Investors are expected to grill Rio Tinto boss Sam Walsh this week about the company’s plans to develop the $US20 billion ($A21.64 billion) Simandou iron ore project in West Africa.
Falling iron ore prices and an oversupply of the steel-making ingredient are weighing on investors’ minds as host nation Guinea tries to lock in investment while dealing with the ebola epidemic.
Rio Tinto signed an investment framework deal with Guinea’s government, Chinalco and World Bank-owned International Finance Corporation earlier this year to push ahead with the massive project which includes a 650km railway and deep-water port.
But some analysts say now is not the time to spend billions of dollars bringing more iron ore to market given recent price falls and an increase in production among the world’s biggest producers.
Fat Prophets Resources analyst David Lennox said Rio would struggle to build the infrastructure and bring the mine into production by 2018 as planned.
“This lower price just puts somewhat of a curtailment on the profitability of it,” Mr Lennox said.
He said the company would now need to reduce its price forecasts and model various risk scenarios such as changes to the taxation regime.
Last week Rio’s chief executive Sam Walsh told analysts the company was focused on Pilbara iron ore and did not mention the long-delayed Simandou project.
However, Rio’s Simandou boss Alan Davies is reportedly heading to Asia and Dubai this month to meet with contractors who are eager to build rail and port infrastructure.
Playtpus Asset Management chief investment officer Donald Williams said given the changes in the iron ore market over the last 12 months it was surprising to see Rio pushing ahead with Simandou.
“It seems an odd time to be adding to your tonnage,” Mr Williams said.
“Potentially the oversupply will get worse before it gets better.”
Mr Williams added that it appeared there could be a political imperative to progress the project.
He said analysts and investors would be asking many questions at Rio’s investor seminar in London on Thursday.
Rio Tinto and its partners say the mine could produce 100 million tonnes of iron ore a year, operate for 40 years, double the country’s GDP and stimulate 45,000 indirect jobs.