CONAKRY: Guinea singed a deal with Rio Tinto, Chinalco and the International Finance Corporation on Monday, setting out condition for massive infrastructure investment to revive the giant $20 billion Simandou iron ore project.
The investment framework for Simandou did not set a date for the start of production during the agreement at the long-delay mine in remote southeastern Guinea, however it committed the partners to make feasibility report within a year inclusive cost and time-line
To export the high-grade ore from Simandou South to Guinea's Atlantic coast, the project requires the construction of a 650-km railway through the West African jungle, at an estimated cost of at least $7 billion.
It would also need a deep-water port at Morebaya costing a further $4 billion, and support infrastructures estimated to cost a minimum of $2.5 billion, documents seen by Reuters showed on Monday.
The port and railway would eventually be expanded to handle up to 100 million tonnes of minerals a year.
It would be the largest combined iron ore and infrastructure project in Africa. President Alpha Conde's government had initially hoped to raise enough financing itself on international markets to hold a 51 percent equity stake in the railway and port projects, but Monday's deal was recognition that it would struggle to raise the vast sums required.
"This is a decisive step in the realisation of this project," said Guinean government spokesman Damantang Albert Camara. "This will lead to feasibility studies which will allow us to search for funding for this project."
The government hopes that project will not only provide competitive iron ore for 40 years potentially doubling the size of Guinea's economy but the infrastructure will open up the interior of the rugged, heavily forested country.
The documents seen by Reuters said that within 15 months of the framework's ratification by parliament, Rio and its partners must conclude a financing plan and reach agreement on terms with an infrastructure consortium yet to be selected.
Financing must then be put in place within 32 months, at which time the mining consortium would have a date for actually starting production from the mine.
The infrastructure would be built and operated by the consortium for 30 years, after which it would revert to the ownership of the Guinean government.
SYMBOL OF INFRASTRUCTURE CHALLENGE:
The conclusion of the agreement was a welcome piece of good news for Guinea, which has been locked in a dispute with BSGR, the mining arm branch of Israeli billionaire Beny Steinmetz's conglomerate, over the northern side of Simandou.
Guinea last month decided to strip BSGR and its partner Brazilian miner Vale of its rights to the northern part of Simandou, accusing BSGR of obtaining the concession corruptly in 2008 during the twilight of the presidency of Lansana Conte.
BSGR strongly denies this. "With transparent and fair deals, our mining sector has the potential to be a game changer for Guinea," said President Alpha Conde.
"This project also represents a symbol of our continent's tremendous efforts to meet its infrastructure challenges and build inclusive growth."
Guinea currently holds a 7.5 percent stake in the Simfer company that operates the Simandou South concession.
This will rise to 15 percent once production starts, with an option for Guinea to buy a further 20 percent.
Simfer is 87.9 percent controlled by Simfer Jersey Limited a company 53 percent owned by Rio and 47 percent by Chinalco.
The IFC, the private sector lending arm of the World Bank, holds the remaining 4.6 percent stake in Simfer.
Monday's agreement also said Guinea's government would not approve any more large concessions to export iron ore or bauxite via Liberia, where ArcelorMittal has a railway running from close to the border to the Atlantic port of Buchanan.
The Guinean government has so far only granted permission to export through Liberia to Sable Mining, which is aiming to start production in 2015 and hit 5 million tonnes per year output after that.
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