* BSGR, Guinea govt drop outstanding actions
* BSGR renounces rights to Simandou's blocs 1 and 2
* Mick Davis's Niron Metals to develop smaller Zogota deposit (Adds Guinea mines minister comments, details on exports via Liberia)
JOHANNESBURG, Feb 25 (Reuters) - Billionaire Beny Steinmetz's BSG Resources (BSGR) will walk away from Guinea's massive Simandou iron ore project as part of a settlement ending a long-running dispute with the West African nation, the company and Guinea's government said on Monday.
Development of Simandou - one of the world's biggest iron deposits, containing billions of tonnes of high-grade ore - has been hindered by years of legal wrangling as well as the $23 billion cost of the required infrastructure.
The agreement between the government and BSGR, if implemented, would remove one obstacle to the project moving forward.
It also paves the way for BSGR to seek investors to develop the smaller Zogota iron ore deposit.
"We are pleased there's been an amicable resolution of the dispute with BSGR, particularly since Guinea will recuperate the world-class deposit of Simandou's blocks 1 and 2," Guinea Mines Minister Abdoulaye Magassouba told Reuters.
As part of international efforts to improve transparency, Guinea's government under President Alpha Conde, elected in 2010, launched a review of mining contracts signed before 2011.
The review panel investigated how BSGR obtained rights to the Simandou deposit in 2008. And after levelling corruption allegations, the government stripped the company of its rights to Simandou and the Zogota deposit.
BSGR has always maintained it did nothing wrong.
Under the deal announced on Monday, the two parties will drop outstanding actions related to the dispute.
Former Xstrata boss, Mick Davis, who is chief executive of Britain's Conservative Party, will develop Zogota through his Niron Metals venture, BSGR said.
While Guinea says ore mined from Simandou must be shipped via the country's own ports, Magassouba said Zogota, which is located further south, would be permitted to send its ore through Liberia. key difference, and what was the original plan all along, is to export the iron ore through Liberia and use the existing iron ore rail infrastructure," BSGR spokesman Bobby Morse said.
Anglo-Australian miner Rio Tinto RIO.L RIO.AX holds a 45.05 percent stake in Simandou's remaining blocks 3 and 4.
An outline deal for it to sell its stake to partner Aluminum Corp of China (Chinalco) 601600.SS , which holds 39.95 percent, lapsed last year without producing an agreement, with sources citing as one obstacle China's wish to control all four blocks.