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A miner holds up a chunk of iron ore at a Pilbara mine © REUTERS

Rio Tinto has signed a $2 billion deal with China’s largest state-owned steelmaker to expand its iron ore operations in Western Australia’s Pilbara region.

The deal with China Baowu Steel Group, Rio Tinto’s biggest customer, comes amid trade and geopolitical tensions between Australia and China that have hit a number of industries including wine and barley.

However, iron ore and other minerals are unaffected as Australia’s mining sector is still heavily dependent on exports to the Asian country.

Baowu is increasingly active in Western Australia. Last month the company, in partnership with Australian mining company Mineral Resources, backed a new $3 billion iron ore project in the western Pilbara that could create a significant new player in the region, aligning with incumbents BHP, Rio Tinto and Fortescue Metals Group could compete.

Rio Tinto and Baowu have been working together since 2002, but expanding their activities has been delayed. The new $2 billion project is structured as a joint venture, 54 percent owned by the Anglo-Australian mining company and 46 percent owned by the Chinese company.

Shi Bing, chairman of Baowu Resources, said the new agreement was made with “the spirit of sincere cooperation” and a desire for further cooperation. The project is subject to approval by the Australian, Western Australian and Chinese governments, with production scheduled to begin in 2025.

Rio shares fell 1 percent on Wednesday as the broader Australian market fell sharply following US inflation numbers.

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