China: Baosteel expands resource base as 40 mn t/year Hardey iron ore project starts operations

The world's top steelmaker, China's Baowu Group, has taken a major step forward to ensure stable and high-quality iron ore imports. The Hardey iron ore project in Western Australia, with an annual output of 40 million tonnes (mn t), is coming on stream.

The Hardey deposit contains over 150 mn t of the highest-grade iron ore of Australia's Premium Iron Ore Project (API), with an iron content of more than 60%. The direct shipping ore (DSO) project was developed by Aquila, a subsidiary of Baowu Resources, in collaboration with other joint ventures, and Hancock, the fourth largest iron ore producer in Australia.

API shareholders are Chinese state-owned steel maker Baowu, which has an indirect stake of 42.5%, South Korean steel giant POSCO with a 24.5% stake and US commodities trader AMCI with a 25.5% stake.

The development of the project is of great significance to Baowu's resource strategy. The world's top steelmaker produced over 115 mn t of crude steel in 2020, according to World Steel Association (WSA) data.

Why was Hardey shelved?

The project involves mines, ports, and railway lines. In May'14, Baosteel was in urgent need to obtain new iron ore resources, and together with Australia's largest railway operator, Aurizon, acquired Aquila, thereby acquiring 50% of the shares in API.

At that time, the benchmark iron ore price was close to $103/t on CFR China basis, but the good times did not last long. With the expansion of supplies by the top miners in Australia and Brazil, and the decline in Chinese demand, global iron ore prices crashed.

In May 2015, the stakeholders announced they would postpone the decision to advance the project. On 11 Dec'15, the price of iron ore (Fe 62%) delivered to China's Qingdao port hit $38.30/t, a record low. The operator stopped the feasibility study for the project on poor market conditions.

So far, the project has been on hold.

Australia's fourth-largest iron ore producer Hancock and China's Baowu have now signed an agreement to export the iron ore of the Hardey project through the Roy Hill railway and port. There is no need to build new ports and railways. The first ore of the Hardey project is expected to be shipped in 2023.

However, with the advancement of projects such as Simandou in Guinea, China already has cheaper alternatives, and its production scale may now be reduced. In any case, the launch of the Hardey project will improve China's resource capabilities.

Baowu's overseas acquisitions

Baosteel Group established the Bao-Hi Ranges Joint Venture with Australia's Hamersley Iron Ore Co., Ltd. in 2002. The project was put into production in 2004 and supplies 10 mn t of iron ore to Baosteel every year.

In 2007, the steelmaker cooperated with Australia's FMG to explore the Glacier Valley magnetite block with reserves of 1 billion tonnes (bn t). In 2009, it acquired 15% of the shares of an Australian mining company, Aquila Resources, and became its second-largest shareholder.

In Jun'12, Baowu established Iron Bridge with FMG and merged two iron ore projects in Australia, of which Baosteel accounted for 88% of the shares.

Through the acquisition of Sinosteel, the world's top steelmaker obtained resources such as Channar and Midwest iron ore in Australia. It acquired Maanshan Iron and Steel and Wuhan Iron and Steel and entered into a joint venture with Australia's Wheelarra iron ore.

In Africa, Baowu is planning to build Simandou with total reserves of more than 10 bn t of an average iron ore grade of Fe65%. Baoyu Liberia, a JV established by Baosteel Resources, Henan International Cooperation Group and the China-Africa Development Fund is exploring Liberia's iron ore reserves (estimated at 4-6 bn t), which are expected to become another overseas resource base for China.