Chinese money to open up new vistas for iron ore supply

飞雪寒冰

New iron ore mining projects are seeking and finding China backers as steeply rising prices add urgency to the country's quest to secure fresh supplies.

Last month's doubling of contract iron ore prices was pushed through by BHPBilliton and Vale, which supply China's steel mills from the two nodes of iron ore exports: Australia and Brazil.

But China financing stands to open new iron ore provinces like west Africa and Russia, potentially easing the dominance of Vale, BHP and Rio Tinto.

“We think China's dissatisfaction with the majors' aggressive pricing stance will play into the hands of a number of emerging iron ore businesses with significant resource bases that are seeking third party funding,” mining analysts at Liberum Capital in London said.

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Chinalco would contribute $1.35bn to project costs.

Chinese companies were the perfect partners to bring west Africa's iron ore deposits into production, Graeme Hossie, chief executive of London Mining, said.

“You have the iron ore price going up, and that rise being sustainable, making lower-grade deposits profitable,” he said.

“You have Chinese banks that can fund these projects at a low cost of capital, because they are helping state-owned enterprises strategically ensure supply.”

London Mining was in discussions with China groups about its iron ore projects and had had a lot of interest, Mr Hossie said.

The company is reviving Sierra Leone's Marampa mine, whose first phase enters production next year, and building an iron ore mine in Greenland.

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African Minerals, the exploration company owned by Frank Timis, the entrepreneur, agreed a deal on April 1 with China Railway Materials Commercial Corp to develop the Tonkolili iron ore deposit in Sierra Leone.

CRM, a state-owned steel trader, is taking 12.5 per cent of the company's shares for £168m ($258m).

The money will be spent building the first phase of Tonkolili, which will thereafer supply CRM with agreed amounts of iron ore for 20 years.

In the neighbouring state of Guinea, Rio Tinto has brought in Chinalco, its largest shareholder, to jointly develop Simandou, an iron ore deposit in a remote corner of the country.