Could the Guinean junta derail China’s plans to wean itself off Australian iron ore?

When The Guinean army overthrew President Alpha Condé in a September 5 coup, he assured mining companies that they would be allowed to continue operating.

The military junta promised that “existing regulations, contracts and investments will be respected”.

But last week the junta suspended operations at the Simandou iron ore project, one of the largest undeveloped iron ore deposits in the world.

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The project has been hit by delays due to years of property disputes and slow progress on the 650 km (400 mile) railway needed to transport iron ore to Guinean ports.

Acting President Mamady Doumbouya said work had not progressed at the site and it was unclear how the mine was contributing to national interests.

The move was a major setback for China, observers said.

Not only does a Chinese-backed consortium have a major interest in its development, but China sees the Simandou site as a potential source of ore to help reduce its dependence on accessible and profitable supplies from Australia.

Simandou is divided into four blocks with approximately 2 billion tonnes of commercial scale high-grade iron ore reserves.

British-Australian multinational Rio Tinto owns 45% of Blocks 3 and 4, while Aluminum Corp of China, or Chinalco, owns 40% and the Guinean government owns the remaining 15%. Blocks 1 and 2 were awarded in 2019 to the Société Minière de Boke (SMB), a consortium formed by the Singaporean shipowner Winning Shipping, the Chinese aluminum producer Shandong Weiqiao, the Yantai Port Group and the Guinean transport company and logistics United Mining Supply.

Australia supplies around 60% of China’s iron ore imports, but ties between the two countries have been strained since Australia called for an international investigation into the origin of the coronavirus and banned Chinese company Huawei Technologies Co. of its 5G network.

This dependence has increased in recent weeks with sanctions against Russia driving up the price of raw materials, including Australian iron ore.

W. Gyude Moore, senior policy fellow at the Center for Global Development and former Liberian minister of public works, said Simandou was one of the few places with the quantity and quality to meet China’s industrial demand. , as it reduced its dependence on Australian minerals.

“Sanctions against Russia will most likely strengthen China’s resolve to reduce its exposure to future tariffs or sanctions. Guinea will remain important for both its iron ore and bauxite,” Moore said.

He said the Simandou project also holds a sacred place in the economic hopes of the Guinean people.

“It’s not just another mine. It’s highly political and the idea that it’s the backbone of Guinea’s economic growth is now fully entrenched in the country’s psyche,” Moore said.

However, those expectations came up against the economic difficulties of a mining project and the scale of the infrastructure construction associated with it, Moore said.

“Guinea’s insistence on ‘Guinean resources on Guinean territory’ inevitably means that there will be give and take. It seems the junta is not happy with whatever Guinea has to give,” he said. -he declares.

Lauren A. Johnston, a visiting lecturer at the University of Adelaide, said Simandou was “the goose that Guinea seems unwilling to risk giving away cheaply or uncertainly”.

Johnston said the Russia-Ukraine factor could also be at play since Russia was active in Guinea.

Guinea was non-aligned but could not extract the ore without the support of a combination of aligned and non-aligned countries, she said.

“It doesn’t matter who is in power. The dynamics seem complex. But Guinea is historically always non-aligned,” said Johnston, who is also the founder and chief executive of New South Economics.

Colonel Mamady Doumbouya (centre) and his team of Guinean special forces overthrew President Alpha Condé in a coup. Photo: AFP alt=Colonel Mamady Doumbouya (centre) and his team of Guinean special forces overthrew President Alpha Condé in a coup. Photo: AFP>

Any change that adds uncertainty to the geopolitical situation in Guinea is likely to harm the development of a project like Simandou, according to Erik Hedborg, principal analyst at commodities consultancy CRU Group.

Hedborg said that for China, or any other country that imports large volumes of iron ore, it certainly helps to have a looser market with more countries available to supply volumes to the market.

“Simandou, if fully developed, could take a global market share of nearly 10% of maritime exports,” Hedborg said. He said it would reduce iron ore prices and help reduce dependence on Australia and Brazil.

“However, it is important to emphasize the words ‘reduce dependency’ because that would be a very marginal reduction. These countries are extremely competitive with their developed mining infrastructure, large scale of exploitation and fantastic iron ore reserves. “, did he declare.

“That means they would still be in a very good position even if iron ore prices started to fall to a very low level – and it’s likely to be smaller, high-cost producers in other parts of the world. world who should stop their operations because prices are falling.”

Besides iron ore, Guinea is rich in bauxite, an essential raw material for the aluminum industry; and China is the biggest importer of the ore.

Anthony Everiss, senior aluminum analyst at commodities consultancy CRU Group, said business had been business as usual for Guinea’s bauxite sector. “Chinese investment in bauxite has been fast and furious, and we have continued to see significant mining operations expand in Guinea,” Everiss said.

He said there had been a series of disruptions earlier in the year, but that was not necessarily something new in Guinea’s bauxite mining sector, he said. “We believe a review is likely to take place for bauxite mining contracts in Guinea, but it will likely be a very lengthy process,” Everiss said.

Other key investors in Guinea, which supplies around 20% of the world’s bauxite, include Russia’s Rusal and Chinalco.

chinese tabloid world times reported earlier this week that “representatives and officials of the company are actively seeking a common solution for a rapid resumption of work on the Simandou project in Guinea”.

Moore said China has been in Africa for two decades and a resolution to Simandou’s suspension is possible.

“I think the Chinese will find a workaround in Guinea,” he said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice on China and Asia for over a century. For more SCMP stories, please explore the SCMP app or visit the SCMP Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.

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