Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Vast Simandou Iron-Ore Project Has Miners Jockeying for Position

Simandou operations. Source: Rio Tinto.

As the government of Guinea prepares to announce how it will proceed with an auction for rights to develop the northern half of the vast iron-ore deposit in the Simandou mountains, the mining community is sharpening its collective elbows to position itself for individual advantage. 

Already some of the biggest names in mining -- including ArcelorMittal (NYSE: MT  ) , BHP Billiton (NYSE: BHP  ) , Glencore (NASDAQOTH: GLNCY  ) , and Vale (NYSE: VALE  )  -- have expressed more than passing interest in being part of the process, and with billions of dollars at stake, it could get nasty. The Wall Street Journal reported that Vale has threatened to resign its membership in a clubby industry organization after being sued by Rio Tinto (NYSE: RIO  ) , which alleged that Vale played a role in Rio Tinto's partial loss of rights to the iron-ore asset in a process allegedly riddled with corruption.

Although Guinea is home to one of the world's largest reserves of bauxite, as well as significant quantities of diamonds, gold, uranium, and even oil in offshore waters, the iron-ore deposits in the Simandou mountains have long been seen as one of the country's crown jewels. They are believed worth $50 billion or more. It's a juxtaposition of Dickensian proportions because Guinea is also one of the world's poorest countries; the current government sees the development of the iron-ore project as the clearest path to injecting billions of dollars into its coffers and its economy.

Simandou, however, has been steeped in controversy since then-dictator Lansana Conte took the rights to the northern half of the project away from Rio Tinto, even though it had been on the scene since 1997. He awarded those rights to BSG Resources in 2008, alleging Rio was taking too long to develop the iron-ore deposit. Two years later, BSG partnered with Vale on the project, but that unraveled following the dictator's death and the new democratically elected government charging that the awards process was rife with scandal. It then stripped BSG and Vale of their rights to Simandou and made ready for the pending auction, setting the stage for Rio to sue the usurpers over its investment loss and for the industry trade group contretemps.

Simandou is still a greenfield project in a remote location that will require significant spending on infrastructure development before any mining work can actually begin. Such a daunting task has already scared off some miners that otherwise might have been interested in the auction process. Anglo American (NASDAQOTH: AAUKY  ) , for example, has apparently taken itself out of the running, saying it prefers instead to expand upon existing assets in west and central Africa.

Rio Tinto is still moving forward with development of the southern half of the claim. It recently agreed to an investment framework with Guinea to jump-start the long-delayed mining operation by finding investment to build a 650-kilometer jungle railroad, construct a deepwater port at Morebaya, and create supporting infrastructure. Although there's no time frame for when construction will begin, let alone production starting, it goes a long way toward resolving many of the issues that caused the original delays.

Glencore, unlike many of its peers, doesn't have exposure to iron ore. Though it would require considerable up-front costs to prepare the project, the payoff down the road would be sizable.

Although BHP Billiton believes iron ore remains one of its key five pillars of future growth, it's potential interest here is curious as the company is selling its nearby Nimba iron-ore project, possibly to ArcelorMittal. It was supposedly looking to exit West Africa and focus its efforts elsewhere around the world. Like Simandou, Nimba needs extensive development of infrastructure, but at current iron-ore pricing BHP has been uninterested in spending the cash.

Regardless of which companies are actually involved in the upcoming auction, it's clear that major players remain interested and that the prize is worth enough to them that using whatever means necessary to gain an edge is fair game.

Warren Buffett: This new technology is a "real threat"
At the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3019812, ~/Articles/ArticleHandler.aspx, 8/27/2015 5:52:49 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


Today's Market

updated Moments ago Sponsored by:
DOW 16,654.77 369.26 2.27%
S&P 500 1,987.66 47.15 2.43%
NASD 4,812.71 115.17 2.45%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/27/2015 3:59 PM
AAUKY $5.58 Up +0.35 +6.69%
Anglo American plc… CAPS Rating: *
BHP $36.00 Up +1.92 +5.63%
BHP Billiton Limit… CAPS Rating: ***
GLNCY $4.49 Up +0.20 +4.66%
MT $8.06 Up +0.37 +4.81%
ArcelorMittal CAPS Rating: ****
RIO $36.56 Up +1.85 +5.33%
Rio Tinto plc (ADR… CAPS Rating: ***
VALE $5.00 Up +0.56 +12.61%
Companhia Vale Ads CAPS Rating: ****