Rio Tinto (54 per cent) and China Baowu Steel Group Co. Ltd (Baowu) (46 per cent) have agreed to enter into a joint venture with respect to the Western Range iron ore project in the Pilbara, Western Australia, investing $2 billion ($1.3 billion Rio Tinto share1) to develop the mine.
Western Range's annual production capacity of 25 million tonnes of iron ore will help sustain production of the Pilbara Blend from Rio Tinto's existing Paraburdoo mining hub. The project includes construction of a primary crusher and an 18 kilometre conveyor system linking it to the existing Paraburdoo processing plant.
Construction is expected to begin in early 2023 with first production anticipated in 2025. The construction phase will support approximately 1,600 jobs with the mine requiring about 800 ongoing operational roles which are expected to be filled by existing workers transitioning from other sites in the Paraburdoo mining hub.
Rio Tinto's share of the capital costs are already included in the Group's capital expenditure guidance of around $9-10 billion for each of 2023 and 2024. Both parties will pay their portion of capital costs for the development of the mine, and mine operating costs, plus a nominal ongoing resource contribution fee calculated by reference to Western Range production volumes. There is no upfront consideration being paid by either party.
Rio Tinto and Baowu have also agreed to enter into an iron ore sales agreement at market prices covering a total of up to 126.5 million tonnes of iron ore over approximately 13 years (together with the joint venture, the "Transaction"). This volume represents Baowu's 46 per cent interest in the anticipated 275 million tonnes of production from Western Range through the Joint Venture.
Rio Tinto has a long history of successfully partnering and investing with customers to develop new mines in the Pilbara. Rio Tinto and Baowu's partnership in the Pilbara dates back to the 2002 Bao-HI Joint Venture to develop the Eastern Range deposits in the Hamersley Ranges (Eastern Range) and Western Range, subject to a production cap of 200 million tonnes. It is now expected the production cap will be sourced entirely from Eastern Range, and this Transaction will continue Rio Tinto's relationship with Baowu through development of Western Range.
Rio Tinto Iron Ore Chief Executive Simon Trott said "This is a very significant milestone for both Rio Tinto and Baowu, our largest customer globally. We have enjoyed a strong working relationship with Baowu for more than four decades, shipping more than 200 million tonnes of iron ore under our original joint venture, and we are looking forward to extending our partnership at Western Range.
"The development of Western Range represents the commencement of the next significant phase of investment in our iron ore business, helping underpin future production of the Pilbara Blend, the market benchmark.
"At the same time, Rio Tinto and Baowu continue to work together on low-carbon steelmaking research, exploring new methods to reduce carbon emissions and improve environmental performance across the steel value chain."
Baowu Resources Chairman Shi Bing said "The signing of the joint venture agreement for the Western Range Project is a significant event in the history of cooperation between Baowu and Rio Tinto. We fully appreciate the persistent efforts of both teams in accomplishing the important achievement. The Bao-HI joint venture has been successfully operating for more than 20 years, leading us to a win-win result, and reaping friendship and trust.
"We hope that the two parties will deepen the mutually beneficial and win-win partnership, continue to carry forward the spirit of sincere cooperation and further expand cooperation in more fields and aspects on the basis of working together to operate the project well."
Rio Tinto has worked closely with the Traditional Owners on whose country Western Range is situated, the Yinhawangka People, to co-design a Social and Cultural Heritage Management Plan for the project, designed to protect signiticant cultural and heritage values in the area.
The plan, which was agreed with Yinhawangka Aboriginal Corporation and announced earlier this year, outlines protocols for joint decision-making on environmental matters and mine planning.
Simon Trott said "We have worked in partnership with the Yinhawangka People to jointly develop a Social, Cultural and Heritage Management Plan as part of our commitment to protecting significant cultural and environmental values at Western Range."
Entry into the Transaction with Baowu is subject to satisfaction of various conditions precedent, including approvals from Rio Tinto shareholders, the Australian Government, Chinese Government regulatory agencies and the Western Australian Government, among others.
As a result of Baowu having common ownership with Aluminum Corporation of China (Chinalco) due to both being Chinese state-owned entities, and Chinalco indirectly holding 11.3% of shares in the Rio Tinto Group, Baowu may be considered to be an associate of a substantial holder or related party of Rio Tinto for the purpose of the ASX Listing Rules and UK Listing Rules, respectively.
As the Transaction is considered the sale of a "substantial asset" to the associate of a substantial shareholder under Chapter 10 of the ASX Listing Rules, it is subject to approval from a majority of independent Rio Tinto Limited shareholders (that is, not including Chinalco and any other entities considered to be associates of Chinalco under the ASX Listing Rules).
