Ground Breakers: This Pilbara-killer is coming for your iron ore stocks

Rio Tinto says development of monster Simandou iron ore mine in Guinea to command the majority of its capex spend (~$6.2 billion) over next 3 years
Simandou dubbed the ‘Pilbara killer’ due to its enormous size and exceptional grades
More than 600km of new multi-use rail together with port facilities will be co-developed
First production expected in 2025

 

Atop a range of hills in remote and heavily forested Guinea is Simandou, the world’s largest untapped high-grade iron ore deposit.

Source: Google Earth

It has been dubbed the ‘Pilbara killer’ due to its enormous size and exceptional grades which, if developed, could help wean China off Western Australia’s world-class hematite.

Discovered by Rio Tinto (ASX:RIO) in the 1990s, development of the deposit — now split into two projects — has been hampered by a melange of remoteness, jurisdictional risk, low iron ore prices, government demands, and tussling joint venture partners.

Today, Rio Tinto all but greenlit development of the largest greenfield integrated mine and infrastructure investment in Africa in partnership with its Simfer project JV partners and the neighbouring project, owned by a China backed consortium called SMB Winning (WCS).

Rio estimates its initial share of capital expenditure to develop the Simfer mine and the co-developed rail and port infrastructure project at ~$6.2 billion. Its total price tag is ~$11.6 billion.

It will be Rio’s biggest capex spend over the next three years across its sprawling portfolio.

“In what will be the largest greenfield integrated mine and infrastructure investment in Africa, more than 600 kilometres of new multi-use rail together with port facilities will be co-developed by the Republic of Guinea, Simfer and WCS,” Rio Tinto exec committee lead for Guinea and copper chief Bold Baatar says.

“This will allow the export of up to 120 million tonnes per year of mined iron ore by Simfer and WCS from their respective Simandou mining concessions in the southeast of the country.

“We are continuing to work closely with the Government of Guinea, Chinalco, Baowu and WCS towards full sanction of this world class project by all partners.”

First production from the Simfer mine is expected in 2025, ramping up over 30 months to 60 million tonnes per year (27 million tonnes Rio Tinto share).

This is also potentially massive news for Aussie straw-weight Arrow Minerals (ASX:AMD) which is relying on this infrastructure buildout to unlock the value of its 33% owned Simandou North project.

Source: AMD
 

Rio Tinto and Arrow Minerals share prices today:


 

‘Project is likely to reinforce longer-term bearish iron ore outlooks’

RBC Capital Markets analysts Tyler Broda and Kaan Peker say Simandou would add 27mt (once fully ramped) to RIO in high grade 65.3% iron ore for $6.2bn in capex.

“At ~$230/t this is relatively high capital intensity, but the asset should push well past the initial 26-year reserve life. This would account for c. 7% of RIO’s reported tonnes (c. 8% attributable) and would move the average grade for the group, once fully ramped, from 60.3% to 60.6%,” they say.

“We expect plenty of focus in the market today on the first production date, from 2025, and then an expected 30 month ramp up to a total of 120mt for the entire project. We currently have Simandou in our S&D models starting in 2027 ramping to 100mt by 2029. Should production begin in mid-2025, the full mine should be ramped by the end of 2027-28.”

All up, Simandou would account for 6.2% of RBC’s 2027 forecast seaborne iron ore volumes.

“We already forecast sizeable long-term iron ore surpluses and the sanctioning of this project is likely to reinforce longer-term bearish iron ore outlooks,” Broda and Peker say.

But with China having been likely to push this project forward regardless of Rio Tinto’s involvement, the decision to maintain strong partnerships with key Chinese customers is a positive.

“The margins, although probably higher opex than they would have been with a deepwater port, are likely to still be very high with a premium product and an operation of sizeable scale, and this should also reinforce Rio Tinto’s Tier I asset positioning.”

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