Rio Tinto and Chinalco sign MoU for African project

The scope of the proposed joint venture covers rail and port infrastructure as well as the mine itself.
Rio Tinto currently owns 95 per cent of the Simandou project with the remaining five per cent being owned by the International Finance Corporation (IFC), the financing arm of the World Bank. Under the MoU, Rio Tinto’s interest in the Simandou project will be held in a new joint venture. Chinalco will acquire a 47 per cent 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 50.35 per cent and 44.65 per cent respectively.
Tom Albanese, chief executive, Rio Tinto said, “We have long believed that Rio Tinto and Chinalco could work together on major projects for mutual benefit.”
Chinalco brings its own skills and capabilities in major projects and access to the infrastructure expertise of other Chinese organisations.
Albanese said, at the China Development Forum, on March 22nd, “Our relationship with Chinalco is important to us. The company supported us when it took up its full entitlement of shares in our rights issue last year to maintain its nine per cent stake in Rio Tinto.
“Following the recent sessions of the Chinese political bodies in Beijing, we all know that continued domestic growth is a top priority and that our industries are a big part of that growth plan. Building a strong partnership between Rio Tinto and China will assist in achieving that plan,” he said.
Albanese went on to comment about the detention of the four Rio Tinto employees in Shanghai last year.
“This issue is obviously of great concern to us, as it would be for any company operating in China. I can only say we respectfully await the outcome of the Chinese legal process.”
Albanese focussed on two issues related to strengthening the relationship between Rio Tinto and China, in his address: China’s growing interest in acquiring resources abroad; and assisting China in the search for world-class mineral resources within China.
In regard to the former, Albanese said a strong focus on sustainable development would allow Chinese companies can succeed anywhere in the world and this is something which Rio Tinto can bring to any partnership.
Whilst China already has considerable expertise in mineral exploration, Albanese said Rio Tinto’s experience could usefully be brought to bear to supplement China’s own efforts.
Rio Tinto and Chinalco will now work on finalising definitive and binding transaction documentation, in relation to the Simandou project. 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 holds an option to buy up to 20 per cent 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.

Background: Simandou is an iron ore mining project located in south eastern Guinea. The project has completed initial feasibility studies and is progressing development work. Rio Tinto is partnered with the International Finance Corporation, which holds a five per cent stake in the Simandou project.
Rio Tinto has already spent more than US$600 million on exploration and evaluation work necessary to develop a mine at Simandou. The Simandou project employs more than 1,000 people in Guinea. The current mine, rail and port plan anticipates creating tens of thousands of jobs during the construction phase and more than 4,000 full time jobs during the operational phase. Once fully operational, the mine is expected to produce over 70 million tonnes of iron ore per annum.