Rio Tinto and Chinese metals company Chinalco have signed a non-binding memorandum of understanding (MoU) to establish a joint venture covering the development and operation of the Simandou iron ore project in Guinea, West Africa. The scope of the proposed joint venture includes rail and port infrastructure as well as the mine itself. Once fully operational, the mine is expected to produce more than 70 million mt/y of iron ore.

Rio Tinto currently owns 95% of the Simandou project, with the remaining 5% held by the International Finance Corp. (IFC). Under the MoU, Rio Tinto’s interest in the Simandou project will be held in a new joint venture. Chinalco will acquire a 47% interest in the joint venture by providing $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 contributed its $1.35 billion, the Rio Tinto and Chinalco effective interests in the Simandou project will be 50.35% and 44.65%, respectively.

The Guinean government holds an option to buy up to 20% of the project. Any interest acquired by the Guinean government would proportionally reduce the effective interests of Rio Tinto, Chinalco, and the IFC.

Following the formation of the joint venture, Rio Tinto’s Simfer subsidiary will continue to manage Simandou project development. In addition to the funding provided by Chinalco, the project will require significant additional development expenditure before it becomes fully operational.

Simandou is located in south-eastern Guinea. Initial feasibility studies have been completed for the project, and development work is progressing. Rio Tinto has spent more than $600 million on exploration and evaluation work to date. The current mine, rail and port plan anticipates creating more than 4,000 full-time jobs during the operational phase.