Guinea is a small, little-known West African country with a poor economy and lagging development as one of the least developed countries in the world. However, Guinea is extremely rich in mineral resources, rich in iron and aluminum ore reserves, with extremely high grade, with the reputation of "geological miracle", and is also sitting on the world's largest iron ore project - Simandou iron ore mine.
Simandou iron ore reserves are as high as 4.4 billion tons, with an iron content of 66%~67%, which is a genuine high-quality ore. As early as 1997, the Simandou iron ore mine was granted permission by the government, but in the past two decades, the super iron ore mine has changed hands several times among the world's major ore groups, and it has never been mined.
It is not until now that China Baowu Group has invested heavily and become an important shareholder of the Simandou iron ore project, which has given this iron mine hope of recovery and restart. Why has the Simandou iron ore been sold so many times? Why does such a huge iron ore project need the nod of Chinese enterprises to be mined?
The world's largest iron ore mine
According to the data of the 2021 China Mineral Resources Report, China's iron ore consumption is 1.42 billion tons, and the mainland has imported a total of 1.124 billion tons of iron ore in a year, with an import value of 1.2 trillion yuan, accounting for 7% of the total import. Looking back at the past 15 years, China's dependence on foreign iron ore is as high as 75%, but fortunately, the import channels are diverse, with as many as 53 source countries. After the Fifth Plenary Session of the 19th Central Committee of the Communist Party of China, the mainland listed iron ore as a strategic mineral, regarded as the main type of mineral.
In fact, China is not short of iron ore, and the mainland's iron ore reserves are as high as 10.878 billion tons, ranking fourth in the world, but the problem is that the average grade of China's iron ore is only about 34%. The name is an important indicator to measure the quality of the ore, at present, the global iron ore is divided into poor iron ore, ordinary iron ore and rich iron ore, the average grade of global iron ore is about 49%, in contrast, China's iron ore is poor quality poor iron ore, some even do not have mining value.
It just so happens that in the southeast of the West African country of Guinea there is an untapped super iron mine, Simandou Iron Mine, which has reserves of 4.4 billion tons with an average grade of up to 66% and an annual production of around 150 million tons. At the same time, it also has the advantages of concentrated ore body, shallow burial and easy mining, and its high quality is rare in the world.
The Simandou iron ore mine was discovered as early as 1898, but it has not been developed for more than a hundred years, which is inseparable from the political chaos in Guinea. Until 1958, Guinea was a de facto colony, and even after its independence, it was in turmoil. Since World War II, Guinea has staged a total of 300 coups d'état, an average of several a year, what development is there for such a country?
Another problem with the normalization of coups is that the country's resource owners are constantly changing. The first thing that those in power often do is to sell off their national resources, because the Simandou iron ore mine is too large, the Guinean government divides the iron ore mine into the northern block and the southern block, of which the northern block contains the No. 1 and No. 2 blocks, and the south block contains the No. 3 and No. 4 blocks.
In 1997, multinational giant Rio Tinto was granted a prospecting licence and in 2006 it was granted exclusive mining rights. This incident caused an uproar around the world at the time, and in the eyes of industry insiders, Rio Tinto's move is no different from winning a 100 billion lottery. Rio Tinto is also looking forward to the future, as if it has seen a steady stream of iron ore coming from the land of Africa, but in the process of mining, Rio Tinto has encountered several problems.
The first is civil strife, Guinea has experienced two coups since 1997, with four heads of state replaced. The new head of state did not recognise the previous agreement, and Rio Tinto struggled with external shocks, resulting in a long period of no progress on substantive work around iron ore mining.
At the same time, Simandou iron ore mining requires huge infrastructure investment, including railways, ports and power equipment, and everything has to be built from the ground up in the barren Guinea, and the high cost of investment has left Rio Tinto in deep thought. In 2008, the global financial crisis broke out, and the price of iron ore plummeted, casting a thick shadow on the prospect of Simandou iron ore mining, and Rio Tinto was completely caught in a dilemma.
Rio Tinto's inaction sparked a high degree of dissatisfaction with the Guinean government, which directly withdrew the mining rights of Rio Tinto's Simandou North block on the grounds that it "failed to mine to the best of its ability". The frightened Rio Tinto immediately took out a deposit of 700 million US dollars, and it was difficult to keep the remaining two major plates in the southern region. As for the No. 1 and No. 2 plates in the North District, they were resold by the Guinean government to BSG in Israel, although there are also opinions that this is the proceeds of BSG's bribes.
In 2010, Chinalco signed a development agreement with Rio Tinto to reach an all-round cooperative relationship, and Chinalco held 44.65% of the copyright of the southern area of Simandou iron ore at the cost of injecting US$19.5 billion. At the same time, Israel's BSG Group chose to cooperate with Vale of Brazil to sell 51% of the rights to the North District for $2.5 billion.
China's entry
Vale's involvement was not tolerated by Rio Tinto, which took Guinea's Minister of Mines and Energy to court in a tough complaint. In 2014, BSG filed for arbitration with the International Centre for Settlement of Investment Disputes, and the two sides engaged in a five-year tug-of-war, which eventually led to Guinea's amendment of the mining law to require the government to take a 15% stake, while BSG abandoned Block 1 and 2 in the northern area of the Simandou project.
In 2019, the Guinean government renewed the international tender for Block 1 and 2 in the North District of Simandou, at the same time as a consortium of companies called the "Winning Alliance" was born. The consortium was established by China Hongqiao, Guinea UMS and Singapore Winning International Group. Winning Alliance won the bid with a bid of US$14 billion, acquiring 85% of the shares in the North District of the Simandou Iron Ore Mine.
On June 19, 2024, China Baowu and Win Alliance completed the delivery of the project and became the largest shareholder of the project. So what is the pattern of the current Simandou project? Blocks 12 in the North District are owned by Win Alliance, with China Baowu owning 49% of the shares, and the consortium between China Hongqiao and Winning International holding the remaining 51% of the shares.
Block 34 in the southern zone is owned by Simfer, a joint venture between Rio Tinto and a subsidiary of Chinalco, in which Rio Tinto holds 53% of the shares and Chinalco holds 47% of the shares. The equity relationship is complex, and on the whole, Chinese companies hold 40% and 85% of the shares in the north and south blocks of Simandou Iron Ore Mine, respectively, and are one of the largest shareholders of the project, holding the key voice in the project.
In addition, in August this year, XCMG also signed a mission letter with Rio Tinto for the Guinea mine project, which requires XCMG to provide a complete set of core equipment for the mining of the Simandou mine, totaling more than 800 million US dollars. It can be said that Chinese companies not only account for the largest share of shares in the Simandou project, but also contribute the most.
At present, the biggest problem in the development of the iron ore mine is still the infrastructure and political situation. Simandou Iron Ore is located in the southeast corner of Guinea, and in order to transport the ore out, a railway had to be rebuilt. Originally, it was planned to transport ore through the ports of neighboring countries, which would greatly shorten the route, but the Guinean government insisted that it must build a cross-border railway to ensure the use of its own ports.
Miners will also have to build a 650-kilometre railway and deep-water port, which began in April 2021 and is expected to cost up to US$15 billion.
The second is political turmoil, with the most recent mutiny in Guinea taking place in 2021, when a junior military officer led special forces to capture the president alive and set up a military junta. When the new leader came to power, he ordered the cessation of the Simandou iron ore mine activities, and the transfer was finally ushered in after many consultations, but who can guarantee that there will be no more mutinies in Guinea in the future?
The twists and turns in the development of the Simandou iron ore mine tell us that the challenges facing China-Africa cooperation in the future mainly come from two aspects: the first is the turbulent situation in African countries, which has added many variables to cooperation.
The second is resource nationalism in African countries, which makes local governments always try to demand that investors give profits to the government in project negotiations, while at the same time taking more responsibility for infrastructure. The combination of these two items can be said to increase risks and reduce returns, so China-Africa cooperation should be treated with more caution in the future.
Information sources:
Earth Knowledge Bureau: Why is China importing iron ore so much?
The Paper: Africa's Simandou iron ore has accelerated after nearly 30 years of delay, and China's Baowu iron ore mine is self-sufficient and "double carbon" double answer
Lange Steel Network: The Past and Present of Simandou Iron Ore