Rio Tinto Puts $4+ Billion Where its Mouth is: Iron Ore
COMMENTARY—ProspectingJournal.com—Defying the current trend of economic uncertainty, which has mainly focused around growing fears of a slowdown in China, Rio Tinto has stayed its bullish course towards iron ore.
In today’s media release, Rio announced that it will spend US$4.2 billion to develop its iron ore business in Australia and West Africa. According to Rio, the investment will allot US$3.7 billion to its iron ore operations in the Pilbara, Western Australia, and US$501 million for “further infrastructure development at the Simandou iron ore project in Guinea.”
While further development of the Company’s highly successful Australian operations is hardly a surprise, the flow of funds to Simandou is a significant step in uncovering the world’s largest undeveloped iron ore project. Simandou will make Guinea the world’s third-largest iron ore producer after Australia and Brazil and will no doubt spur an increase in economic activity in a region starved for investment.
Rio’s move also puts to rest rumours that a private Chinese-Anglo consortium was set to take the project. The geopolitical ramifications of Rio’s move have yet to bet seen, though it is no secret that the Chinese have made significant strides to secure an ever-increasing portfolio of iron ore projects in resource-rich Africa.
Tom Albanese, Chief Executive of Rio, sees the steel-making ingredient as an essential future investment, despite global economic certainty: “We are directing investment to projects that will generate the most attractive returns for shareholders and are resilient under any probable macroeconomic scenario.”
Chief Executive Sam Walsh states “The investment we and our partners are making in Simandou takes us a step further towards the phased development and ramp up of a new world-class iron ore resource. Further investment will be made as the Government of Guinea progresses its financing strategy and grants approvals for the next steps in developing rail and port infrastructure. The experience gained in expanding our Pilbara operations will be invaluable as we develop Simandou.”
With Rio leading the way, miners are now on the fence as we wait to see how the company works with Guinea to put such a significant project into production. One thing is certain: The development of a railway, mine and port will no doubt add further investment value and opportunities to a region that is awash with mineral wealth.