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Rio Tinto Renews Work on Giant Guinea Iron Ore Deposit

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(Bloomberg) -- Rio Tinto Group is looking at new ways to develop the giant Simandou iron ore deposit in Guinea that it almost sold last year, according to people familiar with the matter.

Simandou is one of the world's biggest untapped mineral deposits, but has a controversial past. For more than a decade, it has been the center of a bitter dispute that includes Vale SA and Israeli mining tycoon Beny Steinmetz. An agreement to sell the project collapsed last year, and Rio now appears increasingly committed to finding a way to build it.

The second-largest miner has rehired consultants to work with its own team to study how the mine can be developed, said the people, who asked not to be identified because the matter is private. The work also focuses on how to export material out of the country, they said. The company all but shelved the project three years ago, so much of the work is based around updating its old plans.

A spokesman for Rio declined to comment.

Simandou has caused much trouble for Rio -- the company is subject to criminal probes, two executives were dismissed over payments and it's still refusing to pay bonuses to its former chief -- but the potential riches are too high to easily walk away from. The miner has been exploring the asset since the 1990s, attracted by a resource that's now estimated at more than 2 billion tons.

The deposit came to prominence in 2007 as Rio fought off a hostile takeover bid from larger rival BHP Group. At the time, Rio used the resource to argue that the company was undervalued. Yet within a year, Rio was stripped of half its rights to the deposit and they were handed to Steinmetz. They were then stripped from the Israeli billionaire in 2014.

Part of the deposit's allure is that it contains some of the highest quality ore, a product in high demand from steelmakers as it's less polluting. Rio views this as a long-term structural change in the market and that ore from Simandou will be in demand for decades.

Still, there are huge challenges to navigate. The biggest is that under Rio and Chinese partner Aluminum Corp. of China's original agreement with Guinea, the company committed to building a $12 billion rail line across the country, more than doubling the mine development cost. The government has long insisted the track is essential for national development. Any updated plan to develop the mine must be agreed with Chinalco and the government.

Guinea has since said some smaller projects can exit through neighboring Liberia, where ArcelorMittal operates a railway. The steelmaker has said that rivals can only use capacity it doesn't need and it's working on plans to expand its own production.

Rio's latest work on the project could also make it easier to sell should it decide against development. The trouble with exporting ore has made the asset less attractive to buy, as shown by the collapse last year of a planned sale of Rio's stake to its Chinese partner.

Guinea has some of the world's richest iron ore deposits, but has never exported anything. Yet there's renewed interest in the country. Earlier this year, Steinmetz and Guinea agreed to end their dispute in a deal that's led mining dealmaker Mick Davis to try and develop a project there. Billionaire mining investor Robert Friedland is in talks with BHP about taking control of another asset that has sat dormant for years.

To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Nicholas Larkin, Liezel Hill

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.

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