Output from Guinea’s Simandou blocks 1 & 2 iron ore project — which could reach 60 million mt a year from 2026 — is unlikely to unbalance the iron ore market due to its high grades and because capacity elsewhere has been taken out of production, SMB-Winning, the alliance which gained rights to develop the project this month, said.
“The high-grade market can be thought of as a micro-market — maybe representing just 5% of the total iron ore market of some 2.7 billion mt/year production — as such we should be less exposed to price volatility than others,” Fadi Wazni, chairman of Societe Miniere de Boke (SMB), part of the alliance, told S&P Global Platts.
“If we throw 50 million-60 million mt into this market it won’t have much impact — 200 million may have an impact, however,” he said.
In recent years, many lower-grade iron ore mines, particularly in China, and with a total capacity of over 100 million mt/year, have exited the market because their operation was not cost-efficient. The vast majority have not re-entered the market this year, even though iron ore prices leapt to a five-year high after a tailings dam accident in Brazil led to production curbs.
Construction of the rail infrastructure required for Simandou’s blocks 1 & 2 is expected to start within weeks, following expectations of an early parliamentary approval for the project. According to Wazni, the rail infrastructure planned could provide up to 200 million mt annual freight capacity, which could serve iron ore production from blocks 1 & 2, expected to eventually rise to 110 million mt/year, and from other developments in the region: potentially including from Simandou blocks 3 & 4, where rights are held by Rio Tinto and Chinese aluminum company Chalco, and the Zogota iron ore mine alongside, currently eyed by London-based Niron Metals.
The impact of a new major mine player on international markets is not expected to unduly affect world prices because of the growing demand for higher-value ore, use of which can help reduce the amount of coal used in blast furnaces, this reducing carbon emissions, according to SMB-Winning.
Simandou is classed as the world’s largest untapped high-grade iron ore deposit, with an estimated 2 billion mt of ore reserves.
The $15-billion investment envisaged for the development program of blocks 1 & 2 will be partly offset by the scale of the logistics, which will be “a tool to stay competitive,” Wazni said. For instance, the deepwater port to be developed at Matakong in Guinea for the project will allow ships of up to 300,000 dwt to berth, he said.
The project’s developers will meanwhile discuss royalty levels with the Guinean government — currently set at 5% of delivered sales prices — considered relatively high by world standards. The Guinean state will have a 15% equity in the Simandou blocks 1 & 2 project, he said.
— Diana Kinch, email@example.com
— Edited by Jonathan Dart, firstname.lastname@example.org