Transcript: The world’s biggest mining project finally gets off the ground

This is an audio transcript of the FT News Briefing podcast episode: The world’s biggest mining project finally gets off the ground

Marc Filippino
Good morning from the Financial Times. Today is Friday, January 12th, and this is your FT News Briefing.

The west is responding to the attacks in the Red Sea, and US inflation is mucking up investors’ hopes for speedy interest rate cuts. Plus, it took 30 years for Rio Tinto to get the world’s biggest mining project off the ground. But was it worth it?

Tom Wilson
I think it’s seen as a test case for big-scale mining projects for the green energy transition. The industry will be watching to see can Rio Tinto pull this off?

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

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The US and the UK carried out military strikes against the Houthis in Yemen early this morning. The Houthis are a rebel group that’s backed by Iran. The strikes were a response to the Houthis attacks on commercial ships in the Red Sea. A US official said the goal was to degrade the group’s military capability and defend US shipping vessels. The Houthis have become one of Iran’s most active groups since the Israel-Hamas war broke out last year. Hamas is also backed by Iran. The strikes by the US and the UK are making people even more nervous that the war could escalate further throughout the Middle East.

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US inflation numbers for December are out and they’re kind of confusing. Annual inflation ticked up to 3.4 per cent, a little bit more than expected, but the overall picture hasn’t changed much. Inflation is actually trending down. The December report opened up a big gap between what markets think about interest rates and what policymakers are saying. The FT’s economics commentator Chris Giles joins me now to talk it through. Hey, Chris. 

Chris Giles
Hey, Marc.

Marc Filippino
So, Chris, unpack this slightly higher than expected number for me. What’s behind it?

Chris Giles
I think it’s a range of things. So what we saw was a little bit mixed in terms of the overall picture. We saw some strength in rents, some strength in second-hand car sales in terms of prices, and that core goods didn’t decline as much as people expected. So there were some elements that were slightly stronger, but given the specifics of it, I don’t think the Fed will find it too disappointing. And that gap you’re talking about between market expectations and officials’ caution, I think is going to continue for some time yet.

Marc Filippino
Yeah, I want to talk a little bit more about that. What is this recent report due to the possibility of rate cuts and the market expectation for those rate cuts?

Chris Giles
Clearly at the margin, it makes rate cuts less likely and certainly a rate cut in March, a little bit less likely. But March was clearly the month where there was the big difference between markets and officials, but is not the decisive move in the data. That means that March is now off the table, I don’t think. I think if there were signs that wages were coming in below expectations and other inflation data, remember, this isn’t the Fed’s preferred measure of inflation. So if the personal consumption expenditure deflator, that’s a bit of a mouthful to say that. But when that comes out and that comes out after the CPI data, if that is again as benign as it was for the November figures which came out just before Christmas, then I think March is still on. 

Marc Filippino
Mmm. All right. So what could go wrong then?

Chris Giles
There’s always things that can go wrong in an economy. Economies never move exactly as people expect. So anything can happen in the figures. It would make people just a little bit more concerned about inflation. How durably it’s coming down to the 2 per cent. That’s what you hear from Fed officials. So this week, John Williams, the president of the New York Fed, made it clear that he wasn’t worried about the overall picture. He thought inflation was on its way out. The economy wasn’t heading for a recession. But he said what he wanted to see was that inflation came durably down to 2 per cent. And it’s in that sort of language where it’s about the sustainability of low inflation. So what we’re likely to see, I think, is officials being rather cautious, waiting until they’re absolutely sure they’ve won the day. And then of course, there’ll be shocks along the way. So we will get driven off this path. We know that. Things will happen in the world. We’ll have to reassess the position. But that’s the sort of idea, the path they have in mind so that when the shocks happen, they can then respond to that in future.

Marc Filippino
Chris Giles is the FT’s economics commentator. He also writes a newsletter on monetary policy and central banks. We’ll have a link to that in the show notes. Thank you, Chris.

Chris Giles
Thank you, Marc.

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Marc Filippino
Inflation in the US and Europe might be looking good, but Argentina’s crisis is only getting worse. Annual inflation there hit a whopping 200 per cent last month, which just underscores how big of an economic crisis its new president, Javier Milei, has to tackle. The country’s chronically high inflation can mostly be blamed on previous governments printing a lot of money. But inflation also got worse last month when Milei devalued the pesos’ artificially high exchange rate. In December alone, prices went up 25 per cent. Economists say Argentina’s inflation rate is probably close to its peak and that a recession will bring it back down.

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The world’s biggest mining project is about to get under way in west Africa. It could be the start of a new era for the industry, and the project is a long time coming. Twenty-seven years ago, the British-Australian company Rio Tinto secured a licence to explore the Simandou mountains in south-eastern Guinea for iron ore. But since then, a lot has gone wrong. Here to talk to me about it is Tom Wilson. He’s the FT’s natural resources editor. Hey, Tom.

Tom Wilson
Hi, Marc.

Marc Filippino
So, Tom, tell me a little bit about the project. What’s the scale and the scope of it?

Tom Wilson
So, this is an absolutely enormous project. I mean, the total cost is estimated at $20bn. Rio Tinto’s partnered with seven different companies, five of which are from China. Most of those are state-owned enterprises. It involves building two giant iron ore mines, building a 550km railway that will snake its way through the Simandou mountains, through Guinea’s forested interior, all the way to the Atlantic coast. And then building a deepwater port as well. So there’s never really been anything of this scale built in a single push in the mining sector before.

Marc Filippino
Tom, I was a kid when this project was first being talked about. I mean, why were there all these delays and where is the project at now?

Tom Wilson
I mean, in some ways, these delays are quite familiar to the mining sector. It often takes a long time from the point at which you get an exploration licence to the point at which you start building. But in the case of the Simandou project, it’s been particularly messy. There’s been a whole series of problems over the last 27 years. Guinea and west Africa, for example, had two coup d’etats, had four heads of state, three presidential elections. Rio Tinto in that time has had six chief executives. Initially it lost half the licence. Around 2008 it was expropriated from them by the Guinean government. Rio Tinto faced its own corruption allegations that it eventually settled with the US authorities, and things even became so complicated that about five years ago, it sought to exit the project completely to sell its stake to its Chinese partner, only for that sale to fall through. Roll forward to present day, the project still sitting on their books, and they’re finally about to hit the green light on construction. The other important factor here is that China needs Simandou’s iron ore more now than it has ever done in the past, and that’s because China desperately needs to decarbonise its steel industry.

Marc Filippino
OK, so explain that for me. What is it about the iron ore in these mountains that makes it all worth this trouble that Rio Tinto and its partners have gone through?

Tom Wilson
So the Simandou mountains represent probably the biggest, unexploited, highest-grade iron ore deposit in the world. Iron ore is the fundamental building block for the modern economy. It’s what is used to make steel and what makes the Simandou iron ore particularly special is it has an incredibly high iron content, iron content of over 65 per cent. So Bold Baatar, who’s the Rio Tinto chief executive, he calls it the “caviar of iron ore”. Now, high-quality iron ore is particularly important today because the world is desperately trying to decarbonise. Among the biggest producers of carbon emissions in the steelmaking industry, China produces about half of the world’s steel, and the steel industry produces 8 per cent of global emissions. But there’s no substitute for steel. And the thesis is that the higher grade iron ore, the lower the emissions associated with the steelmaking process.

Marc Filippino
So is this project with Rio Tinto and the multiple stakeholders seen as sort of a model for big-scale mining projects for the green transition?

Tom Wilson
I think it’s seen as a test case for big-scale mining projects for the green energy transition. The industry will be watching to see can Rio Tinto pull this off? I mean, the commercial structure is incredibly complicated. And what that goes to show is what it takes to get a mining project off the ground in 2024. The world’s been mining now for well over a century, and what that means is that most of the easily accessible mineral deposits have already been mined out. Move forward to 2024, we’re about to enter this energy transition, which is going to be a huge demand for metals to go out in the world and mine it. And when you do find them, they’re in incredibly remote locations like the mountains of south-eastern Guinea. And so that’s really what this project is about for the industry. And it demonstrates the type of complex partnerships that are going to be necessary to get things like this over the line.

Marc Filippino
Tom Wilson is the FT’s natural resources editor. Thanks, Tom.

Tom Wilson
Thanks very much.

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Marc Filippino
You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news.

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The FT News Briefing is produced by Kasia Broussalian, Sonja Hutson, Fiona Symon and me, Marc Filippino. Our engineer is Monica Lopez. We had help this week from Josh Gabert-Doyon, Sam Giovinco, David da Silva, Michael Lello, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio and our theme song is by Metaphor Music.

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