(Yicai) Oct. 8 -- Shares of China Merchants Energy Shipping surged today after its Hong Kong subsidiary secured a long-term iron ore shipping contract worth at least USD2.8 billion for Guinea’s Simandou project, expected to become Africa’s largest integrated mining and infrastructure development.

CMES [SHA: 601872], the shipping arm of state-owned conglomerate China Merchants Group, closed 9.3 percent elevated at CNY22.03 (USD3.30) after remaining near the 10 percent daily price increase limit for most of the trading session.

CMES's wholly owned subsidiary, Ming Wah Shipping, signed the 25-year transportation service agreement with a client holding shipping rights for iron ore produced at Simandou, located in West Africa, according to a recent announcement released by the leading Chinese crude oil and dry bulk shipping provider.

Under the agreement, Ming Wah will deploy six very large ore carriers (VLOCs) to transport iron ore from the project. The company did not disclose further details of the agreement or identify the client.

Previous filings by CMES show that although Simandou's northern and southern mining blocks are controlled by different entities, both have awarded the overall supply chain contracting rights for all iron ore exports to China Mineral Resources Group International Supply Chain, the trading and logistics arm of state-owned iron ore importer China Mineral Resources Group.

In July, CMES announced plans to invest up to CNY4.9 billion (USD682.1 million) to build six new-generation, energy-efficient and environmentally friendly VLOCs of 343,000 deadweight tons each, due for delivery between 2029 and 2030.

At the time, the company did not say what the vessels would be used for, only that they would serve long-term shipping agreements known as contracts of affreightment, under which shipping companies commit to carrying an agreed amount of cargo over a set period. The company said the contracts would help strengthen ties with major customers.

The Simandou project in southeastern Guinea is being developed in two parts. A consortium led by China Baowu Steel Group controls the northern blocks. The southern blocks are being developed by a joint venture led by Rio Tinto, with Aluminum Corporation of China among its major shareholders.

The project, a large open-pit mine for high-grade hematite iron ore, officially began operations at the end of last year, and production is ramping up. It has estimated reserves of about 4.4 billion tons, with an iron content of more than 65 percent, and is expected to produce 120 million tons a year once fully operational.

Editor: Emmi Laine