China imported 72% of its iron ore consumption in 2013, which will increase to 77% or 949 million tons or mt by 2016. China meets 8% of its iron ore supply from Africa, and about 70% from Brazil and Australia. The country plans to reduce its dependence on Brazil and Australia by importing from Chinese owned iron ore projects in Africa. Rio Tinto (NYSE:RIO) will benefit from this move as the company has partnered with Chalco and International Finance Corporation or IFC to invest in the Simandou iron ore project in Africa. The details of few Chinese owned iron ore projects in Africa are as below:-
Tonkolili iron ore project
Tonkolili is a 12.8 billion tonne magnetite deposit in Sierra Leone. Iron ore production in Tonkolili started in the final quarter of 2011 with an output of 20 million tonnes per annum or mtpa. China's largest iron ore trading company Tainjin Minerals and Equipment Group has 16.5% interest in this project, while the majority stake is held by African Minerals (OTCPK:AMLZF). China has committed an investment of $2.8 billion in Tonkolili project to raise iron ore production to 35 mtpa.
Nkout iron ore project
In January 2014, International Mining & Infrastructure Corporation or IMIC has commenced the feasibility study for the development of the Nkout iron ore deposit in Cameroon which will be completed in the third quarter of 2014. The project will have production capacity of 35 mtpa for 20 years. The deposit site lacks power infrastructure, has poor road access, and is 330 km from Kribi Port. China Railway Eryuan Engineering Group will carry out the engineering, procurement and construction work related to rail line and port facilities. China's largest steel producer Hebei has signed an off take agreement with IMIC for iron ore produced from the Nkout project.
Simandou iron ore project
Simandou Mountains in Guinea have more than 2.4 billion tonnes of high grade iron ore deposits. Pic de Fon and Oueleba are the two main deposits at Simandou. Pic de Fon contains high grade haematite with more than 62% iron content, while Oueleba has haematite-goethite.
Rio Tinto, Chalco, and IFC have 50.35% , 44.65%, and 5% interest in the iron ore project carried out in the southern part of Simandou. The $18.3 billion iron ore project is expected to have full production capacity of 100 mtpa which can be altered over a period of 35 years. Rio Tinto has spent more than $3 billion building open pits in Simandou. The company is looking for a partner to develop a 650 kilometer railway line, and a deepwater port near Conakry for exporting iron ore to China. The iron ore production from this project will resume from December 2018.
In comparison with Australia, it takes longer and costs more to ship iron ore from Africa to China. However, this is a large scale project in comparison to other China owned projects in Africa. Rio Tinto will incur lower cash cost due to high grade iron ore from Simandou. Once this project resumes production, the company can supply iron ore to China both from Australia, and Africa.
Competitors investment in Africa
Vale (VALE) owns 51% stake in the iron ore project carried out in the northern part of Simandou which it bought from BSG Resources for $2.5 billion in 2010. The project is yet to commence due to the legal issues between the Guinea government and the project partners which are yet to be resolved.
Australian miner BHP Billiton (BHP) has over 40% interest, while Newmont has 40% interest in the venture to develop the Mount Nimba iron ore deposit in Guinea. This deposit is estimated to have reserves of 6 billion tonnes of high grade iron ore with 68% iron content. However, BHP Billiton exited the project in 2012, and has been looking for a buyer to purchase its stake in the project.
Rio Tinto is increasing production capacity at its Western Australia mines to 290 mtpa by mid 2014, additional capacity of 60 mtpa will be added between 2014 and 2017. The African investment is high but it will enable the company to diversify its iron ore supply to China in the long run.
I would conclude by saying that Rio Tinto has an edge over its peers Vale, and BHP Billiton as it has partnered with a Chinese owned firm to invest in Africa from where it can supply high grade iron ore to China.
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