According to some analysts, Simandou has been the “primary focus” of China’s efforts to diversify away from Australian iron ore.
Western Australia’s slogan, if it were autonomous, would be In Iron We Trust. The state controls over 30% of the world’s iron ore deposits, almost as much as Brazil and Russia combined. The majority of this red gold comprises 69 percent pure iron hematite mined in the Pilbara area of Western Australia, which accounts for over half of the state’s mining earnings. Perhaps unavoidably, Western Australia, the world’s most significant iron ore producer, has created a symbiotic connection with China, the world’s largest steelmaker. China has historically accounted for over 80% of Western Australia’s iron ore exports.
And therein lies the rub. After years of profiteering, Australia has concluded that Beijing is a clear and present geopolitical threat. According to Indian authorities, after years of being the Quad’s most hesitant member, Australia is now its most fervent backer. China imposed severe measures on Australia for daring to demand a probe into the origins of the Covid-19 virus, according to the timeline leading up to Canberra’s clash with Beijing. China attempted, among other things, to suffocate Pilbara iron ore.
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Rather than that, the sanctions controversy exposed China’s reliance on Australian iron ore and coal. Chinese steelmakers compelled their government to reverse course, claiming that barring ore from Oz was suicidal. There simply was no other option, either in terms of quality or quantity. Western Australia generates around 800 million tonnes of coal each year. China discreetly lifted its trade embargo on Australian iron and, more recently, on coal. However, there were other Australian-made products that the Chinese could not live without. Exports of Australian rock lobster to Hong Kong more than doubled when the mainland banned them.
Beijing suffered a humiliating defeat in the Great Chinese Economic War Down Under. Australian exports to China increased by 36% in the first half of 2021, albeit most of this was due to broader global economic factors unrelated to government policy. However, one lesson for China was that the world’s factory suffers from its own economic reliance on the Quad, despite the foursome’s shared worries about Beijing. And one significant economic dependency is on Australian iron ore.
China took the extraordinary step on September 5 of criticizing a coup d’etat in Guinea, West Africa. Beijing, for the record, never complains about coups or the like. It was motivated by iron ore, particularly iron ore located outside of Australia. Guinea, one of Africa’s poorest nations, is already the single most significant supplier of bauxite to China’s aluminum industry. Beijing has now resurrected ambitions to utilize eastern Guinea’s Simandou iron ore resources, the world’s most extensive undeveloped high-quality reserves.
Guinea’s 110-kilometer-long Simandou hills are expected to contain 2.4 billion tonnes of iron ore with a purity of 65.5 percent. According to Conakry’s calculations, the amount might reach as high as eight billion tonnes. However, due to increased construction costs and political insecurity, the region has remained undeveloped. The Australian mining corporation Rio Tinto was the first to acquire the rights, but it lost its controlling ownership after developing them.
According to many evaluations, Simandou has been the “primary focus” of China’s efforts to diversify from Australian iron ore. Beijing has set a four-year timetable for mining activities to commence. This would include the construction of a 650-kilometer-long railway route and a new port in Guinea. According to estimates, the mines could generate a consistent 150 million tonnes of ore per year, equivalent to 7% of world exports today, making Guinea one of the top four iron ore exporters.
Chinese enterprises think the project’s high cost will be more than offset by the cost savings associated with lowering iron ore’s price trend. China imports somewhat more than one billion tonnes of iron ore every year. According to some estimations, Simandou’s output might eventually drive iron prices down by as much as $100 per ton. If it were operational now, this would result in annual savings of $ 100 billion for China’s steel industry.
Alpha Conde, Guinea’s last president, has been aggressively courted by Beijing. Guinea was one of the first nations to receive emergency vaccination imports from China. As a result, Beijing was taken aback when Conde was deposed by the Guinean military after his third and legally unlawful tenure. China has now de-escalated since the coup leaders have shown little desire in renegotiating its economic ties.
Simandou, found in the 1990s, has proven to be a nightmarishly challenging resource to access. Although ownership has changed multiple times and several billions of dollars have been invested, no iron ore has been mined. Simandou currently consists of four mining blocks. SMB-Winning, a collaboration of Singaporean and Chinese firms, owns two northern blocks. Simfer, a company owned by Australian mining giant Rio Tinto, controls the two southern blocks, while a consortium of Chinese investors headed by Aluminium Corporation of China owns 39.5 percent. Guinea’s government owns 15% of each block.
Geopolitics adds another reason for the Chinese government to consider sponsoring such a dangerous and costly venture. Simandou has become a term at mining conclaves in recent years, demonstrating how enormous power competition forces governments to seek new suppliers.