noteworthy government-led enterprises, the Assets Supervision and Administration Commission is responsible for this push.
Who Will be Developing Simandou?
The Simandou iron ore deposit comprises of four, clearly divided blocks. Two of these blocks are managed by SMB-Winning, a consortium consisting of Shandong Weiqiao, a Chinese aluminum producer, Yantai Port in China, UMS International, a logistics and transport company, and Winning Shipping, a Singapore-based shipping company. Rio Tinto, the multinational Anglo/Australian mining firm is responsible for the other two blocks alongside Chinalco, a China-based multinational aluminum company.
According to SMB-Winning, the two blocks they are responsible for could begin production in as little as five years. Although Rio Tinto and Chinalco took a while longer to resurrect plans to develop the other two blocks of the project, since 2016 when they wrote off close to $2 billion, they are now back on track. The multinational consortium is even looking at collaborating with SMB-Winning to secure the funding required for the infrastructure. By joining forces, a staggering $7 billion could be saved as expenses would be shared. According to Jean Sebastian, chief executive of Rio Tinto, a joint venture with SMB-Winning is sensible from an economic point of view.
Whether a mutually beneficial deal will be made to collaborate, or not, the Simandou project will likely be developed in the near future. The much-needed prospect of the deposit bringing massive amounts of iron ore into global markets will be the driving force behind the development, and China has huge incentives to make it happen.
A Ripple Effect
As China is making it clear that they have a goal of building on the iron ore sector in Africa, iron ore prices could be pushed down by as much as $8 per ton. This could affect the Australian iron ore market which is currently its largest export. As the trade war between Australia and China in regards to coal, wine and barley escalates, fears about China’s development of the iron ore sector in Africa have been sparked. Currently, China is one of Australia’s most prominent commercial partners as they are reliant on Australian iron ore.
Although this could be bad news for Australia, the ever-increasing demand for iron ore in commodity manufacturing could fuel the need for the mineral. Only time will tell if Australia will continue to hold its share in the global iron ore market.
What Is Needed Next?
With an estimated deposit of around two billion tons of iron ore, the Simandou development needs a railway line that will stretch 650km across Guinea as well as a deepwater port on the coast. The financial markets are already shifting in anticipation of this deposit. Several major investment banks have begun research efforts into the Simandou deposit as SMB-Winning announced an initial commitment of $14 billion to get the development to produce a projected tonnage of up to 80 million per year by 2026. According to JP Morgan, the project is on an upward trajectory and will move forward with or without Rio Tinto.