Rio Tinto's decision to shelve development plans for its $US20 billion Simandou iron ore project in Guinea could risk the project falling into the hands of a Chinese competitor.
An expansionist Chinese investor could take over the asset, leaving global miners including Rio and BHP Billiton facing a sizeable new competitor, according to Morningstar analysts.
Rio chief executive Jean-Sebastien Jacques said this week the enormous cost of developing the world's biggest untapped deposit of iron ore could not be justified in a market already experiencing huge overcapacity.
Rio's plans for the project included an iron ore mine in central Guinea, a 650-kilometre railway and a deepwater port on the West African country's Atlantic Coast.
"We now know just how value-destructive the investment at boom time prices was. In this environment, Simandou is a clear non starter," Morningstar analysts said in a note.
However, the decision risks angering the pro-development government in Guinea, which may be favourable towards a potential Chinese investor.
Chinese state miner Chinalco already owns 41 per cent of Simandou.
"If China Inc. gains control of Simnandou, global iron ore could face a concerning new competitor," Morningstar said.
Iron ore majors, under pressure to maintain profitability amid an extended slump in commodities prices, have recently shown the first concrete signs of moving away from the volume game after trimming production targets earlier this year.
Rio, which posted a $US866 million annual loss for 2015, in April pared back its 2017 guidance for iron ore shipments by up to five per cent.
