Rio Tinto Sells Simandou Stake, Fires 2 Executives

Rio Tinto reported on October 28 that it had signed a non-binding agreement to sell its 46.6% stake in the huge Simandou iron ore project in Guinea to Chinalco. A consortium of Chinese state-owned enterprises led by Chinalco already owned 41.3% of the project. The government of Guinea holds a 7.5% interest, and International Finance Corp. holds 4.6%. Rio Tinto and Chinalco anticipated signing a binding agreement within six months.

Aerial view of Canga East, an existing worker accommodation camp at Simandou. Early estimates of the construction workforce needed for the troubled, $20 billion iron ore project range as high as 15,000-plus—with at least 70% classified as non-local workers who would be housed at Canga, in another large, refurbished camp at Ouéléba, and elsewhere. (Photo: Rio Tinto)

The agreement calls for Rio Tinto to receive payments of $1.1 billion to $1.3 billion based on the timing of the development of the project. Initial payments will commence at the time of first commercial production, on a per metric ton (mt) basis.

Approximately two weeks after signing the agreement with Chinalco, on November 16, Rio Tinto announced it had terminated the contracts of its Energy & Minerals Chief Executive Alan Davies and Legal & Regulatory Affairs Group Executive Debra Valentine. “The Rio Tinto board reviewed the findings to date of an internal investigation into 2011 contractual arrangements with a consultant who provided advisory services on the Simandou project in Guinea,” the Rio Tinto announcement said. “The board’s decision does not pre-judge the course of any external inquiries into this matter. However, the board concluded that the executives failed to maintain the standards expected of them under our global code of conduct.”

Specifically, a consultant to the Simandou project, Francois de Combret, was paid $10.5 million. No reasons were given for the payment.

Rio Tinto said it alerted authorities, including the U.S. Department of Justice and the U.K.’s Serious Fraud Office, regarding the payment to de Combret.

Davies responded to his termination by issuing a statement that said, in part, “Rio Tinto has made no effort to abide by due process or to respect my rights as an employee, and it has given me no opportunity to answer any allegation. This treatment of me and my past and recent colleagues is totally at variance with the values and behaviors of the company to which I have devoted my professional life. My rights are fully reserved, and I have been left with no option but to take the strongest possible legal action in response.”

That’s how matters stood as of November 21. How the issues related to the $10.5 million payment might impact Rio Tinto’s agreement to sell its Simandou interest to Chinalco remained unclear.

The Simandou iron ore project is one of the largest undeveloped mining projects in the world, with a scope that includes integrated mine, rail, port and ancillary infrastructure. Production could be as high as 100 million mt per year (mt/y). Mine life could exceed 40 years. Cost to develop the project has been estimated at approximately $20 billion.

Infrastructure is a major component of the project, including a new 650-kilometer (km) trans-Guinean railway line to transport iron ore from Simandou to a new deep-sea port located on Guinea’s Atlantic coast.

Alcoa Splits Into 2

Alcoa Inc. officially split into two companies on November 1. Plans for the split were first announced on September 28, 2015.

A new upstream company named Alcoa Corp. is organized into six business units: bauxite, alumina, aluminum, cast products, rolled products and energy.

A new downstream company named Arconic Inc. develops and manufactures high-performance engineered products and solutions for the aerospace, industrial gas turbines, commercial transportation, and oil and gas markets. Both companies are headquartered in New York, and both are listed on the New York Stock Exchange.

Alcoa Corp. has 16,000 employees and a footprint that includes 25 mining, processing and manufacturing facilities worldwide. The company holds the world’s largest bauxite mining portfolio and has access to large bauxite deposits with mining rights that extend in most cases to more than 20 years. It produced 45.3 million dry mt of bauxite in 2015.

The company is the world’s largest alumina producer, with nine refineries on five continents. It has smelting capacity in Australia, Brazil, Canada, Iceland, Norway, Spain, and the United States, and it has a 25.1% interest in an integrated mine-to-smelter joint venture with Ma’aden in Saudi Arabia.

Lundin and Freeport Move Ahead on Tenke Selloff

Lundin Mining and Freeport McMoRan reported separate transactions in mid-November designed to divest the companies of their interests in the Tenke Fungurume open-pit copper-cobalt mining and processing operation in Katanga province, Democratic Republic of the Congo (DRC).

DRC state mining company Gécamines, which holds a 20% interest in Tenke Fungurue, expressed opposition to the transactions. “The concerted withdrawal of Lundin and Freeport, without taking into account Gécamines’ rights, would obviously result in forcing Gécamines into a new partnership with totally new and non-chosen companies,” Gécamines said in a statement, as reported by Reuters.

Freeport CEO Richard Adkerson expressed hope that Gécamines’ objections could be resolved through negotiations. Lundin had not commented on Gecamines’ objections as of November 21.

Leading up to Gécamines’ objections, Freeport reported on November 11 completion of the sale of its effec-
tive 56% interest in Tenke Fungurume
to China Molybdenum Co. for $2.65 billion in cash.

Under the terms of the agreement, Freeport could also receive contingent consideration of up to $120 million in cash, consisting of $60 million if the average copper price exceeds $3.50 per pound (lb) and $60 million if the aver-
age cobalt price exceeds $20/lb, both during calendar years 2018 and 2019.

Lundin reported on November 15 that it had entered into a definitive agreement to sell its effective 24% interest in Tenke Fungurume to an affiliate of BHR Partners, a Chinese private equity firm, for $1.136 billion in cash and contingent consideration of up to $51.4 million.

Tenke Fungurume is an open-pit copper-cobalt mining and processing operation that produces copper cathodes and cobalt hydroxide. The mine produced 449 million lb of copper and 36 million lb of contained cobalt in 2015. Plant feed averaged 14,900 mt/d at a grade of 4% copper and 0.43% cobalt.

As of December 31, 2015, Tenke Fungurume had consolidated recoverable reserves totaling 7.2 billion lb of copper and 874 million lb of cobalt.

OZ Minerals Extends Prominent Hill Mine Life

OZ Minerals reported in mid-November that its Prominent Hill mine in northern South Australia will continue to operate until at least 2028, underpinned by a new mine strategy and an updated mineral resource and ore reserve estimate. Prominent Hill mineral resources are now estimated at 148 million mt of copper mineralization grading 1.2% copper, 0.6 g/mt gold, and 2.9 g/mt silver, and 25 million mt of gold mineralization grading 1.3 g/mt gold and 1.6 g/mt silver. These resources occur in the Prominent Hill open pit, Prominent Hill underground and surface stockpiles. The mineral resources are inclusive of ore reserves.

Underground proven and probable ore reserves stand at 33 million mt, grading 1.5% copper, 0.6 g/mt gold, and 3.5 g/mt silver, containing 480,000 mt of copper, 600,000 oz of gold, and 3.5 million oz of silver. A significant recent increase in the underground reserve has been driven by a combination of ongoing drill programs targeting increased volumes of higher-confidence mineral resource; mine planning initiatives that have seen the deepening of the underground mine by 150 m, along with lateral extensions; and reduction in cut-off grade driven by successful cost-saving initiatives.

Current underground production of 2 million to 2.2 million mt/y is forecast to increase to 3.5 million to 4 million mt/y by 2019, with mining costs projected to be in the bottom half of the cost curve. The Prominent Hill pro-
cessing plant will continue to operate at its current capacity until mid-2023 by processing stockpile and underground ore, prior to running full time at a milling capacity of about 3.5 million to 4 million mt/y to 2028.

Bolstered by recent increases in reserves, OZ Minerals’ Prominent Hill copper/gold mine will now stay in operation at least until 2028, with the majority of overall production gradually shifting to underground operations. (Photo: OZ Minerals)

OZ Minerals CEO Andrew Cole said, “While the open pit will ramp down, the ore stockpiles that we continue to build and the growth in the company’s underground mining operations will see Prominent Hill remain one of Australia’s largest sources of copper.”

Carrapateena Progress: In other news from OZ Minerals, the company has reported the results of a prefeasibility study of its proposed A$980 million Carrapateena underground copper mine and concentrate treatment plant project. Carrapateena is located about 250 km southeast of Prominent Hill. The concentrate treatment plant will be located at the port of Whyalla on the Spencer Gulf, about 200 km south of the Carrapateena project site.

Key production and financial highlights from the Carrapateena prefeasibility study include a 4-million-mt/y, sublevel-cave mining operation and production of more than 100,000 dry mt/y of concentrate after treatment in the concentrate treatment plant. Contained metal production is estimated at 61,000 mt/y of copper and 63,000 oz/y of gold. Mine life is projected at more than 20 years at the proposed operating rate. Pre-production capital cost to develop the mine is estimated at A$830 million, excluding the concentrate treatment plant but including owner’s cost and contingency

The OZ Minerals board of directors has approved development of a project feasibility study. The concentrate treatment plant is undergoing a parallel study that the company expects to release with the feasibility study.