Simandou: China’s Latest Iron Ore Supplier

UNDERGROUND MINING

Simandou: China’s Latest Iron Ore Supplier

Simandou, one of the largest undeveloped high-grade iron ore reserves in the world, is being developed after miners reached an agreement to build crucial infrastructure there in West Africa.

Simandou is significant because it can offer major iron ore users like China an option to top supply sources like Australia and Brazil, allowing Chinese and other steel mills to diversify their sources of raw materials while also supplying highly sought-after higher-quality ore.

The future Guinea mines, however, are famously challenging to develop, leading to years of delays and a production stalemate. They are spread across four blocks on two northern and southern parcels and over 100 kilometers of rugged and sensitive terrain.

However, the Guinean government and the two consortium owners of the four blocks— Winning Consortium Simandou and Rio Tinto Simfer—agreed to jointly create multi-user infrastructure for Simandou, which will advance mining activities. and the Guinean government stated that "WCS and Rio Tinto Simfer are committed to co-develop the rail and port infrastructures in compliance with internationally established environmental, social, and governance criteria."

In addition to the mining operations, it will support "the infrastructure that forms the backbone of the Simandou project, which presents a huge opportunity for the economic expansion of the Republic of Guinea."

The two consortiums claim they will look for funding to build a port infrastructure in the Forecariah prefecture in Maritime Guinea, as well as more than 600 kilometers of rail infrastructure spanning from the south to the southwest of Guinea.

The signed agreement follows a number of delays, including one last month when the consortium parties failed to meet a deadline and the Guinean government once more suspended operations at Simandou. Simandou Consortium is made up of the Chinese corporation Weiqiao Aluminum, the Singaporean company Winning International Group, and United Mining Suppliers International.

The Simfer joint venture consists of Simfer S.A., which is owned by the Guinean government, and Simfer Jersey, which is made up of the Chinese company Chalco Iron Ore Holdings and the Anglo-Australian mining company Rio Tinto Group.

Given its significant reliance on Australian ore, in particular, Beijing hopes to further investigate and diversify its iron ore supplies, as seen by the participation of Chinese enterprises in the Simandou activities.

About 60% of China's total imports come from Australia. Brazilian imports account for an additional 20%, according to Chinese customs data.

However, deteriorating ties between China and Australia in recent years have sparked a discussion about China's willingness to move the Simandou project forward.

China only produces 15% to 20% of the iron ore it needs, as per Vivek Dhar, a mining and energy commodities analyst at Commonwealth Bank of Australia, who wrote in a note last week: "China is particularly sensitive to international iron ore pricing." It's not a novel concept in China to take market power away from companies like BHP, Rio Tinto, Vale, and Fortescue.

Along with accelerating the development of new iron ore sources, Dhar claimed that China is also trying to control the amount of iron ore it imports by centralizing purchases rather than letting steel mills buy it piecemeal. However, Dhar acknowledged that this project might be challenging to coordinate.

When fully operational, Simandou will be able to export up to 100 million tonnes of iron ore annually, rivaling the output levels of Brazilian mega-miner Vale and Australian powerhouse Fortescue.

Simandou's premium ore, which has a 65% iron content, is another unique selling advantage. The majority of miners in Australia and Brazil typically ship ore with a 60% to 62% percent. Better yield and profits for miners result from higher iron ore content.

Simandou is scheduled to begin production in 2025, but there have been a number of setbacks over the previous 20 years, including scandals involving bribery and corruption.