The going gets tough for Rio in Africa

During its defence against BHP Billiton’s hostile bid, Rio Tinto sometimes seemed prepared to ransack the stationery cupboard in its quest for hidden value. Rio talked up the prospects of its development projects, such as Simandou, an iron ore mine in the mountains of Guinea, West Africa. Simandou, we were told, would be the next Pilbara, the vast iron ore field in Western Australia that has been the foundation of Rio’s wealth. Unfortunately, it seems that the Guinean Government also got excited and decided the asset must be worth more than what Rio had already paid. But then the country’s president died and there was a military coup. The new Government decided to give part of Rio’s concession to BSG Resources, a much smaller miner, and has written to Rio to warn it to stop challenging the decision. With an estimated development cost of at least $6 billion (and possibly as high as $12 billion), it is hard to see how Simandou will ever produce meaningful quantities of iron ore without Rio’s full involvement. There are only a handful of companies in the world capable of developing such an asset and the privately held BSG is not one of them. This is turning into the sort of saga that makes many Western companies wary of doing business in Africa. Rio’s best hope may be to sit tight and hope for another coup. source:business.timesonline.co.uk