Summary

The Simandou iron mine in Guinea represents one of the last greenfield projects in the world, and its vast reserves of high-grade ore are expected to tip the scales of global supply. Some even call it the “Pilbara killer,” referring to the potential of Simandou to erode Australia’s dominant position in global iron markets. Now, after decades of false starts, corruption scandals, political upheavals, and lawsuits, the promise of Simandou is inching toward realization, spurred forward by a Chinese government that wants nothing more than to unseat Pilbara and lessen China’s reliance on critical inputs sourced from the West in the process.

This report examines the history and geopolitics of the Simandou iron mine, along with the risk factors that still stand in the way of the project’s ambitious vision being realized.

Background

China’s Iron Demand

Iron has played a leading role in China’s economic miracle. The commodity is a key input in steel production, making iron demand a factor of infrastructure spending in China. The bridges, railways, and highways now connecting every corner of the country required an uninterrupted flow of iron into Chinese steel mills. So too did the construction materials that drove a decades-long property boom, a boom that has long since exceeded rational market dictums and begun to produce rampant oversupply. Finally, whenever these sources of domestic demand fell short, iron was still needed for steel exports, as China is the largest exporter of steel by a wide margin, nearly doubling the world’s second-largest exporter of Japan in 2021 and showing few signs of slowing down since then.

The scale of China’s iron demand far outpaces its domestic production capacity. China imported 1.18 billion metric tons of the mineral in 2023, a record high, and one that is expected to be eclipsed soon as 2024 imports are tracking 7% higher through May. This dwarfs the 387 million metric tons that China’s mines produced in 2023. Such pronounced import dependance lends China a hefty weight in global iron markets, such that, over the past two decades, global iron prices have mirrored the ups and downs of China’s economic growth. Overall, Chinese imports increased by over 600% between 2004 and 2024, and as of 2024 China purchases approximately 75% of all seaborne iron supply.

There are two takeaways here. One, iron is highly strategic in that it’s necessary for the smooth functioning of the Chinese economy. It remains the lifeblood of a Chinese steel industry that is both overwhelmingly state-owned and a crucial job provider, so much so that rampant overproduction and dumping are treated as the acceptable cost of meeting domestic social stability and economic security objectives. And two, shortfalls in domestic supply mean that China must look to global markets to source the iron it needs.

The top-heavy nature of the global iron market represents a vulnerability in China’s supply chain. And much like how the United States is now engaged in the friend-shoring of strategic critical minerals, China can no longer ignore the charged geopolitics of an iron market dominated by Australia and Brazil. Australia alone accounted for a staggering 736 million metric tons of exports to China in 2022. Such stark reliance on a close US ally is conspicuous in the Xi Jinping era, when supply lines from defense to tech to food are being rerouted through friendly (non-Western) states. The contradiction was on full display throughout the post-2018 collapse in China-Australia relations, a period that saw open discussion of potential iron export controls by Australia in reprisal for Beijing’s trade war. For its part, China was never able to bring its full coercive weight to bear on Canberra, for fear of the economic blowback at home that a ban on Australian iron would surely bring.

Though it was eventually fought to a draw, the Australia spat ended up being instructive: Beijing redoubled its efforts to stimulate domestic iron production and diversify foreign suppliers. And though the original plan to develop Simandou pre-dates these tensions, the project should still be viewed as a part of this overall effort. As one of the last unplucked gems of high-grade iron ore in the world, Simandou holds out the prospect of alleviating China’s overreliance on Australian iron and in doing so eroding the economic leverage of the collective West in the event of, for example, a war in or around Taiwan.

The Promise of Simandou

As the world’s largest untapped deposit of high-grade iron ore, Simandou has the potential to alleviate China’s import dependency and expand the global field of heavyweight iron producers.  According to the latest Rio Tinto estimates, Simandou will produce 2.8 billion metric tons over a 26-year lifespan, with an average grade of 65.3%. (64% and lower is considered low grade, and 62.5% is the accepted global standard in steel production).

Given that grade tends to slip over the course of a mine’s lifecycle, Simandou’s untapped bounty stands out in a landscape of late lifecycle mines and diminishing grades around the world. The increased value of high-grade ore doesn’t only stem from its smelting efficiency; high grade iron ore is also expected to play a critical role in transitioning steelmaking from its current fossil fuel-heavy blast furnaces to more environmentally friendly hydrogen- and natural gas-based smelting processes. These green steelmaking methods require direct reduction grade (DR grade) iron ore with a minimum purity of 67%, which Rio Tinto believes Simandou will produce in significant quantities. Any reduction in the carbon footprint of the steel industry is significant for the global energy transition, as the sector accounted for around 7% of global emissions in the energy system in 2020, exceeding the combined contribution of all road freight.

 

The Major Players

The Simandou complex is divided into four blocks: one and two (the northern blocks) and three and four (the southern blocks). Rio Tinto is involved in the development of blocks three and four via Rio Tinto Simfer, a joint venture between Rio Tinto, China’s Chalco Iron Holdings (CIOH), and the Government of Guinea. Rio Tinto is the majority owner of Simfer, with the Government of Guinea controlling a 15% stake.

The rights to develop blocks one and two in the north are held by Winning Consortium Simandou (WCS). The consortium consists of the Singapore-based Winning International Group, Weiqiao Aluminum (part of China’s Hongqiao Group Limited), and Guinea’s United Mining Supply Group (UMS).

Rio Tinto Simfer and WCS are cooperating to co-develop the necessary rail and port infrastructure, incorporating a specialty entity, La Compagnie du TransGuinéen (CTG), for this end in 2022. Ownership of CTG is split between Simfer and WCS at 42.5%, along with the Government of Guinea’s 15% stake.

China’s state interests are represented across all four blocks of Simandou. CIOH (minority owner in blocks three and four) is a jointly held by Chinese state-owned giants the Aluminum Corporation of China (Chinalco, 75%), Baowu Steel (20%), China Rail Construction Corporation (2.5%), and China Harbour Engineering Company (2.5%). Chinalco is one of the largest aluminum producers in the world and operates at all links of the aluminum production chain, from mining to smelting to fabrication. It is also heavily engaged in bauxite mining in Guinea, and the country currently accounts for some 70% of China’s imports. The Hongqiao Group, which has a stake in blocks one and two via subsidiary Weiqiao Aluminum, is another major player in China’s aluminum industry.

 

Simandou: A History of Setbacks

Against the backdrop of 30 years of logistical nightmares, Machiavellian politics, and unending lawsuits, Simandou has become a byword for bureaucratic limbo. Yet the winds may have finally shifted in 2019, helping the project to break its stasis. Here is a timeline of major developments:

1997 – Rio Tinto is granted its first exploration license to develop all four blocks in the Simandou mountains in southeastern Guinea.

2008 – President Lansana Conté issues a decree stripping Rio Tinto of the rights for blocks one and two, citing a lack of progress on the project. The rights are later awarded to Beny Steinmetz Group Resources (known as BSGR).

June 2009 – Chinalco comes close to increasing its stake in Rio Tinto from 9-18 percent, but the deal falls apart at the last minute in part over concerns of increased Chinese control over the mining giant.

April 2010 – BSGR signs agreement to sell 51% of its Simandou assets to Vale for $2.5 billion.

April 2013 – The widow of former president Lansana Conté, Mamadie Toure, is ensnared in an FBI bribery investigation, implicating BSGR in potential bribery when it acquired the rights to blocks one and two. .

April 2014 – Government of Guinea strips Vale-BSGR joint venture of all its mining rights, concluding that they were acquired via bribery. Vale later sues BSGR and is awarded $1.25 billion in damages.

October 2016 – Rio Tinto signs non-binding agreement to sell its Simandou stake to Chinalco for $1.1-1.3 billion; the agreement later expires.

March 2018 – BSGR enters administration to protect assets amidst numerous legal challenges.

February 2019 – BSGR and Government of Guinea reach a settlement agreement whereby BSGR relinquishes its rights to Simandou and the government drops its legal action.

November 2019 – Winning Consortium Simandou (WCS) wins public tender to develop blocks one and two with a $14 billion bid.

July 2022 – Government of Guinea, Winning Consortium Simandou, and Rio Tinto Simfer incorporate La Compagnie du TransGuinéen (CTG) to co-develop rail and port infrastructure for Simandou project.

March 2023 – Rio Tinto announces that an SEC investigation regarding bribery payments made to a consultant in 2011 has been resolved; the company pays $15 million in civil penalties as part of the settlement.

August 2023 – Agreement reached between Simfer, Rio Tinto, Winning Consortium Simandou (WCS), on infrastructure for Simandou project. The deal envisions the co-development of 600 kilometers of multi-use rail, along with port facilities to export iron mined in Simandou mining concessions in southeast Guinea.

July 2024 – Rio Tinto announces that it has secured all necessary regulatory approval from Guinea and China.

December 2023 – Rio Tinto projects an estimated $6.2 billion in capital expenditure for developing the Simfer mine and co-developing rail and port infrastructure to facilitate export.

2025 – Production expected to commence sometime in 2025. At full capacity, Simandou is expected to bring an additional 120 million tonnes of high-quality ore to market, representing around 5% of the current seaborne supply.

Risk Factors

Getting the Iron Ore to Market

The above timeline outlines how, after decades of delays and false starts, the Simandou project only got rolling again once the BSGR rights passed to WCS in 2019. The reason for this is simple: WCS represented a technically proficient and liquid partner, one who could shoulder the burden of co-developing the massive infrastructure investments needed to bring Simandou iron to market. Add to this newfound political will on the Chinese side to diversify away from overreliance on Australian iron ore, and the stage is finally set for a turning point in the troubled project.

If Simandou happened to be near a port or an export corridor, its vast iron reserves would have already been tapped, much like the bauxite heartland in the western part of Guinea. But in reality, the infrastructure logistics involved have been and continue to be daunting: the Simandou mountain range is tucked away in the southeast of the country, far from any port that could be used for shipping. Over the years, various stakeholders have deliberated over building entirely new infrastructure from scratch or rehabilitating old stock in Guinea or attempting to piggyback on preexisting infrastructure and shipping through Liberia’s Buchanan port. Unsurprisingly, the latter option has always been the preferred one for profit-minded miners. However, successive administrations in Guinea have driven a hard bargain in the hope of maximizing the project’s developmental benefits and leveraging the growth potential of a new domestic rail corridor. In this, the current junta is no exception, and Simandou’s external partners ultimately agreed to keep the project an all-Guinea affair. The vision moving forward is to build a 552 km rail line from the mine to Guinea’s Atlantic coast, where a new deepwater port will be built at Morebaya, around 60 kilometers south of Conakry.

The estimated $6.5 billion cost of developing the necessary infrastructure will be shared by WCS and Simfer, with Rio Tinto contributing $3.5 billion. WCS is expected to build some 536 km of the main rail line and a barge port, while Simfer will construct a 70 km spur line and a vessel port. Upon completion, all co-developed infrastructure will pass to the Compagnie du Transguinéen JV joint venture, which will be responsible for operations and maintenance going forward.

Political Instability in Guinea

Guinea’s weak state institutions, severe public infrastructure deficit, and periodic political upheavals lend themselves to a fraught business environment. The country has a long history of coups, the most recent of which deposed 83-year-old former president Alpha Condé – the first democratically elected leader in the country’s history – in 2021. Military juntas have controlled Guinea for most of its history since the death of nationalist leader Ahmed Sekou Touré in 1984, and violence has periodically broken out between the military and civilian protestors. One major incident occurred in 2007, when security forces opened fire on corruption protestors and unleashed a campaign of widespread terror on the population of Conakry.

Guinea is a classic example of the resource curse, where large portions of the population do not perceive themselves as benefiting from the country’s natural wealth, in this case the mining industry, which accounts for some 35% of the country’s GDP. A case study backed by the International Finance Corporation found that villagers were routinely displaced from ancestral land and relocated to settlements severely lacking in clean water, arable land, and housing quality to make way for a bauxite mine. Given the weak institutions and lack of effective oversight, such cases are unlikely to be exceptional, and this is noteworthy because farmers being pushed off their land without fair compensation is a recipe for social unrest across history. The Simandou mines, along with the accompanying port and rail lines, will all require similar mass displacements. One of Rio Tinto’s early assessments from 2014 projected some 280 km2 in total resettlements – roughly the size of Malta. How these displacements are conducted will be critical to Simandou’s long-term success, especially because such concerns were fundamental in both the original electoral triumph and eventual overthrowing of former president Alpha Condé, who built his political brand on extracting a better developmental dividend from foreign mining concerns.

These political contradictions have yet to be resolved, and they will continue to loom over Simandou’s life cycle. The post-2021 junta remains in control of the country under interim president Mamady Doumbaya, a military officer and leader of the Special Forces. The junta has been periodically pressured to effect a return to civilian rule since 2021, and seemed to respond positively at first with a pledge, now lapsed, to hold elections within two years. There remain no strong signals that new elections are forthcoming. On the contrary, in February 2024, Doumbaya dissolved the government without warning and blocked its members from leaving the country. Now, opposition groups that originally supported the removal of the widely unpopular Alpha Condé are turning their attention to the junta, with some threatening to defy the government’s protest ban unless elections are held within a year. Absent any democratic legitimacy, the junta must turn to developmental and/or nationalist legitimacy, a path that risks eroding the profit margins of the Simandou partners. Yet despite tough talk about driving a harder bargain for all Guineans out of the gates, the Doumbaya government has not taken any concrete steps to bring foreign miners to heel and increase state revenue generating from the industry. This lack of mining-related revenue, which would in theory be used to improve the country’s infrastructure and socioeconomic situation, is a longstanding problem. According to statistics from the US International Trade Administration, while Guinea’s bauxite exports quadrupled between 2015-2020, their associated state revenues only grew by approximately 48%. Absent concrete steps to rectify the problem, the next and only remaining course of action left to the regime will be to crack down on the opposition movement and turn the screw on political rights.

A scenario is emerging where the Simandou ventures are forced to partner with an authoritarian regime that relies on repression to maintain its rule. This could generate reputational risk unique to Rio Tinto depending on the extent and media exposure of the repression. Severe crackdowns also risk nudging Guinea further into China’s geopolitical orbit where Conakry has hitherto been the exception in the sub-Saharan ‘coup belt’ given the junta’s balanced relations between East and West. But the risks don’t end here. Even with the no-questions-asked approach of Chinalco and Weiqiao Aluminum, the risk of periodic collapses in political order threatens Simandou’s operations, especially given the expanse of territory lying between mine and port. This vast and unsecurable tract is vulnerable to blockade, sabotage, and/or destruction in the event of a civil conflict, making the political integrity of the Conakry government a top-level concern. And while Guinea’s politics have yet to fracture along sectarian lines in the post-independence era, this won’t necessarily always be the case in a country that stands out in terms of its ethnic and linguistic diversity.

Global Iron Market Dynamics

The capital investments needed to bring Simandou online are quite significant, and they demand a certain buoyancy in iron prices for the endeavor to remain economically feasible. This has been a nagging issue in the past, with Simandou’s development shooting up or down the political agenda on the basis of global iron prices; it will remain a major consideration in the future.

On the supply side, additional output capacity is coming online in Brazil, Australia, and of course, Guinea.  However, this new supply must be weighed against the diminishing returns of older mines, and ratings agency Fitch has noted persistent under-investment in major producers, which is expected to create supply-side upward price pressure through 2025-2026. Geopolitical and climate risk is another key consideration, especially given the highly concentrated nature of iron production; for example, we’ve recently witnessed the potential for heavy rainfall to shutter mining and shipping operations in Brazil and Australia.

The demand side is also a moving target, and one that will largely hinge on China’s appetite for iron, as discussed in the above section. It remains to be seen though just how much iron will be needed in the context of an oversupplied domestic real estate market, which won’t be seeing an influx of new buyers anytime soon. China’s steel industry may also encounter headwinds emanating from protectionist-minded governments attempting to shield their own industries from cheap imports, especially as Chinese steel exports are diverted away from the US market following President Biden’s largest round of tariffs. Simandou might be somewhat insulated here in its ability to produce quantities of DR grade ore – the higher-grade iron ore required for green smelting processes – which carries a higher price premium than regular grades. However, this situation can also change quickly as many of the world’s mining giants are scrambling to find alternative ways to achieve similar carbon reductions using lower-grade ores.