Rio Tinto, the second largest metals and mining company in the world, has reportedly teamed up with its biggest client, China’s state-owned China Baowu Steel Group, for the development of a new iron ore project in Western Australia worth $2 billion to accelerate production in the Pilbara region.
The deal comes amid tensions between China, the world’s top buyer of iron ore, and Australia, the world’s top exporter of iron ore, and the recent decision by Beijing to centralize its iron ore purchases, raising concerns among major mining firms like Fortescue Metals, BHP Group, and Rio.
As per a report by accounting major, KPMG and the University of Sydney, China’s outbound direct investment in Australia has been dropping steadily since 2016, citing the $11.54 billion investment in 2016 and the $585 million in 2021.
But the Anglo-Australian company has now announced a strategic partnership with China Baowu in order to centralize iron ore purchases.
Rio will be investing $1.3 billion in the Pilbara project for its development and will be holding a 54% stake in it, while the remaining stake will be held by the Shanghai-based company, which will be investing $700 million.
Rio stated that with the annual production capacity of 25 million tons of iron ore at Western Range, it will be able to maintain production of the Pilbara Blend from its Paraburdoo mining site.
The Pilbara Blend is known for having high-grade quality and consistency, accounting for 70% of the company’s iron ore product portfolio.
On its official WeChat account, Baowu stated that the deal is a win-win situation that will strengthen the mutual benefit partnership.
It should be noted that the deal is yet to be approved by the Australian and Chinese governments, as well as the shareholders of Rio.
A source familiar with the matter stated that the deal will not face any regulatory hurdle in China considering how long Beijing has been encouraging its firms for extending investment in foreign resources.
The two companies have also inked a sales agreement where Baowu will be purchasing 126.5 million tons of iron ore from the Pilbara facility over 13 years.