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Rio Tinto, Chinalco Sign MoU to Form Iron Ore Joint Venture

03/23/2010 - Rio Tinto and Chinalco have signed a nonbinding memorandum of understanding to establish a joint venture covering the development and operation of the Simandou iron ore project in Guinea. The scope of the proposed joint venture covers rail and port infrastructure as well as the mine itself.

Rio Tinto and Chinalco have signed a nonbinding memorandum of understanding (MoU) to establish a joint venture covering the development and operation of the Simandou iron ore project in Guinea. The scope of the proposed joint venture covers rail and port infrastructure as well as the mine itself.
 
Rio Tinto currently owns 95% of the Simandou project with the remaining 5% being owned by the International Finance Corp. (IFC), the financing arm of the World Bank. Under the MoU, Rio Tinto's interest in the Simandou project will be held in a new joint venture.
 
Chinalco will acquire a 47% interest in the new joint venture by providing US$1.35 billion on an earn-in basis through sole funding of ongoing development work over the next two to three years. Once Chinalco has paid its US$1.35 billion, the Rio Tinto and Chinalco effective interests in the Simandou project will be 50.35% and 44.65%, respectively.
 
Following the formation of the joint venture, Rio Tinto's Simfer subsidiary will continue to manage the development of the Simandou project. Rio Tinto and Chinalco will now work on finalizing definitive and binding transaction documentation. In addition to the sole funding provided by Chinalco, the project will require significant additional development expenditure before it becomes fully operational, according to Rio Tinto. 
 
The Guinean Government holds an option to buy up to 20% of the project. Any interest acquired by the Guinean Government would proportionally reduce the effective interests of Rio Tinto, Chinalco, and the IFC in Simandou.
 
Rio Tinto has already spent more than US$600 million on exploration and evaluation work necessary to develop a world-class mine at Simandou. Once fully operational, the mine is expected to produce over 70 million tonnes of iron ore per annum.
 
"We have long believed that Rio Tinto and Chinalco could work together on major projects for mutual benefit,” said Tom Albanese, Chief Executive of Rio Tinto. “Chinalco is an excellent partner for us in Simandou. Chinalco brings its own skills and capabilities in major projects and access to the infrastructure expertise of other Chinese organizations. We believe the Simandou project is a large-scale, long-life asset and is the single best undeveloped source of high grade iron ore. By working with Chinalco and the IFC, we expect to realize great economic and social benefits for Guinea, and great value for our shareholders."
 
Rio Tinto is a leading international mining group headquartered in the UK, combining Rio Tinto plc, a London and NYSE listed company, and Rio Tinto Ltd., which is listed on the Australian Securities Exchange. Rio Tinto's business is finding, mining, and processing mineral resources. Major products are aluminum, copper, diamonds, energy (coal and uranium), gold, industrial minerals (borax, titanium dioxide, salt, talc), and iron ore. Activities span the world but are strongly represented in Australia and North America with significant businesses in South America, Asia, Europe, and southern Africa.