Rio Tinto share price slides despite new $3bn iron ore project

Shares in the mining giant are down, along with the wider market, despite major joint venture news.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points
  • Rio Tinto share price is falling along with the ASX 200 despite rising iron ore prices and a new $3bn JV partnership with its largest customer
  • Rio Tinto and Baowu will develop the Western Ranges project, which is estimated to hold 275m tonnes of iron ore
  • The parties have also signed a sales agreement where the Chinese steel mill can buy up to 126.5m tonnes of ore over 13 years at market prices 

The Rio Tinto Limited (ASX: RIO) share price hasn't been able to stand up against the broader market rout despite announcing a major new partnership with its largest global customer.

Shares in the mining giant are currently down 2.64% to $94.20 apiece. That's roughly in line with the 2.81% loss in the S&P/ASX 200 Materials Index (ASX: XMJ) and the 2.82% fall in the S&P/ASX 200 Index (ASX: XJO).

It comes as Rio and China Baowu Steel Group Co. Ltd (Baowu) announce they will invest US$2 billion ($3 billion) to develop the Western Range iron ore project in the Pilbara.

The companies have formed a joint venture (JV) where Rio Tinto will own 54% of the entity.

Rio Tinto share price getting swept up in the sell-off

However, the news couldn't save the Rio Tinto share price from diving in early trade.

The fall also comes despite a more than 1% gain in the iron ore price to around US$104 a tonne.

But Rio Tinto isn't the only ASX miner slipping this morning. The BHP Group Ltd (ASX: BHP) share price has lost 2.04% to $38.50 and Fortescue Metals Group Limited (ASX: FMG) is trading 3.89% lower at $17.52 a share.

New 25 million tonne JV

The Western Ranges annual production capacity is estimated at 25 million tonnes of iron ore. The investment from Rio Tinto and Baowu will be used to build a primary crusher and an 18-kilometre conveyor system linking it to the existing Paraburdoo processing plant.

The miner said that construction is scheduled to start in early 2023 with first production in 2025. Rio Tinto's share of the costs ($1.3 billion) is already included in its capex guidance for 2023 and 2024. Rio Tinto is forecasting a capex of around $9 billion to $10 billion in each of those years.

Sales agreement with Baowu

While there is no upfront payment consideration, the JV partners have entered into an iron ore sales agreement. Baowu will buy up to 126.5 million tonnes of iron ore over approximately 13 years at market prices.

The volume reflects the Chinese steel mill's 46% interest in the project, which is tipped to produce 275 million tonnes of ore over the period.

Rio Tinto's iron ore chief executive Simon Trott said:

We have enjoyed a strong working relationship with Baowu for more than four decades, shipping more than 200 million tonnes of iron ore under our original joint venture, and we are looking forward to extending our partnership at Western Range.

Long-standing partnership

Rio Tinto and Baowu have been working in partnership in the Pilbara since 2002. It formed another JV, Bao-HI, to develop the Eastern Range deposits in the Hamersley Ranges and Western Range.

Baowu Resources' chairman Shi Bing commented:

The Bao-HI joint venture has been successfully operating for more than 20 years, leading us to a win-win result, and reaping friendship and trust. We hope that the two parties will deepen the mutually beneficial and win-win partnership, continue to carry forward the spirit of sincere cooperation.

Rio Tinto share price snapshot

The Rio Tinto share price has fallen 12% over the past year while the ASX 200 has declined 8%.

In contrast, the BHP share price has gained 4% while the Fortescue share price has dropped 3% over the period.

Motley Fool contributor Brendon Lau has positions in BHP Billiton Limited and Rio Tinto Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Resources Shares

Smiling mine worker at mining site with colleagues.
Resources Shares

Vault Minerals meets guidance as growth projects advance

Vault Minerals hit production targets and advanced its growth projects.

Read more »

Rocket going up above mountains, symbolising a record high.
Resources Shares

Guess which ASX mining stock is jumping 76% today on a rare earths deal with Iluka Resources

Investors are piling into the ASX mining stock today following a partnership with rare earths giant Iluka Resources.

Read more »

a small boy dressed in a superhero outfit soars into the sky with a graphic backdrop of a cityscape.
Resources Shares

If I'd invested $4,000 in PLS Group shares 12 months ago, guess what I'd have now!

Shareholders of this ASX lithium miner would be jumping for joy after its huge rally.

Read more »

A group of three men in hard hats and high visibility vests stand together at a mine site while one points and the others look on with piles of dirt and mining equipment in the background.
Resources Shares

Here's what brokers tip for Fortescue shares in FY27

Sentiment has softened for Fortescue shares recently.

Read more »

A coal miner smiling and holding a coal rock.
Share Market News

How Australia's commodities performed in FY26

Strong commodities growth contributed to ASX 200 materials and mining shares rising 47% in FY26.

Read more »

A young female ASX investor sits at her desk with her fists raised in excitement as she reads about rising ASX share prices on her laptop.
Resources Shares

South32 shares go ballistic on massive Alcoa deal

South32 shares are trading 9% higher after a major Alcoa deal.

Read more »

Buy, hold, and sell ratings written on signs on a wooden pole.
Broker Notes

BHP shares have surged 60% in a year: Buy, hold or sell?

A top analyst delivers his verdict on BHP’s rocketing share price.

Read more »

Happy woman miner with her thumb up signalling Wyloo's commitment to back IGO's takeover of Western Areas nickel
Resources Shares

ASX lithium stocks were last year's big winners. What's next?

Lithium shares have cooled, but the long-term growth story remains compelling.

Read more »