Rio Tinto sanctions $3bn WA iron ore project with joint venture partner China’s Baowu

The mining major has approved a new $3bn iron ore project in Western Australia with joint venture partner and China’s biggest state-owned steelmaker, Baowu.

Rio Tinto has approved a new $US2bn ($3bn) iron ore project in Western Australia with joint venture partner and China’s biggest state-owned steelmaker, Baowu.

The deal will see Rio take a 54 per cent stake in the Western Range iron ore project in WA’s Pilbara with Baowu to own the 46 per cent balance, meaning the Australian resources giant will stump up $US1.3bn of the overall cost.

The 25 million tonne capacity will help sustain production of the Pilbara iron ore blend from Rio’s existing Paraburdoo mining hub with construction to start in early 2023 and first production due in 2025.

The building phase will create 1600 jobs with 800 permanent roles filled by existing works moving over from other sites in the Paraburdoo hub.

The pact will also see Rio and Baowu enter into an iron ore sales agreement at market prices covering up to 126.5 million tonnes of iron ore over approximately 13 years, representing Baowu’s 46 per cent interest in an expected 275 million tonnes of production from Western Range through the joint venture.

Approval from Australian shareholders will be required. Baowu has common ownership through the Chinese government with Chinalco, Rio’s biggest shareholder with an 11.3 per cent stake.

A general meeting will be held on October 25 to sign off on the deal.

Rio share of the capital costs are already included in capital expenditure guidance of around $US9-10bn for each of 2023 and 2024.

Diplomatic between Australia and China have cooled in the last few years and remain tense under the Albanese government after Foreign Minister Penny Wong refused to respond to a Chinese blast accusing her of “finger pointing” over its military brinkmanship with Taiwan.

However, Baowu called the contract a significant achievement for the two companies, noting friendship and trust between the pair.

“We hope that the two parties will deepen the mutually beneficial and win-win partnership, continue to carry forward the spirit of sincere cooperation and further expand cooperation in more fields and aspects on the basis of working together to operate the project well,” Baowu Resources chairman Shi Bing said.

The investment follows just three months after Rio opened its Gudai-Darri mine. The WA facility sent its first shipment to port in mid-June with the $US3.1bn project incurring a 20 per cent cost blowout and a six month delay.

Gudai-Darri is the first new mine completed by Rio in a decade, and will supply high-grade iron ore to its customers. Its entry into the market will reduce the quantity of lower-grade product Rio has been selling into the market, and help lift volumes from its Pilbara iron ore network.

The Gudai-Darri project is expected to produce about 43 million tonnes of iron ore each year when the first phase of the mine is fully ramped up. It could eventually produce 70 million tonnes annually if an expansion goes ahead.

Rio’s Pilbara output peaked at 338.1 million tonnes in 2018, and its Pilbara operations shipped only 321.6 million tonnes in 2021.

Rio suffered a setback last week at the Gudai-Darri rail line with a 20-wagon train derailment knocking out supplies for more than a week.

The mining giant said an incident occurred at its Gudai-Darri rail line on September 3 with 20 wagons derailing at the rear of the autonomous train. While no-one was injured and the line is now back running again, the accident has been referred to the National Rail Safety Regulator.

The 166-km rail line is the only route to market from the Gudai-Darri mine with any hit to production to be revealed at its next quarterly report due on October 17. Rio currently has full-year iron ore export guidance of 320 to 335 million tonnes.

Rio shares fell 2.4 per cent to $94.44 in early trade on Wednesday with the ASX 200 off 2.7 per cent.