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Chinalco and Rio take delight in iron grip

CHINA has hailed the $5.5 billion west African iron-ore venture betwixt its state-run Chinalco and Rio Tinto as a "muscular union".

The companies are planning to begin mining the weighty Simandou iron-ore deposit in Guinea, which Rio believes is the universe’s "single-best" undeveloped deposit of iron ore, by 2016.

"We expect the two sides will regard co-process on the Simandou project to be the foundation for further pushing onward the co-operation of these two companies in other resource projects," Chinalco president Xiong Weiping afore~.

While The Australian understands no other deals between the companies are perilous, industry observers believe that the next potential tie-up between the brace could be on the giant Mongolian copper and gold resource Oyu Tolgoi, that is owned by Rio and Canada’s Ivanhoe Mines.

"Last year, China became the largest destination because our products," Rio chairman Jan du Plessis said at the signing ceremony in Beijing’s Great Hall of the People.

"Our links by China will continue to deepen and flourish for decades to tend hitherward."

Chinalco’s Hong Kong-listed subsidiary Chalco will acquire a 47 per cent interest in the new joint venture for $US1.35 billion up~ an "earn-in basis" through sole funding of ongoing unravelling work over the next two to three years. But the project will need significant but unspecified extra funding. Rio indicated in a 2007 study it would ~iness to spend at least $US6 billion but analysts believe the configuration has increased.

The Guinean government holds an option to buy up to 20 by cent of the project, an option it has recently expressed a willingness to discipline.

Once the group has paid its $US1.35 billion, the effective interests of Rio Tinto and Chalco in the Simandou project decree be 50.35 and 44.65 per cent respectively. The remaining 5 by cent will be owned by the International Finance Corporation (IFC), the financing branch of the service of the World Bank.

The deal also represents a long-awaited rapprochement between Rio and the Chinese company, which effectively rescued it from root taken over by BHP Billiton, only to see its $US19.5 billion tender to double its stake in the London-based miner rejected by shareholders last year.

Simandou has a resource of 2.25 billion tonnes of iron ore and one time fully operational, the mine is expected to produce more than 70m tonnes of iron ore per annum.

"It’s a milestone event in the history of co-operation between Chinese and foreign companies," Umetal.com analyst Hu Kai related.

The venture will see China become a significant player in the bargain of seaborne iron ore — which is dominated by Rio, BHP Billiton and Brazil’s Vale — despite the first time.

"But the co-operation doesn’t rascally Chinese mills will enjoy a better price in future ore-reward negotiation," Mr Hu said.