Rio Tinto and Chinalco join forces

Panorama

Rio Tinto and Chinalco have signed a non-binding memorandum of understanding to establish a joint venture covering the development and operation of the Simandou iron ore project in Guinea. The scope of the proposed joint venture covers rail and port infrastructure as well as the mine itself.

Rio Tinto currently owns 95% of the Simandou project with the remaining 5% owned by the International Finance Corp (IFC), the financing arm of the World Bank. Under the memorandum, Rio Tinto's interest in the Simandou project will be held in a new joint venture.

Chinalco will acquire a 47% interest in the new joint venture by providing US$1.35 billion on an earn-in basis through sole funding of ongoing development work over the next two to three years. Once Chinalco has paid its US$1.35 billion, the Rio Tinto and Chinalco effective interests in the Simandou project will be 50.4% and 44.6% respectively.

Tom Albanese, Rio Tinto’s CEO said “We have long believed that Rio Tinto and Chinalco could work together on major projects for mutual benefit. Chinalco is an excellent partner for us in Simandou. Chinalco brings its own skills and capabilities in major projects and access to the infrastructure expertise of other Chinese organisations.

“We believe the Simandou project is a large scale, long life asset and is the single best undeveloped source of high grade iron ore. By working with Chinalco and the IFC we expect to realise great economic and social benefits for Guinea, and great value for our shareholders.”
 
Following the formation of the joint venture, Rio Tinto's Simfer subsidiary will continue to manage the development of the Simandou project. Rio Tinto and Chinalco will now work on finalising definitive and binding transaction documentation. In addition to the sole funding provided by Chinalco, the project will require significant additional development expenditure before it becomes fully operational. 

The Guinean Government also holds an option to buy up to 20% of the project. Any interest acquired by the Guinean Government would proportionally reduce the effective interests of Rio Tinto, Chinalco and the IFC in Simandou.