- China has a number of iron ore projects in the works in Africa as part of its ‘foundation plan’ to de-risk its supply of the mineral
- For now, the country relies heavily on Australia and Brazil, which supply the vast majority of the world’s iron ore
Sierra Leone may be a small country on Africa’s Atlantic coast, but it is part of China’s big ambitions to break its dependency on Australia and Brazil for its iron ore.
More than 80 per cent of China’s iron ore comes from Australia and Brazil but Beijing wants to de-risk that supply. And the West African nation, along with other countries including Guinea, Liberia, Cameroon and Congo-Brazzaville, are the key to making that happen.
In the northern province of Sierra Leone, a 12 million tonne iron ore processing plant is being built – at a cost of US$230 million – at the Tonkolili iron ore mine by Leone Rock Metal Group, a subsidiary of Chinese mining and metals company China Kingho Energy Group. The mine has an estimated 13.7 billion tonnes of iron ore.
Meanwhile, in neighbouring Guinea, after 27 years of false starts, Chinese investors together with British-Australian mining giant Rio Tinto, are on track to make their first shipment from the Simandou iron ore mine next year. Simandou is the world’s largest-known undeveloped reserve of high-grade iron ore.
This is after Guinea’s parliament, the National Transitional Council, voted to approve laws that ratified the US$20 billion deal which, as well as the iron ore extraction, will see the development of a railway and port. Chinese state-owned entities, including steelmaker Baowu Group, have also agreed to invest in the massive project, which has an annual production capacity of 120 million tonnes.
Chinese companies are also investing in the Mbalam-Nabeba project, which will develop large-scale iron ore deposits that straddle Cameroon and neighbouring Congo-Brazzaville in central-west Africa.
Plus, in Algeria, a consortium of Chinese companies are investing in the Gara Djebilet iron ore mine located in the Tindouf province of western Algeria, while in Liberia, Baowu shipped its first cargo of iron from its flagship Bomi project in December.
These are just some of the mining projects in Africa which observers say form part of China’s iron ore “foundation plan”, which aims to address the vulnerability of its reliance on Australia and Brazil for the resource.
Liz Gao, senior analyst in iron ore at commodities consultancy CRU Group, said China’s investment in Africa aimed to diversify its iron ore suppliers. She added that iron ore from Australia and Brazil accounted for around 80 per cent of the global seaborne iron ore exports.
“The massive investment overseas is a part of China’s long-pursued goal of enhancing its position in the global iron ore trade by taking a larger ownership stake in overseas iron ore supply,” Gao said. “At present, we estimate that there is Chinese ownership in around 5 per cent of global iron ore supply.”
Unfortunately, Gao said, much of this material was some of the highest-cost supply in the world. Therefore, it made sense to see Chinese steel mills go after more competitive assets – like Simandou, for example.
Lauren Johnston, an associate professor at the University of Sydney’s China Studies Centre, agreed that the investments in Africa pointed to China’s determination to de-risk its iron ore supplies.
In particular, she said, China wanted to reduce its reliance on Australia, its biggest supplier.
She said that even though China’s property building and mass infrastructure boom was fading, it was putting more effort into its push towards high value-added manufacturing.
“This agenda would be well-served by the highest-grade iron ore on the planet, which is found in Guinea’s Simandou deposit,” Johnston said.
She said the added cost of transporting iron ore from West Africa to China was a factor that favoured Australian iron ore, which is why ports were an important factor in African development.
China has built a mega port in Nigeria just outside Lagos known as the Lekki Deep Sea Port. Johnston said the port was likely to be used to receive smaller freighters carrying iron ore from Sierra Leone and Guinea that would then be transferred onto massive freighters to send the ore to China.
“Freighter size has always been the key difference in cost competitiveness of Australia over Brazil, the second-largest supplier of iron ore to China today,” Johnston said.
Gao, of CRU Group, said bringing these products to the market was costly, due to the risks in investing in infrastructure, such as port facilities and inland transport, as well as the relatively poor access to energy and power.
That was why Chinese investors and others were forced to bankroll the building of railways, power lines and port upgrades.
At the Simandou mine, besides ownership disputes and political instability in Guinea, many of the delays were caused by the lack of a railway to transport the ore to the ports, prompting the parties in the project to co-develop the infrastructure needed.
In Sierra Leone as well, Leone Rock Metal Group is spending US$153 million to upgrade the railway and port infrastructure in the coastal town of Pepel, where bulk iron ore is shipped from.
Gao said that for Simandou, once it became operational, it would probably replace some Brazilian and Australian iron ore shipments to China, although they would still have a dominant position.
“In fact, we believe it will be smaller, high-cost suppliers far away from their customers that will suffer more. Unfortunately, this includes some Chinese-owned mines,” Gao said.
She said Simandou would bring about 120 million tonnes of iron ore per year to the market, positioning Guinea as the world’s third-largest iron ore exporter.
Gao said the high-grade ore from Simandou would be preferred when steel margins were favourable.
“In the current scenario, where steelmakers are struggling with the weak margins, they would still opt for lower grade ores to control their productivity, making ores from Australia preferable,” she said.
Gyude Moore, a senior policy fellow at the Washington-based Centre for Global Development and a former minister in Liberia, said Beijing did not want to give up its position as the world’s foremost steelmaker.
“It is clear that China intends to retain its lead in steel manufacturing and this may be a part of how China responds to slowing growth.”
Moore said that with the slowdown in the Chinese real estate sector and infrastructure already built, China was doubling down on manufacturing.
“Access to minerals and other manufacturing input might be a part of their plan,” he said. “However, it’s hard to see this as a near-term strategy.”
He also noted China’s issue with Australia. While it was an important Chinese trade partner, it was also a US security partner. Therefore, diversifying supply sources had both an economic and a national security imperative.
“Africa is relatively friendly for China and one imagines that African sources are a good replacement or backup for Australian ones,” Moore said.
China’s relationship with Australia soured in 2020 when the previous government called for an international investigation into the origin of coronavirus. The fracas saw Beijing impose tariffs on several Australian products including wine, barley, seafood and meat. Relations eased somewhat after Prime Minister Anthony Albanese came into power in 2022.
Johnston, of the University of Sydney, also noted that Africa’s need for infrastructure like highways, bridges, railways, housing, trains and cars meant the major demand for steel was likely to shift to Africa itself over the next decade or two. It could see more of the iron ore staying in Africa – an eventuality some Chinese companies are already preparing for.
In Zimbabwe, Dinson Iron and Steel Company, a subsidiary of Chinese stainless steel and nickel making company Tsingshan Group, is building a US$1.5 billion steel plant in Manhize, south of Harare.
And when Sierra Leone President Julius Maada Bio made a state visit to Beijing earlier this month, China Kingho Energy Group, one of China’s largest privately owned energy groups, promised to build a steel factory in Sierra Leone for iron ore processing in 2025.
“So perhaps not all the iron ore will be shipped to East Asia, as over the recent few decades,” Johnston said.
And, she said, that depended on the cost of producing steel in Africa, how economies grew and the cost of electricity.
“That explains the investments in electricity projects in Sierra Leone, a dam in Guinea and Ivory Coast.”
