Rio Tinto, its subsidiary Simfer S.A. (Simfer), and the Government of Guinea signed a settlement agreement April 22, 2011, that secures Rio Tinto’s mining title to its Simandou blocks 3 and 4 iron ore concessions in southeastern Guinea. China’s Chalco is earning into the project as a joint venture partner of Rio Tinto under an agreement signed in July 2010.
The new agreement paves the way for first shipment of Simandou iron ore by mid-2015, the Rio Tinto announcement said; however, Simfer is working to achieve first production by the end of 2014. Production is targeted at 70 million mt/y of iron ore, once the project reaches full capacity.
In recognition of the resolution of all outstanding issues relating to the project and finalization of new investment agreement terms, Simfer will pay $700 million to the Guinean public treasury. The parties have agreed that the terms of the settlement agreement will not be affected by any changes introduced by the Government of Guinea as a result of its current review of the nation’s mining code or any future reviews.
Sam Walsh, chief executive, Rio Tinto Iron Ore, said, “This agreement gives us the certainty we need to allow us to invest and move forward quickly so we can bring this great resource into production and deliver its benefits to the Guinean people and Simfer stakeholders. This is a major project and a significant undertaking, and we expect a total investment of more than $10 billion to bring the mine and associated infrastructure on stream.”
Under the terms of the agreement, the government of Guinea has the right to take a stake of up to 35% in the project, including 15% at no cost to the government. From the grant of the necessary presidential decrees regarding the project, the government will have a 7.5% non-contributing stake and a 10% fully contributing stake at historic cost. Five years from the grant of the presidential decrees, the government will gain a further 7.5% non-contributing stake. Fifteen and 20 years on, the government will have the right to acquire additional 5%, fully-contributing stakes at market value. The government of Guinea plans to set up a state mining company to hold its stake.
The agreement includes a stabilized fiscal regime that will apply for the lifetime of the mine, including an income tax holiday of eight years from the first taxable profit, followed by a general tax rate of 30%. Royalties will be payable at 3.5% FOB for all exported ore. Simfer will be exempt from withholding tax on dividends, and all imported goods used for project construction and maintenance will be exempt from value-added tax and customs duty.
A new rail line will be constructed through Guinea to transport ore from the mine to a new port. The infrastructure will be jointly owned by the government and the other Simfer partners, with the government able to hold a maximum stake of 51%. The rail line will be available for passenger and freight service, and Simfer, as operator, may haul other mineral producers’ ore subject to commercial agreement. Simfer will have the status of a foundation customer and will retain priority use of the infrastructure.
Rio Tinto once controlled all of the Simandou deposits, but the government took back blocks 1 and 2 in 2008 and sold the concessions to BSG Resources. Rio Tinto’s efforts to re-secure the blocks were stymied, and in April 2010, Vale announced that it would pay $2.5 billion for a 51% interest in BSG.