The world-class Simandou iron ore mine has officially commenced production, giving China greater influence in global iron ore pricing

One of the world's largest undeveloped iron ore mines and Africa's largest greenfield integrated mining project, the Simandou Iron Mine, has officially commenced production. This world-class project, costing over $20 billion, will reshape the global iron ore supply landscape and enhance China's influence in iron ore pricing.

According to The Paper, the production launch ceremony for the Simandou project was held at the Port of Maribaya in Guinea on November 11 local time. Guinea's President Mamadi Doumbouya, Vice Premier Liu Guozhong, Rwandan President Kagame, and Gabonese President Nguema attended the ceremony. Hu Wangming, Chairman of China Baowu Steel Group, witnessed this historic moment alongside various stakeholders of the project.

The launch of this project will directly change the global iron ore supply landscape. According to an article from Observer, Bloomberg reported that the substantial supply of high-grade iron ore from Simandou will enhance China's control over iron ore pricing and reduce dependence on foreign mining giants. Analysts pointed out, "China has never had this level of seaborne iron ore pricing power."

The project is jointly developed by the Guinean government, SimFer, and the Winning Consortium, covering systems such as mines, railways, and ports. Rio Tinto revealed that testing and commissioning of the infrastructure for the mine, railway, and barge port systems are underway, and both alliances have begun transporting ore from the mining area to the port via cross-Guinea railways. The first batch of goods is expected to start loading this month, with approximately 200,000 tons of ore to be shipped out by the end of the year.

World-Class Resource Ends 30 Years of Dormancy

The Simandou Iron Mine is located in the southeastern province of Kérouané in Guinea, with reserves of at least 3 billion tons and proven reserves of 4.4 billion tons, classified as a world-class large high-quality open-pit hematite mine. The mine's most notable feature is that the average total iron grade of the ore exceeds 65%, making it one of the highest and most precious grades globally, with concentrated ore bodies that are shallowly buried and easy to mine.

The ore deposit was first explored in the 1950s when Guinea was still a French colony. In 1998, geologist Sidiki Koné led a team for Rio Tinto to conduct mapping and drilling, during which he trekked through dense forests for six hours, making it almost unimaginable that this work could be completed.

However, the remote geographical environment, military coups, corruption scandals, and corporate struggles caused the Simandou mine to remain dormant for nearly 30 years. In 2008, former Guinean President Lansana Conté stripped Rio Tinto of half of its mining rights and transferred them to Israeli diamond tycoon Beny Steinmetz. Weeks later, Steinmetz's company quickly sold 50% of its Guinean assets to Vale SA for $2.5 billion, and the mining rights were again stalled for another decade.

The turning point occurred at the end of 2019 when a consortium of Chinese and Singaporean enterprises obtained development rights, promoting railway, port, and infrastructure construction. In July 2022, Winning Consortium Holdings and Rio Tinto established a joint venture to jointly finance and build infrastructure, with Guinea obtaining a 15% equity stake. Bloomberg reported that the Guinean government insisted on retaining Western investment, and with the vigorous lobbying of the U.S. Embassy, Rio Tinto was ultimately allowed to continue participating

Chinese Power Becomes a Key Driving Force

The successful commissioning of the Simandou project is the result of multi-party cooperation, in which Chinese power plays a key role. The project is jointly developed by the government of the Republic of Guinea, SimFer, and the Winning Consortium, with all co-built infrastructure and vehicle equipment to be transferred to the Guinea Company for operation. The Guinea Company is jointly owned by SimFer and the Winning Consortium, each holding 42.5%, while the Guinean government holds the remaining 15%.

The SimFer joint venture holds the mining rights for Blocks 3 and 4 of Simandou, with the Guinean government holding 15% and Simfer Jersey holding 85%. The latter is a joint venture composed of Rio Tinto (53%) and Chalco Iron Ore (47%). Chalco Iron Ore is a consortium led by Aluminum Corporation of China, which holds 75%, China Baowu Steel Group holds 20%, China Railway Construction holds 2.5%, and China Harbour Engineering holds 2.5%. Notably, Aluminum Corporation of China is also the largest shareholder of Rio Tinto.

The Winning Consortium of Simandou is composed of Weili International Group, Weiqiao Aluminum (affiliated with China Hongqiao Group), United Mining Supply International Company (collectively holding 51%), and Baowu Resources (49%) under China Baowu Steel Group.

According to Bloomberg, Rio Tinto CEO Bold Batar stated after inspecting the completed infrastructure in Guinea, "I see China's engineering capabilities; they can get things done."

Rio Tinto executive Chris Aitchison pointed out while introducing a railway bridge that the bridge, which is 307 meters long and 28 meters high, was completed in just over a month because it replicated the model of the Beijing-Shanghai high-speed rail bridge, "China has established skills that the West does not have, and this is a benefit we can see."

Reshaping the Global Iron Ore Pricing Landscape

For a long time, global iron ore supply has been controlled by three companies: Rio Tinto, BHP, and Vale SA.

Bloomberg reports that the commissioning of Simandou will further change the global market landscape, as China, the largest buyer, will gain more influence over iron ore, the world's second-largest traded commodity. Tom Price, head of commodity strategy at Panmure Gordon, stated:

"China has never had this level of seaborne iron ore pricing power, and it is expected that China will begin to take control here."

As Simandou reaches full production in the next two and a half years, iron ore prices may face a shock. Some large mining companies internally predict that iron ore prices could drop to $85 per ton within three years, far below half of the 2021 peak.

Despite the declining price expectations, the Guinean government remains enthusiastic about the project, with billboards everywhere displaying the "Simandou 2040" strategic development goals. The government has hired KPMG and Rothschild Group to invest iron ore revenues and provide consulting for obtaining its first sovereign credit rating.

The Guinean government hopes that iron ore can create long-term prosperity for the country, similar to the significance of oil for Saudi Arabia and the UAE, avoiding the resource curse. This has a significant impact on Guinea, which has experienced political turmoil, coups, the Ebola epidemic, and poverty.

The International Monetary Fund estimates that by the beginning of the next decade, the mining area will increase Guinea's GDP by more than a quarter. Most local employees at Simandou are illiterate, and the project provides numerous job opportunities and economic development momentum for the local community