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Guinea/China: Negotiations turn complicated over Simandou iron ore project

By Christophe Le Bec
Posted on Tuesday, 11 May 2021 09:28

View of Mount Simandou, in south-eastern Guinea © Rio Tinto

Guinea’s Simandou iron ore project was awarded to the WCS Chinese-Singaporean-Guinean consortium in November 2019. However, negotiations between partners have been dragging on.

The shareholders of Winning Consortium Simandou (WCS), the Guinean authorities and their operational as well as financial partners have long been engaged in discussions, which are still far from over.

However, construction on the mega-project’s first piece of infrastructure was finally launched on 23 March, one year and three months after the Sino-Singaporean-Guinean consortium was awarded its mining licences. The aim of this project is to develop Simandou, the continent’s largest iron ore deposit.

A “historic milestone”

On that day, Sun Xiushun, chairman of the WCS board of directors, laid the foundation stone of the two railroad tunnels that will be constructed in the Madina-Oula prefecture, south of Kindia, along the Sierra Leonean border. This infrastructure will be the longest of its kind in West Africa, as it will be made up of some 20km of underground tunnels.

He described the event as a “historic milestone” for the railway part of the project. He also reiterated that it would not only be used to transport iron ore from Simandou, but also to transport other mineral, agricultural and forestry resources from along the 679km route from the mine to the future ore port of Matakong.

The launch of infrastructure and development work at the mine is a long way off. The three main shareholders of WCS – Guinea’s United Mining Supply (UMS), Singapore’s Winning Shipping and China’s Shandong Weiqiao – still have a long way to go before this megaproject is completed. It has been in the works for more than 25 years and is expected to cost $14bn.

Production scheduled to begin in 2025

The construction site was inaugurated with great pomp by Xiushun, president and founder of Winning Shipping, in the presence of Fadi Wazni, the representative of the consortium in Guinea as well as the CEO and founder of UMS, and Guinean officials, including mines minister Abdoulaye Magassouba.

The geothermal and excavation studies of the construction site will be carried out by WCS and its subcontractor, ERM.

Negotiations to select the contractor that will be responsible for the railway and port infrastructure are ongoing. China Railways Construction Company (CRCC) is a top contender, given its local presence and links to the group’s shareholders.

It is also well established in Guinea and is currently building the 135km Dapilong-Santou railway for the Société Minière de Boké, which is owned by the same shareholders as WCS.

But the discussions, which are led on the WCS side by Sophie Xiaohui, are at a standstill. Disagreements have arisen over the rail infrastructure’s proposed budget, as the consortium wants to limit it to a total of $8bn.

The devil is in the many details and, according to our information, the Chinese railway group is particularly fussy about many of the clauses.

WCS has not clarified many of the financial aspects of the project. It also does not help matters that it is dealing with a lacklustre iron market, the consortium’s relative lack of notoriety on the world stage and that no timetable of works has been released.

According to our information, it will probably receive financial support from Beijing through its banks, given the Chinese partners involved in the project. However, the consortium is also looking to secure a syndicated loan from Western banks, especially French ones.

Rio Tinto is still in the picture

Discussions are also being held with Rio Tinto, which is in possession of permits 3 and 4 of Mount Simandou, which is located further south than the permits 1 and 2 awarded to WCS.

The Anglo-Australian mining giant was supposed to leave Guinea at one point. It sought to sell its shares to its co-shareholder, Chinalco. They did not strike a deal, so Rio is still in the country. Jakob Stausholm, its new chief executive who was appointed in January, has not yet officially decided on a strategy for the deposits, which the group has held since 1995.

Completing the rail and port infrastructure could allow him to start operations at a lower cost, provided that a modus operandi is found with WCS – something that Conakry is keen to see. But here again, no information has been released on talks.

For the time being, the timetable for the start of operations of blocks 1 and 2, which Fadi Wazni announced will begin in 2025, remains the same. However, it is highly likely that the ongoing discussions with Rio Tinto and CRCC as well as the Covid-19 pandemic which complicates logistics, will further delay this mega-project.

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