April 22, 2011 / 7:22 PM / 8 years ago

Rio says reaches accord with Guinea over Simandou

DAKAR (Reuters) - Mining giant Rio Tinto (RIO.L) said on Friday it would pay the government of Guinea $700 million after reaching an agreement to resolve all outstanding disputes over blocks 3 and 4 of its Simandou iron ore project.

The company said in an emailed statement to Reuters that it had signed a settlement to secure Rio’s mining title for the southern Simandou blocks, paving the way for some $10 billion in investment and the first shipment of iron ore by mid-2015.

Anglo-Australian Rio once controlled all of the Simandou concession but it was stripped of the northern half, and last year Guinea’s government said it might also lose the southern blocks, where Rio is looking to partner with China’s Chalco.

“Today’s agreement gives us the certainty we need to allow us to invest and move forward quickly so we can bring this great resource into production,” Sam Walsh, Rio Tinto Iron Ore’s chief executive, said in the statement.

Guinea stripped Rio of blocks 1 and 2 during the rule of former president Lansana Conte, who died in December 2008 and was replaced in a bloodless coup by a military junta.

Rio has long sought to win the blocks back but BSG, a firm controlled by Israeli billionaire diamond trader Beny Steinmetz, secured them and signed a deal in April last year with Brazilian mining giant Vale SA VALE5.SA(VALE.N) to develop them.

In recognition of the resolution of all outstanding issues and finalization of new investment agreement terms over the remaining blocks, Simfer, Rio’s Guinean subsidiary, will pay $700 million to the Guinean treasury, the statement said.

It added that the payment would be made after the passing of a presidential decree granting Rio the mining concession and the approval of its proposed Chalco (601600.SS) and Rio Tinto Simandou joint venture.

Rio is in talks with Chalco for a JV to develop Simandou.

“Once the JV agreement with Chalco is complete, Rio Tinto’s 95 percent interest in Simfer will be held in the new JV. Chalco will acquire a 47 percent interest in the new JV by providing $1.35 billion on an ongoing earn-in basis within several years,” the statement said.

According to the terms of the agreement, Guinea’s government will have the right to take a stake of up to 35 percent in the project, including 15 percent at no cost to the government, which will be held by a state mining firm.

Other terms of the deal included:

* A stabilised fiscal regime agreed by the parties which will apply for the lifetime of the mine.

* An income tax holiday of eight years from the first taxable profit, followed by a general tax rate of 30 percent.

* Royalties will be payable at 3.5 percent FOB for all exported ore.

* Simfer will also be exempt from withholding tax on dividends. All imported goods used for construction and maintenance will be exempt from value-added tax and customs duty.

* A new rail line and a new Guinean port will be constructed to transport ore from mine to ship.

Reporting by Bate Felix; editing by David Lewis, Jane Baird and Dale Hudson

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