The story behind Rio's $1.35-billion Saimandou deal with Chinalco

The talks between the world's second-largest iron ore miner, Rio Tinto and China's top aluminum producer Chinalco for its participation in developing Rio's 12-billion Simandou iron ore-project in Guinea have ended with the Anglo-Australian miner signing a $1.35-billion joint venture with the Chinese state-owned company (See: Chinalco, RioTinto in $12-billion Simandou iron ore project talks).

London-based Rio Tinto and Beijing-based Chinalco have signed a non-binding memorandum of understanding (MoU) to establish a joint venture to develop and operate the Simandou project covering rail, port infrastructure and the mine.

Rio owns 95 per cent of the Simandou project with the International Finance Corporation (IFC), the commercial lending arm of the World Bank, owning the remaining 5 per cent.

Rio will bring its entire 95-per cent stake in the Simandou project for a majority 53-per cent stake in the proposed joint venture and Chinalco will take a 47-per cent stake in exchange for its $1.35 billion investment on an earn-in basis.

Chinalco will fund the ongoing development work over the next two to three years.

Once Chinalco has invested its $1.35 billion, the effective stakes owned by Rio Tinto and Chinalco in the entire Simandou project will be 50.35 per cent and 44.65 per cent respectively with the IFC retaining its original 5 per cent.