By Scott Patterson
Mining companies struggling with depressed commodity prices are
about to have the opportunity to bid for one of the most
sought-after iron-ore deposits in the world, testing the industry's
appetite for new iron-ore supply at a time when many experts say
the world is awash in the steelmaking component.
The Guinean government plans to auction the northern half of the
massive Simandou iron-ore deposit in the next few months, Guinea's
Minister of Mines Kerfalla Yansane told The Wall Street Journal on
the sidelines of the Mining Indaba conference in Cape Town, South
Africa.
"We'll put it on the market and call for companies to come and
compete," Mr. Yansane said.
He said Guinea has signed memorandums of understanding with
several large industrial companies to build infrastructure to aid
the Simandou project, which lies hundreds of miles from the
country's port in Conakry. The project could cost $20 billion to
$30 billion, including rail lines, due to its remote location deep
in the hills of southeastern Guinea in West Africa, experts
estimate.
The iron-ore deposits, which lie in the northern wing of the
Simandou mountain range, are at the heart of an international legal
dispute. Guinea last year stripped the rights to mine the deposit
from Brazilian mining company Vale SA and BSG Resources Ltd., the
mining arm of Israeli tycoon Beny Steinmetz's family-owned
conglomerate. The government alleged that the rights were obtained
through corrupt practices. BSG denies the allegation and is
fighting the move in international arbitration.
The blocks had earlier been controlled by Rio Tinto PLC, but a
previous government in Guinea revoked its rights to mine them. Rio
has filed a civil suit in the U.S. alleging that Vale conspired
with Mr. Steinmetz, who runs BSG Resources, to obtain its Simandou
mining rights. Vale has said it is considering settling the suit,
though doesn't admit any wrongdoing.
Rio is still helping to develop the southern part of the
concession.
BSG says it plans to continue to dispute Guinea's decision to
take away the iron-ore deposit. "The tender will not be taken
seriously by the market because they are well aware of the
contested nature of the assets, " Dag Cramer, a director of BSG
Resources, said. The company "will challenge any transfer of these
assets in the applicable jurisdiction," he said.
Iron-ore prices have plunged in the past year, recently dipping
to a 5 1/2 -year low amid softening demand from China, the world's
largest consumer of the steelmaking material. The benchmark spot
price for iron ore delivered to China was $62.20 a metric ton as of
Wednesday, according to the Steel Index data provider.
Despite the decline, mining giants such as Rio Tinto, BHP
Billiton PLC and Vale have continued to churn it out and ramp up
output, arguing that it remains profitable and that cutbacks could
make them vulnerable to competitors.
That has sparked criticism from the likes of Ivan Glasenberg,
chief executive of Glencore PLC, who has said overproduction of
iron ore is damaging its value.
Mr. Glasenberg said last year at a panel discussion in London
that the Guinea project would struggle under the circumstances.
"Is Guinea going to have Simandou developed at current prices?
It's going to be difficult," he said.
Mr. Glasenberg's company has held discussions with Guinean
officials about mining rights in Simandou, but he has also said he
isn't interested in plowing money into large infrastructure
projects the mine will require.
Mr. Glasenberg has actively weighed adding iron ore to
Glencore's portfolio. Last year he reached out to Rio, one of the
world's largest producers of iron ore, and expressed interest in a
tie-up. Rio rejected the proposal.
Mr. Yansane for his part said he isn't concerned that soft
iron-ore prices will affect the bidding for the assets, however,
pointing out that it could be at least five years until the mines
actually begin producing, when iron-ore prices may have
recovered.
Alex MacDonald contributed to this article.
Write to Scott Patterson at scott.patterson@wsj.com
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