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Beijing's push for African iron ore to take toll on miner Rio Tinto

Future: Chinese steel giant Baowu has struck a deal to mine and ship Simandou ore via a river port

Satellite photos showing the construction of a river port in Guinea offer a glimpse of the scale of Chinese ambitions in Africa.

Work is well advanced on a port to ship millions of tonnes of iron ore mined from the mountainous region of Simandou, home to the largest untapped deposit of high-grade iron ore on earth.

China is by far the world’s biggest consumer of the key ingredient used to make steel, gobbling up around 70% of seaborne trade.

Future: Chinese steel giant Baowu has struck a deal to mine and ship Simandou ore via a river port

Future: Chinese steel giant Baowu has struck a deal to mine and ship Simandou ore via a river port

The construction site on the banks of the Morebaya River, which flows into the Atlantic, underscores Beijing’s determination to reduce its dependence on imports from iron ore power plants in Australia and Brazil.

The images caused a stir Down Under. But they have mixed implications for shareholders of FTSE 100-listed Anglo-Australian miner Rio Tinto in the UK.

“China’s iron ore dream in Africa is closer,” said the front page of the Australian Financial Review, which described Simandou as the “biggest threat to Australia’s iron ore dominance”.

He revealed the long-delayed project came closer after Chinese steel giant Baowu struck a deal with partners – including Guinea’s military junta – to mine and ship iron ore from Simandou.

Authorities in Beijing hope the mine will finally be operational in March 2025, initially shipping 60-80 million tonnes a year from the port.

Beijing’s long-term aim to control production of more of the iron ore it uses is seen as a threat to Australian mining giants, including Rio, which generates nearly 60% of its total sales in China, worth over £29 billion in 2021.

But Simandou itself, which contains more than 2 billion tons of iron ore, represents another source of money for Rio since it is one of its main investors.

The site is divided into four blocks, one controlled by a consortium of Chinese and Singaporean investors, and the other led by Rio, alongside the Aluminum Consortium of China and the Guinean regime.

It has been described by the Guinean government – which came to power in a military coup in September 2021 – as the largest mining, rail and port infrastructure project in the world, costing more than £12 billion. sterling.

A 343-mile rail line is being laid to transport the precious cargo through Guinea’s hilly terrain. The track will run through what will become the longest tunnel in West Africa and cross 235 bridges, before ending at the port on the Morebaya River.

Doubts have long been cast as to whether it would ever take off. Difficult access to the mountainous region, the enormous cost of transporting iron ore such a long distance to the coast, as well as the management of Guinea’s unstable political regime, made it particularly difficult.

The project has been mired in legal wrangling and disputes over ownership and who pays for the infrastructure, as well as allegations of corruption, kickbacks and political interference.

Baowu has also agreed to invest in Rio Tinto’s Western Range iron ore mine in Western Australia’s West Pilbara region, which is expected to be operational in 2025.

But Beijing’s ambitions in Africa highlight the political tensions behind Rio’s relationship with China.

China launched a trade war against Australia in 2020 after then-Prime Minister Scott Morrison launched calls for a United Nations inquiry into the origins of Covid-19 and banned the Chinese media giant Huawei.

Despite the imposition of sanctions on some Australian products, iron ore was left alone as Beijing could not afford to go without it.

There have been signs of a rapprochement between Beijing and Canberra since the election of Labor Prime Minister Anthony Albanese in May.

But tensions persist, particularly over Beijing’s military escalation in the South China Sea. For now, however, Rio shareholders have plenty to be grateful to Beijing for.

China’s decision to abandon its strict zero Covid policy and open up fueled a 40% jump in Rio’s share price in three months. After falling below $80 a ton last October, iron ore prices have soared 60% in anticipation of China reopening.

But in a recent trade update, Rio warned that China’s reopening would also bring “high volatility” as rising infections lead to labor shortages across the country and more disruption in businesses. global supply chains.

“The recovery in steel demand depends on the country’s ability to control the Covid outbreak,” he said.

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