Iron Ore Boom in Africa

China has declared its intention to dominate the iron ore mining industry in Africa. This was revealed recently in a speech by the chairman of the China Iron and Steel Association, Wu Xichun.  He said clearly that China wanted to be a big investor in the West African iron ore mines and import half of its iron ore from Chinese-owned mines elsewhere in the world.  China’s own iron ore is low-grade, unlike that of Australia and Brazil.

With construction in China at an all-time high, the country is embarking on a strategy to buy up vast tracts of under-explored and iron ore rich West Africa.  This is a direct challenge to Australia and Brazil’s dominance of the global iron ore market.  BHP Billiton, Vale and Rio Tinto (RTZ) are already embedded in West Africa.  China is intending to open at least 20 mines in the region spanning Liberia, Guinea, Sierra Leone, and the Cameroon by 2015. The economists agree that this could force iron ore prices to decline over the next five years. 

Australian miners are worried about the Chinese expansion program in African iron ore mining. Gabon has significant iron ore reserves in the north-east of the country, although infrastructure such as railways needs to be constructed in order to develop them. All the major global mining companies are undertaking advanced feasibility studies of the Belinga group of iron ore deposits there.  Competition for the Belinga deposits will be fierce. The mining boom is not only helping the majors but also iron ore juniors, thanks to China and India's insatiable demand for steel.

In South Africa, infrastructure has emerged as the key constraining factor to their participation in the African iron-ore boom. The Government has committed to work on a continental framework to extract greater value in the boom times and to expand SA ports and rail networks handling iron ore.     

Mining companies are well aware of the risks common to Africa, contract insecurity being one of the chief concerns, but these are not deterring investment.   "We are seeing a combination of logistical and political difficulties actually reducing and at the same time a slightly higher tolerance for these risks," said Rob Tyler, head of mining for West Africa at Coffey International, an Australian mining consultancy.     With reasonable growth in the iron ore and steel markets predicted for the foreseeable future, opportunities abound for mining companies that have a positive view on Africa.