Analyst Note| Jon Mills, CFA |
No-moat Rio Tinto has entered into an updated joint venture, or JV, with China Baowu Steel, or Baowu, to develop the Western Range project in the Pilbara, Western Australia. The JV is subject to shareholder and regulatory approval. Rio owns 54% of its existing JV with Baowu, which began in 2002 and envisaged the development of both the Eastern Range and nearby Western Range deposits. However, the total production cap of 200 million tonnes, or Mt, under the existing JV is now expected to be reached in 2027 solely using production from the existing Eastern Range mine. The two companies want to update their existing relationship to develop the Western Range deposit. If developed, the mine will cost around USD 2 billion on a 100% basis with total output of about 275Mt over more than a decade. Production is likely to begin in 2025 or 2026 and reach full capacity of about 25Mt per year later this decade. Similar to their existing arrangement, Baowu has also entered into a long-term sales agreement covering the equivalent of its 46% share of production from the Western Range. Baowu will purchase up to about 125Mt of Rio’s iron ore production at market prices.