Rio Tinto and Chinalco sign agreement to establish Guinea joint venture

By Jane Wardell, AP
Thursday, July 29, 2010

Rio Tinto and Chinalco sign iron ore deal

LONDON — Anglo-Australian mining company Rio Tinto PLC and China’s state-owned Chinalco have set aside recent tensions and agreed Thursday to establish a joint venture to operate an iron ore project in Guinea, in West Africa.

London-based Rio Tinto said that Chalco, a subsidiary of Chinalco, will acquire a 47 percent interest in Rio’s Simandou project by providing $1.35 billion to fund development work over the next two to three years.

The pair said they hope to begin operating the mine in five years and expect it to produce more than 70 million tons of high-grade iron ore annually, adding that satisfying demand in the Chinese market will be a high priority.

“Developing our relationship and business links with China is a key priority for Rio Tinto,” Rio Tinto Chairman Jan du Plessis said in a statement issued after a signing ceremony in the Great Hall of the People in Beijing, noting that Chinalco is Rio Tinto’s biggest shareholder with a 9 percent stake.

The relationship between Rio Tinto and China became strained last year when the company walked away from a planned $19.5 billion investment at the height of the financial crisis, instead opting for a rights issue and a joint venture with Australian miner BHP Billiton.

A few months later, four of its workers were arrested in China and charged with bribery over iron ore pricing.

The company’s executive in charge of iron ore negotiations, Australian citizen Stern Hu, was sentenced in a Shanghai court in April to a total 10 years in prison while three Chinese colleagues were imprisoned for between seven and 14 years. Australia’s then Prime Minister Kevin Rudd, a Chinese-speaking former diplomat to Beijing, publicly criticized the secrecy surrounding the quartet’s trial.

In a sign of the easing political tension, government officials from China, Guinea, Britain and Australia were represented at Thursday’s signing ceremony.

Chinalco President Xiong Weiping said that the agreement on the Simandou project would be the “foundation for further pushing forward the cooperation of these two companies in other resource projects.”

Rio Tinto, which currently owns a 95 percent interest in the Simandou project after being granted a mining concession in 2006, said it was keen to start on the project as soon as possible and both companies are “working will all stakeholders to expedite the process.”

The formation of the joint venture will be finalized in consultation with the Guinean government and the company hopes to start mining in five years.

Once Chinalco has completed its payment, Rio Tinto will hold 50.35 percent and Chinalco 44.65 percent of the joint venture, with the remaining 5 percent owned by the International Finance Corp., the financing arm of the World Bank.

Chinalco, which is looking for investment opportunities to diversify its business away from aluminum into other commodities, said the deal will balance China’s need for security of supply on the global iron ore market.

“The establishment of a joint venture will make use of Chinalco’s advantages in the infrastructure field and its profound understanding of the Chinese market as well as Rio Tinto’s technologies and experience in the operation of large mining projects so as to form a complementary and powerful union,” said Xiong.

Rio Tinto has already spent some $650 million on exploration, environmental, and evaluation work to develop the mine, employing more than 1,100 people in Guinea. It expects to create tens of thousands of jobs during the construction phase and more than 4,000 full-time jobs once the mine is operational.

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