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SYDNEY: Rio Tinto is in talks with China's Chinalco on a massive mining project in Guinea, reports said Tuesday, raising hopes of a rapprochement which could unlock one of the world's biggest iron ore fields.
The mining giant is in "advanced" discussions with its former Chinese suitor, the Wall Street Journal and Australia's Fairfax media group both said without giving sources. Rio did not make any comment when contacted by AFP.
The reports follow last year's collapse of a US$19.5-billion Chinalco cash injection for debt-strapped Rio, and China's arrest of four Rio employees during unsuccessful iron ore contract talks.
Analysts said Rio wanted to tap state-owned Chinalco's vast wealth and influence in the West African country to push forward development of the US$12-billion Simandou field, which has been stymied by political upheaval.
"It shows that the bridges between the two have not been burned and they can strike a relationship where they both bring something unique to the table," said Tim Schroeders of funds manager Pengana Capital.
"It is encouraging in terms of China's access to Rio Tinto's technical expertise and Rio Tinto's access to Chinalco's access to capital and ability to do business in difficult places."
If the governments of China and Guinea approve the deal, it was likely Chinalco would pay for its Simandou interest by financing the next stage of pre-development, Fairfax said.
Chinalco and Rio were also in talks on iron ore exploration in China, bauxite and alumina refining in Australia, and Rio's Oyu Tolgoi copper and gold project in Mongolia, it added.
James Wilson, a research analyst with stockbroker DJ Carmichael, said the giant Simandou field could produce up to 200 million tonnes of iron ore a year - the same as Rio Tinto's entire Pilbara operation in Western Australia.
He said the 2.5-billion-tonne seam, which stretches for some 110 kilometres, was "very high grade" at about 66 per cent iron, better than any of the Australian ore which Rio has been selling to China in vast quantities.
"It is pretty good gear, and it will underpin Rio Tinto's expansion down the track," Wilson told AFP. "The only trouble is it will cost them US$12 billion to develop."
Anglo-Australian Rio, the world's third-biggest miner, has been working on Simandou for about 12 years but has hit trouble with Guinea's military rulers, who handed part of its landholding to an Israeli billionaire.
China signed a US$7-billion mining and oil deal with Guinea last October in a controversial move just weeks after troops opened fire on protesters, killing 150 people, according to rights groups.
Rio's senior officials have outlined plans to strengthen relations with China, and chief executive Tom Albanese is due to attend the China Development Forum in Beijing this weekend.
"It is a world-class monster. It is a gorilla of a project," Wilson said, adding that working in volatile Guinea also carried considerable risks.
"With great risk comes great reward. Maybe this is a way of diluting the risk a little bit, as well as throwing some cash into the kitty."
- AFP/sc
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