Mining companies struggling with depressed commodity prices are about to have the opportunity to bid for one of the most sought-after iron-ore deposits in the world, testing the industry’s appetite for new iron-ore supply at a time when many experts say the world is awash in the steelmaking component.
The Guinean government plans to auction the northern half of the massive Simandou iron-ore deposit in the next few months, Guinea’s Minister of Mines Kerfalla Yansane told The Wall Street Journal on the sidelines of the Mining Indaba conference in Cape Town, South Africa.
“We’ll put it on the market and call for companies to come and compete,” Mr. Yansane said.
He said Guinea has signed memorandums of understanding with several large industrial companies to build infrastructure to aid the Simandou project, which lies hundreds of miles from the country’s port in Conakry. The project could cost $20 billion to $30 billion, including rail lines, due to its remote location deep in the hills of southeastern Guinea in West Africa, experts estimate.
The iron-ore deposits, which lie in the northern wing of the Simandou mountain range, are at the heart of an international legal dispute. Guinea last year stripped the rights to mine the deposit from Brazilian mining company Vale SA and BSG Resources Ltd., the mining arm of Israeli tycoon Beny Steinmetz ’s family-owned conglomerate. The government alleged that the rights were obtained through corrupt practices. BSG denies the allegation and is fighting the move in international arbitration.
The blocks had earlier been controlled by Rio Tinto PLC, but a previous government in Guinea revoked its rights to mine them. Rio has filed a civil suit in the U.S. alleging that Vale conspired with Mr. Steinmetz, who runs BSG Resources, to obtain its Simandou mining rights. Vale has said it is considering settling the suit, though doesn’t admit any wrongdoing.
Rio is still helping to develop the southern part of the concession.
BSG says it plans to continue to dispute Guinea’s decision to take away the iron-ore deposit. “The tender will not be taken seriously by the market because they are well aware of the contested nature of the assets,” Dag Cramer, a director of BSG Resources, said. The company “will challenge any transfer of these assets in the applicable jurisdiction,” he said.
Iron-ore prices have plunged in the past year, recently dipping to a 5½-year low amid softening demand from China, the world’s largest consumer of the steelmaking material. The benchmark spot price for iron ore delivered to China was $62.20 a metric ton as of Wednesday, according to the Steel Index data provider.
Despite the decline, mining giants such as Rio Tinto, BHP Billiton PLC and Vale have continued to churn it out and ramp up output, arguing that it remains profitable and that cutbacks could make them vulnerable to competitors.
That has sparked criticism from the likes of Ivan Glasenberg, chief executive of Glencore PLC, who has said overproduction of iron ore is damaging its value.
Mr. Glasenberg said last year at a panel discussion in London that the Guinea project would struggle under the circumstances.
“Is Guinea going to have Simandou developed at current prices? It’s going to be difficult,” he said.
Mr. Glasenberg’s company has held discussions with Guinean officials about mining rights in Simandou, but he has also said he isn’t interested in plowing money into large infrastructure projects the mine will require.
Mr. Glasenberg has actively weighed adding iron ore to Glencore’s portfolio. Last year he reached out to Rio, one of the world’s largest producers of iron ore, and expressed interest in a tie-up. Rio rejected the proposal.
Mr. Yansane for his part said he isn’t concerned that soft iron-ore prices will affect the bidding for the assets, however, pointing out that it could be at least five years until the mines actually begin producing, when iron-ore prices may have recovered.