RIOCD Rio Tinto Ltd

By Rhiannon Hoyle

Rio Tinto's single biggest investment over the next few years is likely to be a huge African iron ore project that could reshape global supplies of the steelmaking ingredient.

The world's second-largest miner by market value said Wednesday it expects to contribute roughly $6.2 billion to the initial development of the Simandou mine, including port and rail infrastructure needed to export the ore.

The iron ore buried in Guinea's Simandou mountains is among the world's largest untapped deposits of the commodity. Its riches have been coveted by miners and investors in a market that has long been dominated by exports from Australia and Brazil.

Rio Tinto has the rights to develop the southern half of the deposit in partnership with the Guinean government and a Chinese consortium led by Aluminium Corp. of China. The Winning Consortium Simandou, which includes Singapore-based Winning International Group and China Hongqiao Group, has rights to develop the northern half, also in partnership with the government.

The capital estimates by Rio Tinto on Wednesday are "another step to unlock this world-class deposit of high-grade iron ore," Chief Executive Jakob Stausholm told reporters. The miner estimated the investment to be made by its joint venture will total $11.6 billion.

In recent years, Rio Tinto has mostly invested in improvements to existing mining operations rather than in raising output. Miners globally have been more cautious about big projects and megadeals after a punishing market downturn a decade ago.

Today, Rio Tinto is ramping up production from one project, an expansion of its Oyu Tolgoi copper operation in Mongolia, which it expects to be the world's fourth-biggest copper mine by 2030.

The company expects to make capital investments of roughly $10 billion a year between 2024 and 2026, including up to $3 billion annually directly related to growth.

"The largest investment over the next three years is expected to be Rio Tinto's equity share of the Simandou project once approved by the Rio Tinto board, as spend starts to wind down at Oyu Tolgoi beyond 2024 with completion of the infrastructure," the miner said in a statement.

The rest of the spending will likely be focused on copper and lithium projects, some of which are yet to be approved, Rio Tinto said.

Some analysts have raised concerns that iron ore supplies from Simandou will flood the market and weigh on prices, squeezing miners' margins. Still, Simandou's iron ore is viewed by some as too valuable to remain in the ground.

"Simandou is going to happen with or without Rio Tinto," Stausholm told reporters.

Forecast production from Simandou accounts for roughly 5% of the seaborne market, he said, and the iron ore there is higher grade than most existing mines around the world. That means it can be used in less-polluting electric arc furnaces.

Rio Tinto expects first production from the mine it is jointly developing in 2025. It will take about 30 months to ramp up to a planned 60 million metric-ton annual capacity.

Stausholm said he is optimistic about the outlook for iron ore demand despite the continued head winds buffeting China's property sector, an important source of steel demand.

Chinese infrastructure development is picking up and the automotive sector is strong, he said.

"All in all, there is very decent demand in China. I hope and believe that that is not just a short-term phenomenon."

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

(END) Dow Jones Newswires

December 05, 2023 19:06 ET (00:06 GMT)

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