Rio Tinto Group has formed a joint venture with its biggest customer, Chinese state-owned giant China Baowu Steel Group Co., to develop a new iron ore mine in Western Australia’s Pilbara region.
(Bloomberg) — Rio Tinto Group has formed a joint venture with its biggest customer, Chinese state-owned giant China Baowu Steel Group Co., to develop a new iron ore mine in Western Australia’s Pilbara region.
Rio will take a 54% stake in the new Western Range mine, and Baowu will hold 46%. The mine will cost $2 billion of which Rio will provide $1.3 billion, and is expected to begin producing in 2025, Rio said in a statement Wednesday.
The deal extends a long relationship between one of the world’s biggest iron ore producers, and the globe’s largest steelmaker. The two companies previously collaborated on the Bao-HI Joint Venture to develop iron ore in Western Australia, and in 2020 announced that they would work together on low-carbon steel making technology.
China is the world’s largest producer and consumer of steel, and the latest move is part of its strategy to lock in the iron ore needed to make the alloy. “This makes a lot of sense and helps China increase security of supply,” said consultant Philip Kirchlechner, who is director of Iron Ore Research in Perth.
The latest joint venture will require the approval of Rio shareholders under Australian listing rules, because another Chinese state-owned enterprise, Chinalco, indirectly holds 11.3% of Rio, according to the statement.
The deal will also require approval from the Australian government, Chinese regulators and the Western Australia state government.
Baowu’s Share
Rio said the mine would produce 25 million tons of iron ore a year and support the miner’s medium-term target for iron ore production of 345 to 360 million tons per year. Baowu said in a statement it would take 11.5 million tons a year of iron ore from the mine.
Rio Tinto Iron Ore Chief Executive Simon Trott said the deal was a very significant milestone for Rio Tinto and Baowu. He cited a strong working relationship with Baowu over more than four decades, with the miner shipping over 200 million tons of iron ore under the original joint venture.
In a separate move to help it secure raw materials, China in July established a state-owned entity, China Mineral Resources Group, to manage everything from buying iron ore to huge investments in African mines, in what was seen at the time as one of the biggest shake-ups of the market in more than a decade.
(Updates to add comment in fourth paragraph, more background in final one)
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