Sinosteel Corp.'s 33-year Channar iron ore joint venture with Rio Tinto has ended, but the Chinese group is in talks with Western Australian majors to become equity partners for the development of its A$9.7 billion Jack Hills iron oremine, expansion, and planned railand port facility.
Sources familiar with the matter confirmed to S&P Global Market Intelligence that the Channar joint venture ended in November, with over 260 million tonnes produced since the original agreement was signed in 1987. Rio Tinto took 60% and Sinosteel had 40% in the hematite iron ore mine. Hematite is an important iron ore and a common iron oxide mineral with a high iron content.
Sinosteel Australia Pty. Ltd. Managing Director Sun Xiaoxuan said a similar model for Jack Hills could once again prove Chinese and Australian companies can work together amid strained relations between the two governments.
Mitsubishi Corp. completed the transfer of shares in its long-delayed Jack Hills project to Sinosteel in October 2019 in a deal that included Oakajee Port and Rail Pty. Ltd., which owns the studies and intellectual property for the nearby Oakajee railway network and deepwater port.
Sinosteel is looking for a new partner for the Jack Hills magnetite iron ore property in Western Australia. Source: Sinosteel Australia Pty. Ltd.
Jack Hills' 3.9 billion-tonne magnetite resource plus more than 40 Mt of direct shipping ore provides the bulk of the resource in the Chinese company's group of projects it calls the Sinosteel Midwest project.
The project also includes the 980 Mt Dead Goat Hill, the 488 Mt Koolanooka and the 135 Mt Matthews Ridge magnetite resources, and the 293 Mt Weld Range and the 7.5 Mt Blue Hills DSO resources.
Sun told Market Intelligence in a Dec. 2 interview that the group is in talks with "major" local iron ore players to develop the Midwest project. He believes that a joint venture approach where the Australian partner operates and Sinosteel does the marketing is the company's preferred model, rather than 100% ownership.
Sun said the Channar joint venture began during a decade when "the Cold War had not finished." The companies were from groups of countries that were "not friends" politically, yet were successful and at one stage accounted for a third of Rio Tinto's iron ore production, he said.
Political tensions
The West Australian reported Nov. 4, 2019, that Australian Treasurer Josh Frydenberg had given foreign investment approval for Sinosteel's acquisition of Mitsubishi's interests in the Midwest project. Frydenberg then announced major foreign investment review reforms in June which worried China.
Relations between the two countries have since soured, with Bloomberg reporting in November that China had banned imports of copper metal and concentrate along with coal, sugar, barley, timber, wine and lobster,among other products from Australia. S&P Global Platts revealed a ban on Australian coal imports in October.
China had earlier suspended meat imports from a number of Australian abattoirs and imposed tariffs of more than 80% on Australian barley after Australia banned the use of Huawei Technologies Co. Ltd. equipment in its 5G networks on national security grounds.
Sun told the Australia-hosted online Global Iron Ore & Steel Forecast Conference Dec. 2 that while the steel sector is "looking good" as China's stimulus-driven growth bodes well for Australia's iron ore industry, "the only concern I have is the ... relationship between our countries."
While there are "a lot of factors" contributing to those tensions, Sun said "it has definitely impacted the business world."
"Chinese investors don't want to do the due diligence and pay a lot of money to lawyers and accounting firms when they don't know whether they can get full [foreign investment] approval," he said.
"Before, we never thought of sovereign risk [as an] issue in Australia, but now it's become an issue. That's something I'm worried about, especially for the next five years," Sun said, adding that investors in long-term mining projects need "stable policy."
Magnetite optimism
Sun is optimistic about Jack Hills starting the "next wave" of iron ore projects in Western Australia, particularly magnetite, which is "easy to sell" given it requires less energy and will result in less emissions for steelmaking in China.
A fellow panelist, research firm AME Consulting's Managing Director Lloyd Hain, told the conference that given the "many benefits" to steel mills of using magnetite, "Australia just needs that success we've seen in other parts of the world with bringing these in on time and on budget."
Though Grange Resources Ltd. has continued its Tasmanian Savage River magnetite project for a "very long time, we're watching very intensely whether Fortescue Metals Group Ltd. can make a success of Iron Bridge where others have failed" with large magnetite assets, Hain said.
Hain noted that Russia's OAO Metalloinvest has been heavily investing in upgrading its lower-grade magnetite processing circuits "in order to attack the high-grade market, rather than the traditional Russian grade of 60% to 62% pellets that they've historically made."
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