Thursday June 21, 2012
Rio okays US$3.7bil iron-ore expansion
SYDNEY: Rio Tinto will spend US$3.7bil to boost its Australian output of iron ore, its most profitable business, shrugging off forecasts of waning demand and a looming global supply glut as Chinese manufacturing slows.
The spending to increase iron-ore production by 25% by 2016 is the lion's share of US$4.86bil in capital outlays approved by Rio's board and announced yesterday.
Rio, the world's second largest miner of iron ore after Brazil's Vale, currently runs its mines at an annual rate of 230 million tonnes and had already put in place work to take output to 283 million tonnes.
At an expanded rate of 353 million tonnes, Rio's Australian mines would be supplying nearly a third of the world trade in iron ore.
Board approval comes despite pressures mounting in the sector to curb capital spending and return more cash to shareholders jittery over slowing global growth.
“We are mindful of short-term uncertainties, and remain fully committed to a balanced approach to investment, while maintaining a single-A credit rating and a progressive dividend policy,” chief executive Tom Albanese said in a statement.
The expansion will cost US$5.2bil all up, with US$1.5bil coming from joint-venture partners in the mines.
Rio also said it had committed a further US$501mil to fund its share of infrastructure development at its Simandou iron-ore prospect in Guinea, a joint venture with China's Chinalco. It is also spending US$660mil to mine more copper at its Bingham Canyon mine in Utah.
But it is iron ore that has become gold for mining companies. The ore sells for around US$135 a tonne but for big producers like Rio Tinto it costs only about US$30 to produce, delivering hefty profit margins. - Reuters