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Rio Tinto: 'Solid Progress' At Simandou Iron Ore Joint Venture With Chalco

Wednesday, Feb 29, 2012
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 Amid warnings of tough times ahead for the steel sector, Rio Tinto's Simandou iron ore joint venture with Aluminum Corp. of China Ltd. (ACH) in Guinea is progressing solidly, Sam Walsh, chief executive of iron ore for Rio Tinto PLC (RIO), said Wednesday.

 
 
The Simandou project is expected to start trucking out ore next year, eventually adding 95 million metric tons a year to global output.
 
 
The project, a collaboration between the world's largest iron ore buyer and second-largest ore miner, was the result of Rio Tinto's effort to repair relations with China after the company ditched a planned $19.5 billion investment from Chalco's parent, Chinalco.
 
 
Walsh told an industry conference that he was pleased that Chalco President Luo Jianchuan had participated in a recent meeting in Paris with Rio Tinto executives, Guinea government officials and International Finance Corp. representatives to help move the project along.
 
 
Simandou will start producing via integrated rail-port links by 2015, Walsh said.
 
 
Speaking at the Metal Bulletin conference, Walsh emphasized the strong recovery in Rio Tinto's relations with China, its biggest customer. Rio Tinto is considering more than 120 potential cooperation projects with China and expects to spend $1.5 billion on capital equipment in China this year, he said.
 
 
However, junior miners may face funding difficulties this year, amid signs of global economic trouble for the iron ore sector, Walsh said.
 
 
China's steel demand has recovered more slowly than expected this year, and iron ore prices are likely to rebound in the second half, said Ian Roper, CLSA Asia-Pacific's global commodity strategist.
 
 
Iron ore prices may fall to $125 a metric ton in March due to the steel sector's sluggish recovery before rebounding to $130 a ton in the second quarter, Roper said.
 
 
Steel demand may recover more strongly in the second half but the global iron ore supply will likely remain limited, he said.
 
 
Growth in China's steel consumption is likely to slow to 3.9% this year versus 4.6% last year, CLSA said. However, it's likely to rise to 6.4%, to 682 million tons, next year, CLSA said.
 
 
Still, China isn't likely to turn to domestic sources for most of its iron ore. High operating costs and a bearish economic outlook are discouraging domestic iron ore mines from investing in new capacity, a Macquarie Commodities Research analyst said. The returns on investment in Chinese mines are negative based on Macquarie's calculation of longterm ore prices, Graeme Train said.

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