Rio Tinto to increase spending in the Pilbara

THE BOURSE WHISPERER: Global mining giant Rio Tinto announced the commitment of a further US$3.4 billion to the expansion of its Pilbara iron ore operations in Western Australia.

Rio’s share of the expansion costs will be US$2.9 billion, which will comprise doling out US$2.2 billion to extend the life of the Nammuldi iron ore mine.

The company said this will fund increased production capacity in the Pilbara to 283 million tonnes a year, which is now fully approved.

Rio will also cough up a further US$700 million as part of the US$1.2 billion earmarked for the Cape Lambert port and rail early works, which it said was needed for the proposed capacity expansion to 353 million tonnes per annum.

This 353Mtpa expansion is in final feasibility study, with a final investment decision expected later this year.

 

“We believe we have the best quality iron ore expansion projects anywhere in the world,” Rio Tinto Iron Ore and Australia chief executive Sam Walsh said in the company’s announcement to the Australian Securities Exchange.

“Today we are announcing another significant milestone in our drive towards a more than 50 per cent increase in the size of iron ore operations in Western Australia.

“The program remains on track and we are bringing new iron ore production on stream at a time when demand from Asian markets is forecast to grow strongly, while industry supply growth remains constrained.”

Rio Tinto said it will reach production capacity of 283 million tonnes per annum in the Pilbara in the second half of 2013.

The Nammuldi expansion is expected to contribute its first ore in the third quarter of 2014, although the big miner indicated there will be a transitional period until then in which ore will come from other mines to reach 283Mtpa.

An interesting feature of the Nammuldi project to note is that it will extend Rio’s existing mining below the water table.

It will also increase the mine’s life by 14 years, at a production rate of approximately 16 million tonnes a year.

The funding for the expansion at Cape Lambert follows investments Rio has made in other areas that it already has underway.

The company said its plans to increase capacity at the port have been enhanced by further plans to replace an ageing car dumper with a new dual car dumper.

 

This will augment the Cape Lambert capacity by an additional 20Mtpa to take its capacity to 203Mtpa in 2015.

The works and plans still remain subject to a number of Joint Venture and regulatory approvals, including environmental clearances, which are expected later this year.

Rio Tinto’s schedule for expanding its integrated Pilbara operations is as follows:

–    225 Million tonnes per annum – current operating capacity;

–    230Mtpa by end of Q1 2012 – Dampier port incremental (in implementation);

–    283Mtpa by end of H2 2013 – Cape Lambert 53Mtpa increment (in implementation); and

–    353Mtpa by end of H1 2015 – Cape Lambert 70Mtpa increment (in feasibility study).