On November 11, local time, the commissioning ceremony for the Simandou project was held with great pomp and circumstance at the Port of Mombasa in Guinea. Guinea’s President Mamady Doumbouya, Liu Guozhong, Special Representative of President Xi Jinping and Vice Premier of the State Council, Rwanda’s President Kagame, and Gabon’s President Nguema attended the commissioning ceremony. Hu Wangming, Chairman of China Baowu. Witnessed together with all relevant parties of the project. The historic moment when the world-class Simandou mine was completed and began operations.

In a recent interview with reporters, Hu Wangming stated that the successful commissioning of the Simandou project represents an important milestone in the global mining industry. Throughout the project’s development, all parties have consistently adopted a broad perspective and taken a long-term view, adhering to the principles of market orientation, rule of law, and internationalization, thereby ensuring that the project is advanced to the highest standards and with the highest quality. Once the Simandou iron ore project reaches full production and operates stably, it will provide a solid green raw material base for the development of the steel industry—both in China and worldwide—and will also inject sustained momentum into Guinea’s economic and social development.

In 1997, Simfer S.A., a subsidiary of Rio Tinto, first discovered the Simandou iron ore deposit in Guinea. Located in the southeastern part of Guinea, the deposit is situated in the Simandou Mountains, approximately 650 kilometers from the capital, Conakry. The core mining area covers an area of 738 square kilometers. The Simandou iron ore deposit holds the world’s richest reserves of untapped iron ore, and it is widely regarded by the international mining industry as currently the largest and highest-quality undeveloped iron ore deposit in the world.

The Simandou iron ore deposit is a world-class, large-scale, high-quality open-pit hematite mine with an overall ore grade of approximately 66% to 67%. The mine boasts some of the highest-quality ore reserves in the world. Its key characteristics include vast reserves, superior ore quality, concentrated ore bodies, shallow burial depth, and ease of extraction. Due to Simandou’s exceptionally high commercial mining value, it has long been a highly coveted “big prize” fiercely contested by numerous global mining giants, sparking more than a decade of ownership disputes.

The Simandou iron ore deposit can be divided into two main sections: the northern and the southern. The northern section comprises two blocks—No. 1 and No. 2—as well as a relatively smaller iron ore deposit called Zogota. The southern section includes two blocks—No. 3 and No. 4. In total, the Simandou region has at least five distinct blocks. Both the northern and southern sections each hold reserves exceeding 2 billion tons. Moreover, the current level of exploration in this mining area remains relatively low, leaving considerable potential for further mineral discoveries both in its peripheral regions and at greater depths (Figures 1 and 2).

Figure 1: Geological Sketch of the Simandou Iron Ore Region (based on Cope et al., 2008)

(Editor’s Note: The legend in this figure does not comply with China’s national standards for geological mapping and will be revised in a later stage.)

Figure 2: Schematic Map Showing the Scope of the Mining Rights Area and the Locations of Each Ore Deposit

Years of circling without harvesting.

As early as 1997, Rio Tinto’s subsidiary, Simfer, obtained exploration licenses for four blocks in the Simandou iron ore deposit, covering a total area of 1,488 square kilometers. Three years later, the company relinquished 50% of the area, retaining exploration rights over 738 square kilometers and securing a two-year extension. By the expiration of the exploration license in 2002, Simfer had still not undertaken any substantive work. Despite failing to submit a feasibility report outlining its next steps, the Guinean government nonetheless extended the license for another two years—but Simfer continued to make no substantial progress. Subsequently, Rio Tinto called for an acceleration of the development of the Simandou iron ore project. In 2006, Rio Tinto took over from Simfer the exploration rights for the 738-square-kilometer area of the Simandou iron ore deposit and secured a 25-year concession.

However, until 2008, Rio Tinto’s operations in the Simandou iron ore region remained virtually unchanged. From the time when Xinfeng Company discovered the Simandou iron ore deposit in 1997 to 2008—roughly a decade—only six drill holes were drilled in Blocks 1 and 2. Compared to the sheer scale of the Simandou iron ore deposit, this level of investment was virtually negligible.

Rio Tinto’s practice of “circling but not exploring, circling but not mining” boils down to two main reasons: First, during the same period, international iron-ore prices soared dramatically—indeed, they even doubled in successive stages. To maintain their hefty monopoly profits, the major international iron-ore giants adopted this strategy of circling without mining, effectively eliminating any possibility of price declines that might result from other investors entering the market and starting production. Second, the infrastructure in the Simandou iron-ore region is virtually nonexistent, requiring massive investments to build railways and ports. This, in turn, carries enormous investment risks, which have indeed deterred many of the international iron-ore giants.

A protracted ownership dispute

In 2008, the Guinean government expressed strong dissatisfaction with Rio Tinto’s failure to take action despite holding mining rights. Citing the company’s “failure to do everything possible to commence mining,” the government revoked the mining rights for the northern section of Simandou—comprising Blocks 1 and 2 as well as the Zogota iron ore mine—and sold them to BSG Resources, a company owned by Beny Steinmetz, an Israeli diamond tycoon. This move triggered a protracted ownership dispute over the northern portion of the Simandou iron ore deposit that lasted for more than a decade.

After obtaining exploration rights covering a total area of 369 square kilometers for Blocks 1 and 2 of the Simandou iron ore deposit, BSG Resources conducted exploration activities in these two blocks. By June 2010, the company had completed 94 drill holes with a total footage of 15,864 meters and submitted a feasibility study report in October 2009. Following review by the Guinean government, an mining concession was granted. Subsequently, Vale acquired a 51% stake in the northern section of the Simandou deposit owned by BSG Resources for US$2.5 billion, thereby drawing Vale into the ongoing ownership dispute over the Simandou iron ore deposit.

However, the legitimacy of the transfer of ownership of the northern block of the Simandou iron ore deposit—from Rio Tinto to BSG Resources—has come under external scrutiny. Some have pointed out that BSG Resources obtained the mining rights for the northern section of Simandou through bribery of Guinean officials. Rio Tinto has also filed a lawsuit in the United States against Vale, accusing it of stealing trade secrets and engaging in bribery. In 2011, Rio Tinto paid the Guinean government $700 million in order to retain the mining rights to the two southern blocks.

In 2014, the Guinean government launched an investigation into bribery allegations surrounding the Simandou iron ore mine. The investigation concluded that the licenses for Blocks 1 and 2 in the northern section of the Simandou iron ore mine had been obtained by BSG Resources through bribery, and as a result, the licenses held by Vale and BSG Resources in the northern section of the Simandou iron ore mine were revoked. From 2014 to 2015, BSG Resources refuted these accusations, claiming they were false, and demanded the restoration of its licenses as well as compensation for losses incurred. Between 2016 and 2017, Benny Steinmetz, the controlling shareholder of BSG Resources, was arrested twice in Israel on charges of bribing Guinean officials, but was subsequently released.

In February 2019, with mediation by former French President Nicolas Sarkozy, BSG Resources reached an agreement with the Guinean government. Under the agreement, BSG Resources agreed to relinquish Blocks 1 and 2 of the Simandou iron ore project, while the Guinean government dropped the bribery charges and legal proceedings against BSG Resources. At the same time, BSG Resources was allowed to retain the smaller Zogota iron ore deposit in the northern segment of Simandou. With this settlement, the more than decade-long dispute over ownership of the northern segment of Simandou finally came to an end.

Although the ownership issue for the northern section of Simandou has been resolved, the dispute between Vale and BSG Resources—the joint venture partners for the northern part of the Simandou iron ore deposit—is only just beginning. Since 2019, Vale has filed a series of claims against BSG Resources totaling US$1.2 billion, citing “fraud and breach of commitments.” Meanwhile, BSG Resources has transferred the Zogota iron ore mine to Niron Metals.

The “Winning Alliance” Rises Unexpectedly

After the dispute over ownership of the northern section of the Simandou iron ore deposit was resolved, in July 2019, the Guinean government launched an international open tender for Blocks 1 and 2 in the northern section (information about this tender was previously published on this website; editor’s note). In October 2019, the “SMB-Winning Consortium”—a joint venture formed by four companies, namely China Hongqiao Group under Shandong Weiqiao Entrepreneurial Group, Singapore’s Winning International Group, Yantai Port Group, and Guinea’s United Mining Supply Group—and Australia’s Fortescue Metals Group both made it to the final bidding stage. In November 2019, the SMB-Winning Consortium secured the mining rights for the two northern blocks of the Simandou iron ore deposit with an investment commitment of 14 billion U.S. dollars, while Fortescue Metals Group, with an investment commitment of 9 billion U.S. dollars, was eliminated from the competition. The primary reason for this outcome was that the Guinean government had demanded the construction of a railway approximately 650 kilometers long and a deepwater port to facilitate the export of iron ore; however, Fortescue Metals Group refused to agree to build the railway.

In June 2020, Winning Consortium officially signed an agreement with the Guinean government. According to the agreement, the Guinean government will hold a 15% equity stake in the northern section of the Simandou project, while Winning Consortium will hold an 85% stake. With this agreement, the Simandou iron ore project—whose development had been delayed for nearly 20 years—is set to enter the development phase.

Compared to the complex ownership disputes in the northern section of the Simandou iron ore mine, the ownership structure of Blocks 3 and 4 in the southern section is relatively straightforward—these two blocks have always been under the control of Rio Tinto. However, due to the project’s substantial investment requirements and numerous uncertainties, Rio Tinto has consistently hesitated about proceeding with it. In 2010, Rio Tinto approached Aluminum Corporation of China (Chinalco) to take over the southern section of Simandou and formed a joint venture with Chinalco, with the investment structure set at 50.35% for Chinalco and 44.65% for Rio Tinto. In November 2016, Rio Tinto and Chinalco signed a framework agreement for the transfer of the Simandou iron ore project, under which Rio Tinto would sell its approximately 45% stake to Chinalco for a price ranging from 1.1 to 1.3 billion U.S. dollars. However, for various reasons, negotiations did not progress smoothly, and in October 2018, Rio Tinto announced that the two parties had failed to reach a final agreement within the stipulated timeframe. Currently, the equity distribution in the southern section of the Simandou iron ore mine is as follows: Rio Tinto holds 45%, Chinalco holds 40%, and the Guinean government holds 15%.

Although Chinese-funded enterprises have secured the Simandou iron ore project, they will need to invest enormous sums of money in building railways and ports. Just the construction of the railway alone is expected to cost around 23 billion U.S. dollars. At the same time, the project faces numerous uncertainties, including a potential drop in iron ore demand following the peak of domestic construction, fierce competition among global iron ore giants, volatile iron ore prices, and changes in Guinea’s political environment. Moreover, the Guinean government’s 15% equity stake significantly impacts the company’s profitability. As a result, the project is characterized by large-scale investment, a long development cycle, and numerous uncertainties. The Simandou iron ore project has transformed from a “big cake” fiercely contested by international mining giants into a tough “hard nut to crack.”

Project Value and Multiple Positive Factors

From the time Rio Tinto’s subsidiary discovered the Simandou iron ore deposit and obtained exploration rights in 1997, to the formal signing of the development agreement between the Winning Consortium and the Guinean government in June 2020, the world’s largest untapped iron ore deposit—delayed for more than 20 years—is finally set to enter the development phase.

Although Chinese-funded enterprises have already acquired partial ownership of the southern and northern sections of the Simandou project, there remains considerable uncertainty as to whether they will be able to turn a profit during subsequent production and operations. What is certain is that the Simandou iron ore project is one fraught with both significant opportunities and substantial risks—and both the opportunities and risks associated with it warrant close and thorough study.

(1) The Simandou iron ore deposit ranks among the world’s largest in terms of reserves and grade.

The Simandou iron ore deposit in Guinea is hailed as the world’s largest undeveloped iron ore deposit, boasting the highest ore quality. It is widely regarded as “capable of reshaping the global iron ore supply-demand dynamics and rewriting the rules of the international market.” The deposit offers significant advantages, including vast resource reserves, high-grade ore, suitability for open-pit mining, and ease of extraction and beneficiation. The southern and northern sections of the Simandou iron ore deposit have both been confirmed to hold reserves exceeding 2 billion tons, and substantial exploration potential remains both around the mine area and at greater depths, with total estimated resources potentially reaching as much as 10 billion tons.

(2) Chinese-funded enterprises can achieve economies of scale across the entire mining value chain in Guinea.

In recent years, Chinese enterprises—represented by Shandong Weiqiao Group—have been deeply involved in the development of Guinea’s bauxite resources, thereby boosting the bauxite industry in Guinea to achieve leapfrog development. Today, Guinea has become the world’s largest exporter of bauxite and China’s top supplier of imported bauxite, fully demonstrating the tremendous advantages of integrated mining development and mutually beneficial cooperation between the two countries. This also lays a solid foundation for deepening cooperation between the two countries in the field of iron ore development.

According to statistics from Guinea’s Ministry of Mines and Geology, as of September 2019, there were a total of seven foreign mining companies actually operating bauxite mines in Guinea, with an annual combined production capacity of 84 million tons. Among these, the Ying Alliance, led by Shandong Weiqiao Group, and Henan International Company had capacities of 40 million tons and 6 million tons, respectively—combined accounting for 55% of the annual total production capacity. In 2019, the “Africa Investment Forum & Awards Ceremony” awarded the Ying Alliance the “Best Mining Project” prize in recognition of its outstanding contributions to bauxite mining, fulfillment of social responsibilities, and community development.

Driven by mining development, Chinese companies involved in infrastructure construction and equipment manufacturing are also finding growth opportunities in Guinea. In December 2019, China Overseas Infrastructure Development & Investment Corporation signed a cooperation agreement with the Major Projects Bureau of the Guinean Presidential Palace. In April 2020, Zhuzhou Vehicle Co., Ltd. of CRRC rolled off the production line a loader for bauxite mining destined for Guinea. This bauxite loader will subsequently enter mass production and is expected to become the largest single export order that CRRC Changjiang Group has ever placed in Africa in recent years. In May 2020, Ansteel won the exclusive bid for the steel supply project for the Dassan railway in Guinea. Additionally, according to the Economic and Commercial Office of the Chinese Embassy in the Republic of Guinea, in the coming years, companies such as State Power Investment Corporation, Tebian Electric Apparatus Stock Co., Ltd., and Chinalco will invest in Guinea to build alumina refineries along with supporting thermal power plants. Thus, Chinese-funded enterprises have already achieved economies of scale in Guinea’s mining sector and its upstream and downstream industrial chains, enabling them to realize synergies at the industrial chain level in the development of Guinea’s iron ore resources.

(3) Ying Alliance and China Aluminum Corporation are both financially strong.

Currently, in the northern section—blocks 1 and 2—of the Simandou iron ore deposit, Winning Consortium holds an 85% stake, while the Guinean government owns a 15% stake. In the southern section—blocks 3 and 4—the Rio Tinto company holds a 45% stake, Chinalco holds a 40% stake, and the Guinean government retains a 15% stake. Both the northern and southern sections of Simandou have been granted mining rights to Chinese-funded companies, and these two Chinese firms are both highly capable: Winning Consortium is a leading Guinean enterprise with close ties to the Guinean government, boasting extensive experience in the development and operation of Guinean mineral resources. It is deeply involved in bauxite mining (with an annual output accounting for half of Guinea’s total), helping Guinea become the world’s top exporter of bauxite. China Aluminum Corporation is the world’s largest supplier of alumina and the world’s largest supplier of primary aluminum. In Guinea, it operates the Boffa bauxite project, which is already in production. This project has proven bauxite reserves of 2.41 billion tons and an annual output capacity of 12 million tons. If Winning Consortium and Chinalco jointly develop both the northern and southern sections of Simandou, they can significantly reduce infrastructure construction costs while also mitigating business risks.