© Reuters. FILE PHOTO: A sign decorates the building where mining company Rio Tinto locates their offices in Perth, Western Australia, November 19, 2015. REUTERS / David Gray // File Photo
By Sameer Manekar and Praveen Menon
(Reuters) -Rio Tinto Ltd on Wednesday said it would partner with its biggest client China Baowu Steel Group to develop an iron ore project in Western Australia for $2 billion aimed at strengthening produced from the Pilbara region.
The deal comes amid strained relations between Australia and China – the world’s top exporter and buyer of iron ore – with Beijing’s recent push to focus on buying iron ore raising concerns about a blow to mining giants like Rio, BHP Group (NYSE:) and Fortescue Metals.
China’s overseas direct investment in Australia has fallen steadily since 2016, with a meager $585 million in 2021 compared with $11.54 billion in 2016, according to a company report. accounting KPMG and the University of Sydney.
However, Rio last week said it had established a strategic partnership with a new Chinese state agency set up to focus on iron ore procurement.
Regarding the Western Range project in Pilbara, Rio said it will invest $1.3 billion to develop the project and will hold a 54% stake in the project, while the state-owned China Baowu will hold the stake. remaining and will invest 700 million USD.
“The Western Range’s 25 million tonnes annual iron ore production capacity will help sustain Pilbara Blend production from Rio Tinto’s (NYSE:)) existing Paraburdoo mining hub,” the world’s largest iron ore producer said. world said https://
Pilbara Blend products are known for their premium quality and consistency, and account for about 70% of Rio Tinto’s iron ore product portfolio, according to the miner’s website.
Baowu said on its official WeChat account that the deal with Rio will help “strengthen mutually beneficial partnerships and win-win outcomes”.
The deal is subject to approval by the Australian and Chinese governments, as well as Rio’s shareholders.
China’s State Administration of Market Regulation, which oversees the acquisitions, did not immediately respond to a fax seeking comment on the deal.
A Chinese source familiar with the deal said it would not face regulatory hurdles, as Beijing has long encouraged its companies to expand investments in overseas resources.
Rio and China Baowu also signed a sales agreement that will see China Baowu, the world’s top steel producer, purchase up to 126.5 million tonnes of iron ore over about 13 years from the Western Range project in Pilbara.
“Rio and Baowu already have a joint venture agreement east of the Pilbara. Today’s deal is essentially an extension of that agreement to the west of the Pilbara,” said John Mills, an analyst shares in charge of mining at Morningstar in Sydney said.
Rio Tinto said construction on the project is expected to begin in early 2023, with first production expected in 2025.