Baowu May Be Forced to Invest Billions More in Plant Construction

Rio Tinto, Baowu, and other developers of the Simandou iron ore project may be forced to make high-value downstream processing or steelmaking investments in Guinea. This is because the company is developing the significant Simandou project in Guinea, and the Guinean government is restricting mining companies from merely exporting iron ore to overseas plants.

Previously, due to slow progress in the construction of local alumina smelters, the Guinean government has already revoked the mining rights of some bauxite miners, including the Dubai-based giant Emirates Global Aluminium. The Guinean government's requirement for developers is not only to mine locally but also to build corresponding downstream supporting deep-processing plants and smelters .

Guinea's Minister of Planning and International Cooperation, Ismaël Nabé, recently stated in a media interview that building local smelting plants is crucial for the success of both Simandou and the country's economic development .

"We want to build a smelter in Guinea. This is our plan. We will build the smelter, whether it's for bauxite or iron ore," he said .

"The reason we are considering Baowu is because major miners are selling products to Baowu. If Baowu comes to Guinea, they would first build a smelter and then ship out the products," Nabé said. He added that Guinea needs smelters to fully utilize its resources .

"For 50 years, we have been exporting minerals overseas. If we build downstream processing facilities, it will benefit both our partners and Guinea. This can create jobs and change the entire ecosystem," he stated .

"Guinea is like Western Australia, like the Pilbara region 50 years ago. We want to develop, we want to change the locality. We want to use this money to develop other industries, such as agriculture, education, and infrastructure" .

However, building a smelter could mean an additional expenditure of tens of billions of dollars. According to the plan, Rio Tinto, Baowu, and their Simandou partners are scheduled to ship the first batch of ore from the mine in November, two months from now .

Although the current $23.2 billion Simandou plan does not involve any large-scale iron ore processing, a spokesperson for Rio Tinto said they are considering various options, including intermediate processing . "We are committed to working with our industry partners and the government on a feasibility study for building a pellet plant, which will help us jointly understand the feasibility and available options. Currently, we are focused on delivering the first shipment from Simandou," the Rio Tinto spokesperson said . Intermediate processing might be a currently considered option, requiring relatively less investment compared to a smelter .

The Simandou project is hailed as Africa's largest mining and related infrastructure project, costing $23.2 billion (approximately A$35.5 billion). It will include a 650-kilometer railway network and port infrastructure to serve two new mines in Guinea . The project is managed by the Simfer consortium, led by Rio Tinto, which also includes the Chinese state-owned steel enterprise Baowu, aluminum producer Chinalco, and other Chinese companies . A pellet plant converts iron ore into high-grade, high-value steelmaking feedstock .

Simandou is expected to produce ore with an iron content close to 65%, significantly higher than the average iron content of 55% to 62% in the Pilbara region . Rio Tinto and Simfer plan to increase their respective annual production to 60 million tons each, meaning their shared Morebaya port will export 120 million tons of iron ore annually over the next decade .

The high grade of the project has raised concerns among Australian producers, who fear the Pilbara region could be replaced by its African competitor . Rio Tinto's Pilbara Blend fines have been the industry benchmark since its launch nearly 18 years ago. This year, the company informed some Asian steel mills that the iron content in its product would be permanently reduced for the first time .

Andrew Forrest, Chairman of Australia's third-largest iron ore producer, Fortescue Metals Group (FMG), warned that as Chinese manufacturers turn to iron ore like that from Simandou, which is more suitable for low-emission steelmaking, miners in the Pilbara region risk being left behind.