Mittal, Glencore Said to Be Among Potential Simandou Bidders

Jul 31, 2014 12:53 pm ET

(Adds production estimates in final paragraph.)

July 31 (Bloomberg) -- Lakshmi Mittal’s ArcelorMittal and Glencore Plc are among potential bidders for Guinea’s Simandou project, the world’s largest untapped iron-ore deposit, after it was seized from Israeli billionaire Beny Steinmetz in April, according to people familiar with the matter.

ArcelorMittal, the world’s biggest steelmaker, has declared an interest in the bidding process for two licenses covering the Simandou project in Guinea, according to four people who asked not to be identified as the talks aren’t public. Glencore is also interested, people familiar with its plans said.

Leading mining and steelmaking companies are jostling for a share of the riches contained in Simandou, a remote, iron- bearing mountain range, to take advantage of prices for the raw material that have risen about 50 percent since 2008. Guinea has estimated that Simandou may cost $20 billion to develop, largely because it needs a 650-kilometer (400-mile) rail link.

Spokesmen for ArcelorMittal and Baar, Switzerland-based Glencore declined to comment. The Wall Street Journal reported last month that Glencore was interested in Simandou.

The iron-ore position of Glencore pales in comparison with rivals BHP Billiton Ltd., Rio Tinto Group and Vale SA. Still, Chief Executive Officer Ivan Glasenberg has previously expressed reluctance to invest in expensive new mining operations known as “greenfield” projects. The rail and port component of Simandou has been estimated to cost more than $10 billion.

The project’s current lack of infrastructure may deter Glencore from bidding, one of the people said.

‘Strong Interest’

“The government of Guinea is confident of a strong line up of interested parties in the Simandou concession,” an external spokesman for the government said in an e-mailed statement.

Guinea in April revoked rights to half the Simandou project controlled by a venture between Steinmetz’s BSG Resources Ltd. and Brazil’s Vale, following claims of bribery and corruption. The decision has sparked legal battles for control of the asset.

BSGR plans international arbitration with Guinea over the seized licenses, it said after being stripped of the asset. Any attempt to negotiate fresh rights to Simandou would be challenged as unlawful, the company said in May.

Rio in April sued Vale, Steinmetz and BSGR, saying they conspired to steal rights to Simandou. The three deny any wrongdoing. A Guinean review in April said the evidence suggested Vale wasn’t involved in corruption. Vale and BSGR had planned a $10 billion mine, port and rail project on the coveted, iron-rich ground.

Vale Impairment

Vale, which today announced a $500 million impairment related to Simandou, is seeking compensation for investment made at the project, CEO Murilo Ferreira told investors on an earnings conference call.

Rio maintains ownership of blocks 3 and 4 at Simandou. Rights to blocks 1 and 2 were stripped from the London-based company by Guinea in 2008 and given to BSGR for free. The West African nation is poised to announce a formal tender process for the two seized licenses, two of the people said.

ArcelorMittal has sought to expand its own iron-ore business to cut reliance on mining companies for the key steelmaking ingredient. The Luxembourg-based company, 39 percent-owned by billionaire Mittal, operates an iron-ore mine in neighboring Liberia and is in talks with BHP about gaining a stake in the Nimba mine in Guinea.

Rio has said that Simandou could start production 2018. The project is capable of producing 100 million metric tons of the steelmaking raw material annually, doubling the West African nation’s gross domestic product and adding 45,000 jobs, according to Rio, its project partners and the government.

Simandou could produce as much as 150 million tons a year, according to Sanford C. Bernstein Ltd. That would be enough to satisfy about 12 percent of the world’s iron ore demand last year, according to Morgan Stanley.