CONAKRY, May 28 (Reuters) - Guinea said on Wednesday it hopes a new deal signed with Rio Tinto and Chinalco will allow the giant Simandou iron ore mine to start production in 2018 after it set the conditions for $20 billion of investment.
To export the high-grade ore from the remote Simandou South concession to Guinea’s Atlantic coast requires the construction of a 650-km railway through the West African jungle, a deep-water port and support infrastructures costing a total of at least $13.5 billion.
Simandou South - the largest iron ore and infrastructure project in Africa - has been delayed by political volatility in Guinea and uncertainties over its investment framework, after President Alpha Conde’s government suggested it wanted to retain a majority stake in the infrastructure consortium.
The deal signed on Monday made it plain that a third-party consortium would build and operate the rail and port infrastructure, which would revert to the government after 30 years - paving the way for feasibility studies and financing to be arranged.
“We have fixed a deadline for first production in 2018,” said Mining Minister Kerfalla Yansane told local radio on Wednesday. “That means that starting from now we must work on the construction of the railway and the opening of the mine.”
He said $300 million had been mobilised for feasibility studies which would allow the project to get underway.
The Investment Framework, seen by Reuters, gave an indicative date for production from the mine of Dec. 31, 2018. It said, however, the project could be scrapped by either side if it deviated badly from the agreed timetable and a cost-effective solution for its development could not be agreed.
The Guinean state would then need to reimburse the costs of the project, it said.
Rio, which holds a 46 percent stake in Simandou, said this month that production from Simandou would start in 2018 at best, with a bankable feasibility study due by early 2015.
The government hopes that project will not only provide competitive iron ore for 40 years - potentially doubling the size of Guinea’s economy - but the infrastructure will open up the interior of the rugged, heavily forested country.
Guinea currently holds a 7.5 percent stake in the Simfer company that operates the Simandou South concession, rising automatically to 15 percent once production starts.
The government will then have the option to buy a further 10 percent at cost price, and 10 percent more at market prices, under the terms of the deal.
The conclusion of the agreement was a welcome piece of good news for Guinea, which has been locked in a dispute with BSGR, the mining arm branch of Israeli billionaire Beny Steinmetz’s conglomerate, over the northern side of Simandou.
Guinea last month decided to strip BSGR and its partner Brazilian miner Vale of its rights to the northern part of Simandou, accusing BSGR of obtaining the concession corruptly in 2008 during the twilight of the presidency of Lansana Conte. BSGR strongly denies this.
The minister said Guinea would launch a bidding process for companies to purchase the right to exploit these blocs. (Reporting by Saliou Samb, editing by David Evans)