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Simandou inspires big bucks deal

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Rio Tinto and Chinalco on cusp of major agreement

One of the world’s largest untapped iron ore deposits, Simandou, in Africa, could be in development if Rio Tinto seals a crucial joint venture agreement with its largest shareholder, Chinalco.

Talk of the deal, expected to be around $4.4 billion, surfaced after the Chinese aluminium giant suspended the shares of its Hong Kong-listed subsidiary Chalco yesterday and said that it would hold a formal signing ceremony.

Chinalco, which has an interest of around nine per cent in Rio, signed a non-binding $3.24 billion pact with the miner in March to jointly develop an iron ore mine in Simandou. Under that deal, Chinalco was due to pay Rio $US1.35 billion over two years to take up its 44.65 per cent stake.

The Simandou project in the west African nation of Guinea has been compared with Western Australia's Pilbara region for its potential size and opportunity. The project has however been facing bottlenecks due to tension between miners and the former national government, as well as funding concerns.

The new deal -- the largest third-country mining collaboration between a Western and Chinese company -- could bode well for further joint ventures with state-owned Chinalco. The Mongolian Oyu Tolgoi project may be be involved according to a report in The Australian.

The new deal, if finalised, will put to rest tensions with China after Rio's rejection last year of Chinalco's $21.7 billion offer for a larger slice of the miner and the arrests of four Rio employees for bribery and stealing business secrets, including Australian Stern Hu.

The Simandou resource lies several hundred miles from the coast and there is no infrastructure. Rio has previously estimated the 70 million tonne a year project would cost at least $US6 billion to fully develop.