UPDATE 1-INTERVIEW-Guinea Hopes Rio Deal Speeds Iron Ore Project

CONAKRY, Aug. 3 -- A deal between Rio Tinto (RIO.AX: Quote) and Aluminum Corp of China Ltd could speed up development of Guinea's Simandou iron ore deposits, but the government of the West African state has not yet approved it, Mines Minister Mahmoud Thiam told Reuters.

Aluminum Corp of China, known as Chalco (2600.HK: Quote), signed a $1.35 billion deal with the Anglo-Australian group last week for the project, which Rio claims is the world's largest undeveloped deposit of iron ore.

It is one of a flurry of mining deals in Guinea signed in recent months and comes in the midst of elections that, if smooth, could end a political crisis there since a 2008 coup put the country in the hands of a military junta.

Guinea is already the world's top supplier of aluminium ore bauxite, but is eager to diversify.

"Anything that will advance the development of Simandou is good for Guinea and this accord, if finalised, has the potential to do that," Thiam said in an interview late on Friday.

He said, however, Guinea's government was waiting for paperwork from both Rio and Chalco before deciding whether the joint-venture deal is legal.

"We have told both parties by courier that if all of the required documents demanded by the government are not received, the transaction will be considered illegal by Guinea," Thiam said. "Rio is not a colonial ruler operating in a conquered country, after all."

CHILLY RELATIONS

Rio, which has already invested more than $650 million in the project and announced Monday it would earmark another $170 million, has been in dispute with Guinea over blocks 1 and 2 that the government gave to BSG Resources. 

BSG, controlled by Israeli billionaire diamond trader Benny Steinmetz, sealed a deal in April with Brazilian mining giant Vale (VALE5.SA: Quote)(VALE.N: Quote) to develop those blocks.

Thiam said Rio should drop any continued claims to blocks 1 and 2, or risk losing its remaining stakes. "By concentrating on blocks 1 and 2, Rio risks failing in its obligations on blocks 3 and 4 and puts them in danger," he said.

The Simandou venture is expected to begin production within five years, Rio said last week.

The Chinese group would have 47 percent of the venture's interest, with Rio holding the remaining 53 percent. The joint venture will hold a combined 95 percent of the project, with International Finance Corp (IFK.P: Quote) owning the rest.

However, the Guinea government said it plans to exercise an option to own 20 percent of the Simandou project, which would reduce the joint venture and IFC's stakes proportionally.

Guinea is approaching run-off elections between front-runner Cellou Dallein Diallo and rival Alpha Conde, and any new administration is expected to cast an eye over contracts signed during the reign of the current transitional government.

Rio reckons the Simandou deposit holds 2.25 billion tonnes of ore, a key ingredient in steel making. The project is forecast to cost $6 billion and infrastructure will include a 650-kilometre railway to the coast and port facilities, Rio said on Monday.