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Rio Tinto Forges Deal With China for $2 Billion Iron-Ore Mine

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ADELAIDE, Australia—

Rio Tinto

RIO -3.67%

PLC and China Baowu Steel Group Corp. agreed to develop a $2 billion iron-ore project in Australia, one of the largest joint investment deals since diplomatic and trade ties between Australia and China deteriorated during the pandemic.

Rio Tinto said production of iron ore from the new Western Range project in the remote Pilbara region of Western Australia would start in 2025. Rio Tinto will own 54% of the joint venture set up to run the operation, with Baowu owning the rest.

Chinese investment in Australia has fallen sharply in recent years as the countries sparred over the Covid-19 outbreak, trade issues and Beijing’s role in the Indo-Pacific. A call by Australia’s then-leader

Scott Morrison

in early 2020 for an investigation into Covid-19’s origins prompted an angry backlash from Beijing, which imposed trade restrictions on several Australian products. Relations soured to the point that Australian government ministers weren’t able to reach their Chinese counterparts by phone.

The election of

Anthony Albanese

as Australian prime minister in May has led to some improvements in relations, including the restart of face-to-face meetings between senior Chinese and Australian officials. Mr. Albanese has sought to use less confrontational language in relation to China than Mr. Morrison, who had cast himself as a bulwark against Beijing.

Still, several areas of tension remain. Mr. Albanese has accused China of acting more aggressively in the region, and he has reaffirmed Canberra’s close military alliance with Washington. Following U.S. House Speaker

Nancy Pelosi’s

visit to Taiwan in August, Mr. Albanese said there should be no unilateral change to the status quo on the self-ruled island, which China claims as its own.

Rio Tinto’s agreement with Baowu showed that Chinese investment in Australia hasn’t been choked off fully by the deterioration in diplomatic relations, said

Hans Hendrischke,

professor of Chinese business and management at the University of Sydney Business School.

“It clearly is a good sign,” he said.

The election of Anthony Albanese as Australian prime minister in May has led to some improvements in relations with China.



Photo:

lukas coch/Shutterstock

China is Australia’s biggest trading partner and buys most of its iron ore, the country’s top export, which Beijing uses to make steel.

Chinese investment in Australia plunged by 70% in 2021 to $585 million, according to data compiled jointly by the university and KPMG. That was the lowest since at least 2007, according to their records, and compares with annual investment of more than $16 billion in 2008.

Chinese-owned businesses in Australia were squeezed by the sudden worsening of ties, while negative attitudes toward China in the country hardened. Import restrictions or tariffs on Australian products affected coal miners, winemakers and beef producers, many of which had welcomed Chinese investment previously as a way to gain an export advantage.

While iron ore wasn’t included among the products targeted by Beijing, Chinese officials have advanced efforts to build iron-ore mines in countries other than Australia and moved to gain more control of the price of the commodity. Earlier this year, China set up a new state-owned group to control its iron-ore imports.

China produces less than a fifth of the iron ore it needs and roughly 60% of its imports come from Australia, where Rio Tinto is the largest producer.

Rio Tinto is the largest producer of iron ore in Australia.



Photo:

Carla Gottgens/Bloomberg News

Rio Tinto’s agreement with Baowu to develop the Western Range project suggests that China’s efforts to diversify its iron-ore sources will take years before they could have a material impact and that trade relations have moved a beat toward normalizing.

Rio Tinto and Baowu have been partners in mining iron ore in the Pilbara since 2002, when they formed a joint venture to develop deposits known as the Eastern Range. The companies are also working together to find ways to cut carbon emissions from steelmaking processes.

Rio Tinto estimated up to 25 million metric tons of iron ore will be produced at Western Range annually, and that it intends to sign a sales agreement with Baowu under which the Chinese company would buy almost half of that output over a roughly 13-year period at market prices. Rio Tinto said its share of construction costs would be around $1.3 billion, with work on site starting early next year.

The agreement needs to be approved by Rio Tinto’s shareholders, state and federal governments in Australia, and Chinese regulators. Spokespeople for Australian Treasurer

Jim Chalmers,

who is responsible for foreign investment decisions, didn’t immediately respond to a request for comment.

“We have enjoyed a strong working relationship with Baowu for more than four decades, shipping more than 200 million tons of iron ore under our original joint venture, and we are looking forward to extending our partnership at Western Range,” said

Simon Trott,

Rio Tinto’s head of iron ore.

Shi Bing,

chairman of Baowu Resources, a unit of the Chinese group, said the new venture could lead to greater cooperation in the future.

Write to Rhiannon Hoyle at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8


ADELAIDE, Australia—

Rio Tinto

RIO -3.67%

PLC and China Baowu Steel Group Corp. agreed to develop a $2 billion iron-ore project in Australia, one of the largest joint investment deals since diplomatic and trade ties between Australia and China deteriorated during the pandemic.

Rio Tinto said production of iron ore from the new Western Range project in the remote Pilbara region of Western Australia would start in 2025. Rio Tinto will own 54% of the joint venture set up to run the operation, with Baowu owning the rest.

Chinese investment in Australia has fallen sharply in recent years as the countries sparred over the Covid-19 outbreak, trade issues and Beijing’s role in the Indo-Pacific. A call by Australia’s then-leader

Scott Morrison

in early 2020 for an investigation into Covid-19’s origins prompted an angry backlash from Beijing, which imposed trade restrictions on several Australian products. Relations soured to the point that Australian government ministers weren’t able to reach their Chinese counterparts by phone.

The election of

Anthony Albanese

as Australian prime minister in May has led to some improvements in relations, including the restart of face-to-face meetings between senior Chinese and Australian officials. Mr. Albanese has sought to use less confrontational language in relation to China than Mr. Morrison, who had cast himself as a bulwark against Beijing.

Still, several areas of tension remain. Mr. Albanese has accused China of acting more aggressively in the region, and he has reaffirmed Canberra’s close military alliance with Washington. Following U.S. House Speaker

Nancy Pelosi’s

visit to Taiwan in August, Mr. Albanese said there should be no unilateral change to the status quo on the self-ruled island, which China claims as its own.

Rio Tinto’s agreement with Baowu showed that Chinese investment in Australia hasn’t been choked off fully by the deterioration in diplomatic relations, said

Hans Hendrischke,

professor of Chinese business and management at the University of Sydney Business School.

“It clearly is a good sign,” he said.

The election of Anthony Albanese as Australian prime minister in May has led to some improvements in relations with China.



Photo:

lukas coch/Shutterstock

China is Australia’s biggest trading partner and buys most of its iron ore, the country’s top export, which Beijing uses to make steel.

Chinese investment in Australia plunged by 70% in 2021 to $585 million, according to data compiled jointly by the university and KPMG. That was the lowest since at least 2007, according to their records, and compares with annual investment of more than $16 billion in 2008.

Chinese-owned businesses in Australia were squeezed by the sudden worsening of ties, while negative attitudes toward China in the country hardened. Import restrictions or tariffs on Australian products affected coal miners, winemakers and beef producers, many of which had welcomed Chinese investment previously as a way to gain an export advantage.

While iron ore wasn’t included among the products targeted by Beijing, Chinese officials have advanced efforts to build iron-ore mines in countries other than Australia and moved to gain more control of the price of the commodity. Earlier this year, China set up a new state-owned group to control its iron-ore imports.

China produces less than a fifth of the iron ore it needs and roughly 60% of its imports come from Australia, where Rio Tinto is the largest producer.

Rio Tinto is the largest producer of iron ore in Australia.



Photo:

Carla Gottgens/Bloomberg News

Rio Tinto’s agreement with Baowu to develop the Western Range project suggests that China’s efforts to diversify its iron-ore sources will take years before they could have a material impact and that trade relations have moved a beat toward normalizing.

Rio Tinto and Baowu have been partners in mining iron ore in the Pilbara since 2002, when they formed a joint venture to develop deposits known as the Eastern Range. The companies are also working together to find ways to cut carbon emissions from steelmaking processes.

Rio Tinto estimated up to 25 million metric tons of iron ore will be produced at Western Range annually, and that it intends to sign a sales agreement with Baowu under which the Chinese company would buy almost half of that output over a roughly 13-year period at market prices. Rio Tinto said its share of construction costs would be around $1.3 billion, with work on site starting early next year.

The agreement needs to be approved by Rio Tinto’s shareholders, state and federal governments in Australia, and Chinese regulators. Spokespeople for Australian Treasurer

Jim Chalmers,

who is responsible for foreign investment decisions, didn’t immediately respond to a request for comment.

“We have enjoyed a strong working relationship with Baowu for more than four decades, shipping more than 200 million tons of iron ore under our original joint venture, and we are looking forward to extending our partnership at Western Range,” said

Simon Trott,

Rio Tinto’s head of iron ore.

Shi Bing,

chairman of Baowu Resources, a unit of the Chinese group, said the new venture could lead to greater cooperation in the future.

Write to Rhiannon Hoyle at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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