(Yicai) Nov. 12 -- The Simandou project in Guinea, which is the world’s largest untapped iron ore deposit, has gone into production, with several Chinese companies, including China Baowu Steel Group and Aluminum Corporation of China, also known as Chalco, playing major roles. The development could shake up the global iron ore market.

The Simandou project, which has a total investment of over USD20 billion, held its launch ceremony yesterday. The mine, which is divided into northern and southern sections, has proven reserves of 4.4 billion tons of iron ore at an average grade of over 65 percent. Once fully operational, it will have an annual production capacity of 120 million tons.

Discovered by British-Australian mining giant Rio Tinto Group in 1997, Simandou sat mostly dormant for nearly 30 years due to various challenges. It was not until last year, with help from Chinese partners, that the London-based company said that the mine finally met all the necessary conditions for development and is expected to begin production this year.

The Simandou project is jointly developed by the Guinean government, Winning Consortium Simandou and SimFer. Winning Consortium Simandou is responsible for mining blocks one and two of the project. The consortium is 51 percent owned by a syndicate led by Singaporean shipping giant Winning International Group and 49 percent owned by Baowu Resources, a subsidiary of Chinese steel giant China Baowu.

SimFer is responsible for the mining of blocks three and four. Rio Tinto holds a 53 percent stake in the company and Chalco Iron Ore Holdings, which has a number of stakeholders, holds the remainder. Beijing-based Chalco owns 75 percent equity in Chalco Iron Ore, followed by Baowu Resources with 20 percent and China Railway Construction and China Harbour Engineering each with 2.5 percent.

Major Turning Point

The successful commissioning of Simandou marks a major milestone in global mining history, Hu Wangming, chairman of Shanghai-based China Baowu, said at the ceremony. Once the project is fully operational, it will provide a solid green-source foundation for the development of the steel industry in China and around the world.

China imports more than one billion tons of iron ore each year. While Simandou’s initial output may have limited impact on the iron ore market, it could put pressure on other mining companies and strengthen Chinese firms’ bargaining power, Ge Xin, deputy director of the research center at LangeSteel.com, told Yicai.

Looking ahead, as Simandou ramps up production and Chinese companies’ stakes in the mine grow, the balance of supply and demand in iron ore could shift, possibly leading to a major turning point in the iron ore market next year, Ge said.

China's steel demand is slowly declining, while global mines are still expanding. This suggests iron ore prices could continue to fall. Next year, prices may tumble to between USD80 and USD90 per ton from over USD100 per ton, Ge added.

Editors: Dou Shicong, Kim Taylor