Guinea’s Record-Breaking Iron Ore Project Could Reshape the Global Green Steel Market

The The completion and commencement of operations of the Simandou mine presents hope for a cleaner, more efficient, more diversified iron and steel supply chain, benefitting the world but especially Guinea, which has historically been left behind. But challenges remain.

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On January 17, a 200,000-ton shipment of iron ore pulled into Majishan Port in Zhejiang Province, China. Rather than from Australia or Brazil, which make up 69% and 21% of Chinese iron ore imports, respectively, this shipment came from the West African country of Guinea, marking the first delivery from Simandou, the world’s largest untapped deposit of high-grade iron ore.

The mine, located in the mountains of south-eastern Guinea, has a price tag to match its giant iron ore reserves. At $23 billion, the project is the world’s most capital-intensive mining project. China owns some 75% – of the four blocks that the mine is divided into, two are owned by the Chinese group Winning Consortium Simandou, and the remaining are split between global mining and metals company Rio Tinto, the Chinese group Chalco Iron Ore Holdings, and the Guinean government.

Analysts and industry insiders have lofty expectations for the project: its 65.3% iron content – higher purity than most mines, leading to lower processing costs – positions it in the top quartile of iron ore mining projects by cost competitiveness. In fact, given the superior quality of Simandou’s ore, its iron seems ideal for use in the green steel industry, as Rio Tinto has hinted. This comes at a time when the global iron and steel industry, which contributes 7-9% of all global CO2 emissions – a figure which will likely increase as this sector is notoriously difficult to decarbonize – is making little progress in decarbonization.

But whether the Simandou project can accelerate the transition to low-carbon steel, or simply fuel more global steel production, remains an open question.

A New Low-Carbon Steel Supply Chain?

Driven largely by the European Union’s Carbon Border Adjustment Mechanism, which places a levy on the embodied carbon within materials imported into the EU, Chinese steel suppliers are ramping up the production of green steel to meet European demand. Green steel produced using a method known as Hydrogen-based Direct Reduced Iron has the potential for over 50% emissions reductions when compared to regular steel.

Although most of Simandou’s high-grade iron ore will be processed in China, it could also attract interest from other steelmakers, according to Bouna Sylla, Guinea’s Minister of Mines.

“In Australia, they don’t have the premium. That gives Rio the opportunity to sell both Pilbara 62-grade and Simandou’s premium ore – not just to China, but to European steel mills and maybe the Middle East – for green steel,” Sylla said.

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Resource Nationalism in Guinea

However, iron from the Simandou mine may not always be sent to China or the EU for processing. According to the long-term Simandou 2040 plan, the Guinean government plans to capture an increasingly larger amount of the steel value chain. The focus will be on green steel to be sold directly to European and Middle Eastern markets.

This reflects a broader trend of “resource nationalism” gaining momentum, particularly in francophone West Africa. This phenomenon is driven by the reality that African countries often derive limited benefits from their natural resources because most processing required to produce final products occurs outside the continent. Currently, the ore is transported to China in a relatively raw form, but in decades to come, the government hopes to develop the capacity to conduct processing and refining, and eventually produce steel from iron within Guinea.

This could create thousands of new jobs, drive economic development in Guinea, and reduce its reliance on steel imports. It would also mean greater diversification of the global metals supply chain, reducing steel markets’ exposure to geopolitical shocks. From an emissions perspective, this project could not only produce low-carbon steel but also significantly reduce transport energy use across the value chain. 

Prospect and Challenges

While Simandou’s 15-year plan represents a positive step forward for the steel sector from a climate perspective, to say that it represents a turning point would be naïve. First, if, by 2040, green steel is infeasible in Guinea, the government may choose to proceed with conventional steel production. This may occur if Guinea is slow to either develop a hydrogen supply chain or achieve its ambitious electrification plans (including adding over 8 GW of hydropower by 2040 and improving grid reliability).

Moreover, global steel demand is expected to rise by 0.7% per year by 2030, further challenging the industry’s ability to cut emissions. Because much of the demand growth comes from countries with less stringent green steel targets than Europe’s, there is little incentive for conventional steel producers to decarbonize.

The completion and commencement of operations of the Simandou mine is positive news for the Guinean economy and for African countries’ historic struggles to get greater value out of their own mineral reserves. From an energy transition perspective, it presents hope for a cleaner, more efficient, more diversified iron and steel supply chain, benefitting the world but especially Guinea, which has historically been left behind. 

Yet the mining project also illustrates the broader challenges of industrial decarbonization. If steel demand continues to rise, without countries enforcing limits on conventional steel use, and electrical and hydrogen infrastructure fails to keep pace, then projects like Simandou will only contribute to global emissions.

Featured image: James St. John via Wikimedia Commons.