China bankrolls Africa railroad to cut Australia iron-ore reliance
Costly infrastructure in Guinea will unlock world's largest untapped source
TOKYO -- While China-Australia relations seem to be thawing, Beijing is slowly but surely moving to cut its dependence on Australian iron ore.
Last Friday, mining giant Rio Tinto and a consortium of Chinese state-owned enterprises announced that they had concluded key agreements with the government of Guinea to build a trans-Guinean railway capable of carrying iron ore from the west African nation's inland to the coast.
Over 600 kilometers of rail together with port facilities will "unlock" the potential of the Simandou mountain range, "the world's largest known undeveloped supply of high-grade, low-impurity iron ore," said Bold Baatar, the Rio Tinto executive committee's lead for Guinea and copper, in a press release.
Rather than cutting through nearby Liberia or Sierra Leone, the plan is to travel through Guinea, which has a tradition of being independent and friendly to China. That means snaking through mountainous Guinean terrain to a deep sea port that will also be built. The plan envisions the construction of 235 bridges, while the longest tunnel will be over 11 km.
Although Simandou's potential has been known for years, the daunting cost of infrastructure was always the stumbling block to development. The green light for the project may be a hint that Chinese President Xi Jinping has concluded that the price of geopolitics cannot be measured in simple return-on-investment calculations.
China imported 69% of its iron ore from Australia in 2022, three times more than second place Brazil, according to Hellenic Shipping News. Iron ore is a key ingredient for steelmaking and vital not only for overall economic development but for China to continue to build its naval fleet of ships and submarines.
Simandou has been divided into four blocks, and China has stakes in all of them. Blocks 1 and 2 in the north are held by the Guinean government and a consortium partnering Singapore-based Winning International Group with Weiqiao Aluminium of China.
Rights to blocks 3 and 4 in the south are held by the government of Guinea, Rio Tinto and a group of leading Chinese SOEs: Aluminum Corporation of China (Chinalco), steelmaker China Baowu, China Rail Construction Corporation and China Harbour Engineering Company.
Apart from reducing its reliance on Australian iron ore, Simandou would give Beijing access to higher-grade iron ore with fewer impurities.
Lauren Johnston, an associate professor at Sydney University China Studies Centre, said that Guinea's iron ore "might be best for small but super-high-quality manufacturing, the sort of material Germany would want, not for huge bridges and buildings. It fits China's 'high-quality development' phase."
Johnston added: "The other factor that is maybe easily missed is the new Chinese-built mega port outside of Lagos."
Nigeria's first deep sea port in Lekki will likely serve as the hub, Johnston said. "I suspect they will load the iron ore onto smaller ships in Conakry and take those to Nigeria, where much of it will be re-loaded onto mega ships to East Asia. Quality makes up for the distance," she said.
On the surface, China and Australia are gradually repairing ties that were severed when Beijing responded angrily to Canberra's call for an international investigation into the root of COVID-19. China has dropped duties on imported Australian barley after three years. Australia responded by saying it will suspend its case at the World Trade Organization on the issue.
Australia has also extended an invitation to China's reinstalled Foreign Minister Wang Yi.
But the decision to go ahead with the Simandou rail project signals China's determination to wean itself off reliance on Australia, even as it works with the Anglo-Australian Rio Tinto. Guinea is expected to jump to the world's third-largest exporter of iron ore, denting Australia's dominance.
Rio Tinto noted in a press release that negotiations are continuing between the partners to finalize the scope of investment. But it has been agreed that the cost of the railway will be shared equally between the groups developing blocks 1 and 2 in the north and blocks 3 and 4 in the south.
The press release said that steelmaker China Baowu, a stakeholder in the southern block, may also take part in the northern block as well, increasing China's presence.