The Rio Tinto Ltd (ASX: RIO) share price is in focus after the iron ore miner gave a Simandou iron ore project update.
Rio Tinto describes Simandou, an iron ore project in Guinea, as the world’s largest untapped high-grade iron ore deposit.
Simandou update
The ASX mining share said Simfer, a joint venture between Rio Tinto and Chinese entities, had a mine concession held an estimated total mineral resource at 31 December 2022 of 2.8 billion tonnes, of which Rio Tinto reported today the conversion of an estimated 1.5 billion tonnes ore reserves that support a mine life of 26 years, with an average grade of 65.3% iron and low impurities.
Rio Tinto also said it was reporting mineral resources excluding the ore reserves of 1.4 billion tonnes at 66.1% grade and low impurities.
The miner has estimated its initial share of capital expenditure to develop the Simfer mine and the co-developed rail and port infrastructure project is approximately $6.2 billion.
This huge mine will also involve the “largest greenfield integrated mine and infrastructure investment in Africa, more than 600km of new multi-use rail together with port facilities”.
First production from the Simfer mine is expected in 2025, ramping up over 30 months to an annualised capacity of 60 million tonnes per year (with Rio Tinto’s share being 27 million tonnes).
Rio Tinto said the internal rate of return (IRR) – how much it’s expecting to make in percentage terms on an annualised basis – is anticipated in the “low double-digits”.
Management commentary
The Rio Tinto executive committee lead for Guinea and copper chief executive Bold Baatar said:
We are continuing to work closely with the Government of Guinea, Chinalco, Baowu and WCS towards full sanction of this world class project by all partners.
Simandou will deliver a significant new source of high-grade iron ore that will strengthen Rio Tinto’s portfolio for the decarbonisation of the steel industry, along with trans-Guinean rail and port infrastructure that can make a significant contribution to the country’s economic development.
Final thoughts on the Rio Tinto share price
This seems like a positive development for the mining company, though it comes with a big price target. It’s good there are Chinese partners involved, as that means there is more likely to be good cooperation with its key buyers.
I like the company’s increasing focus on copper, it’s a good move for the long-term. With the Rio Tinto share price rallying higher over the last few months, it doesn’t look cheap. It seems to be benefiting from a higher iron ore price.
I’d wait for a Rio Tinto share price of below $110, or even lower preferably, though it’s impossible to know if or when that will happen.
