In January 2024, China Baowu Steel Group issued the first tranche of a bond that raised CNY 10 billion (USD 1.45 billion) on the Shanghai Stock Exchange.
Media reports described it as one of the largest corporate bond issuances by a Chinese state-owned enterprise in recent years. But perhaps most notable is where the money will be used. At least 70% of the proceeds are allocated to developing a huge iron ore mining project in Guinea, West Africa.
Transition bonds issued in China’s steel sector are normally targeted at decarbonising existing steel production rather than upstream mining projects. The “low-carbon” part of the bond’s name is explained by the stated use of the high-grade ore to make steel in a way that emits less carbon, namely by direct reduction.
Guinea has expressed its ambitions to use the project to develop its own steel-processing industry. However, experts have raised concerns about the feasibility of this, as well as the environmental, social and climate footprint of the mining project.
Why high-grade ore matters
In China, “transition finance” has emerged as a way to support emission reduction in high-carbon sectors such as steel. It is distinct from “green finance” which typically funds projects with clearly defined environmental benefits.
There has been a steady rise in transition loans and bonds since 2021, when regulators began publishing transition finance guidance documents for industries like steel, coal power and building materials.
Issuance of transition-labelled steel bonds rose sharply in 2024, with 12 bonds totalling about CNY 22 billion, according to a 2025 report by non-profit the Climate Bonds Initiative (CBI). Only CNY 5.1 billion had been issued prior to 2024.
The destination of the new funds has drawn particular attention. The northern blocks of the Simandou project in Guinea are reportedly the world’s largest reserve of unexploited, high-grade iron ore.
The prospectus of the bond argues that Simandou’s ore could feed hydrogen-based direct reduced iron, a process seen as central to steel’s long-term decarbonisation.
Xu Xiaoyun, senior research analyst at CBI, called the bond “quite innovative”, saying it is fairly unique for proceeds from labelled bonds supporting steel decarbonisation to be used to secure high-grade iron ore.
“Direct reduction using hydrogen replaces the coal and coke used in blast furnaces and can enable deep decarbonisation,” she explained. “If the entire process runs on green hydrogen and renewable electricity, emissions could be more than 90% lower than conventional blast furnace production.”
Research by US-based think-tank the Institute for Energy Economics and Financial Analysis suggests that direct reduction requires iron ore grades of around 67% or higher, a threshold met by relatively few global deposits. Simandou’s ore averages above 65% iron and can be upgraded for use in pellet feed for direct reduction. The issuer states that using such ore could lower carbon emissions per tonne of steel to roughly 60% of the current global average – an average very largely formed in coal-fired blast furnaces.
Investing in high-grade iron ore deposits such as Simandou therefore has “strategic value”, according to Xinyi Shen, senior advisor at Finland-based think-tank the Centre for Research on Energy and Clean Air (CREA). This is because it both supports China’s long-term planning for low-carbon steelmaking and strengthens the iron-ore supply chain.
However, Xu noted that the bond prospectus provides limited detail on the company’s broader transition pathway.
“It does not specify whether the hydrogen used would be low carbon, outline a detailed corporate transition plan, or explain how the high-grade ore would be sure to support hydrogen-based steelmaking rather than other production routes,” she said.
A project decades in the making
Following major Chinese investment, the Simandou project was formally commissioned in November 2025 and the first shipment of ore arrived in China this January. Already the world’s top iron ore importer, China is expected to be the project’s primary export market.
The two northern blocks are controlled by Winning Consortium Simandou, in which China Baowu has been a key investor since June 2024 and now holds a 51% stake. The two southern blocks are developed by a Rio Tinto-Chinalco joint venture, with Baowu also involved through its partnership with Chinalco.
With total investment estimated at around USD 24 billion, Simandou includes a 670km heavy-haul railway and a new Atlantic port, making it one of the largest mining-linked infrastructure projects in Africa in recent years.
Environmental fault lines
The connection between the bond, known for short as 24 Baowu K1, and such a large mining project may challenge its credibility as a low-carbon transition mechanism. In China’s steel sector, this kind of bond is typically used to finance plant upgrades or specific decarbonisation technologies within steel production.
There has been some precedent for incorporating iron-ore mining into sustainable finance frameworks. Australia’s latest Sustainable Finance Taxonomy, developed with technical support from the Climate Bonds Initiative, includes iron ore mining as a potentially green activity, Xu Xiaoyun told Dialogue Earth.
The key criterion is that the ore grade must be compatible with hydrogen direct reduction, or other low-emissions routes for producing iron and steel. The taxonomy also requires mining activities to meet targets on emissions intensity.
Simandou has drawn scrutiny from civil society groups over its environmental footprint. In 2022, Human Rights Watch raised concerns that the project could affect local land, water resources and ecosystems, citing risks including deforestation and land acquisition.
The organisation stated that construction of the railway could occupy more than 100 sq km of land and affect habitats of endangered species such as the West African chimpanzee, drawing on an impact assessment by Winning Consortium Simandou itself.
The assessment apparently also estimated that forest clearance and associated activities could result in more than 19 million tonnes of CO2 emissions over the mine’s 22-year lifespan. Other experts argue the emissions impact of deforestation may be even larger.
In July 2025, community organisations raised concerns over potential water and soil contamination. Winning said it remains committed to advancing the project in accordance with Guinean law and international standards.
Under the latest Shanghai Stock Exchange guidelines, issuers of transition bonds are encouraged to have an independent third-party verify the environmental benefits of funded projects and to provide ongoing assessments during the bond’s lifetime.
As well as third-party verification, Xu told Dialogue Earth that the credibility of bonds like 24 Baowu K1 also depends on whether proceeds are used for the stated purposes and information is disclosed transparently. This would all ideally be clarified through the issuer’s future reporting.
As of the time of writing, no such report has been identified. A June 2025 bond management report – which are published by bond issuers to account for how raised money is being spent – states that the port and railway components will conduct environmental and social impact assessments in line with International Finance Corporation standards.
Beyond ore exports
Simandou is tied to Guinea’s industrial ambitions. The government has positioned the project as the anchor of its national development strategy, Simandou 2040, aimed at moving beyond raw ore exports towards long-term industrial growth and economic transformation.
“Guinea, like many resource-rich countries, hopes to use projects such as Simandou to move up the value chain and support structural transformation,” said Yunnan Chen, a research fellow at ODI, a British think-tank.
With rising global demand for critical resources, she said, governments may have an opportunity to negotiate greater technology transfer and higher-value investment from external partners.
Guinea’s presidential chief of staff, Djiba Diakité, said in November 2025 that project partners must complete feasibility studies for building downstream processing facilities, either a steel mill or pellet plant, within two years of production.
Simandou and its associated infrastructure are also seen as long-term national assets. The Guinean government holds a 15% stake in both mining blocks and in La Compagnie du TransGuinéen (CTG), the joint venture responsible for developing the railway and port.
It has proposed industrial zones along the rail corridor to support broader development, including agriculture, alongside the establishment of a sovereign wealth fund to manage future revenues for long-term investment.
Translating resource wealth into a competitive downstream industry is no easy task, said Xinyi Shen of CREA. Doing so requires “supporting infrastructure, skills and stable demand. In many African countries, these conditions are still evolving, and green steel markets are at an early stage. This is where international partnerships can play a constructive role in supporting industrialisation and value addition.”
The bond prospectus states that Simandou will provide essential feedstock to support Baowu’s and the global steel industry’s decarbonisation efforts, and references potential downstream processing in the Middle East and West Africa. It does not, however, outline specific plans for steelmaking facilities in Guinea.
Guinea’s industrial ambitions also sit at the centre of a broader shift in how Chinese companies support overseas resource and infrastructure projects, Chen noted. Projects are moving away from the traditional construction and finance model, in which Chinese contractors build projects financed by loans from policy banks. Instead, companies and investors are playing an increasing role in financing and risk-sharing, including through domestic bond issuance like 24 Baowu K1.
Whether Baowu’s bond ultimately supports Guinea’s industrial ambitions remains uncertain. But by linking domestic transition-labelled financing to an upstream mining project abroad, 24 Baowu K1 suggests one possible pathway through which Chinese companies could support the raw materials needed for low-carbon industrial transitions.
At the same time, it raises questions about how Chinese sustainable-finance instruments should be defined, verified, governed and held accountable when applied to projects far from the steel plants they are meant to decarbonise.