Rio Tinto to push ahead with iron ore expansion
Despite shareholders urging the company to preserve cash, Mr Walsh told analysts in London that the expansion would happen, with the only uncertainties being how quickly it was developed and in what way.
The existing plan is to spend $US5 billion ($5.5 billion) - subject to board approval in November - and push ahead immediately.
While that specific approach is not certain to be approved, it now appears some sort of pathway to 360 million tonnes is certain.
"360 will happen, it will go ahead. The issue is timing and the way we go ahead, but it is a robust project, it's a good project and the market will need the iron ore that comes from this," Mr Walsh said.
He said the company had infinite flexibility around the expansion, meaning it may choose to develop it gradually if it wanted to spread its spending over a larger number of years. "What will drive that expansion will be what the market demands physically need," he said.
"We are going to be very rational and logical about this to ensure we are delivering value to shareholders and not just proceeding with something because it's on the books."
The latter comment is a response to claims that Rio could drag down the iron ore price by increasing its exports too quickly, and ultimately weaken the company's revenues.
Deutsche analyst Paul Young said he supported plans to expand to 360 million tonnes and expected approval before Christmas.
"This project will underpin earnings and dividend growth for years to come," he said.
Shareholders lifted the stock by 1.3 per cent to $60.25 on Friday. Rio shares have risen about 20 per cent in the past seven weeks.
Frequently Asked Questions about this Article…
Rio Tinto plans to expand its Australian iron ore division to produce 360 million tonnes per year. The company describes the expansion as a multibillion-dollar project and says some pathway to 360 million tonnes is now certain.
The current plan is to spend about US$5 billion (approximately A$5.5 billion) on the expansion. That specific spending plan is subject to board approval scheduled for November.
Yes. CEO Sam Walsh said ‘360 will happen’ and that the project will go ahead. The main uncertainties are the timing and how quickly the company chooses to develop the expansion.
Rio Tinto says it has ‘infinite flexibility’ around the expansion and may choose to develop it gradually to spread spending over more years. The pace will be guided by physical market demand.
That risk has been raised. Rio Tinto’s management responded by saying they will be ‘rational and logical’ about the rollout to ensure they deliver shareholder value rather than flood the market and weaken prices or revenues.
Deutsche analyst Paul Young supported the plan to expand to 360 million tonnes, expected approval before Christmas, and said the project ‘will underpin earnings and dividend growth for years to come.’
On the day reported, Rio Tinto shares rose 1.3% to $60.25. The article also noted Rio shares had risen about 20% over the previous seven weeks, reflecting positive market sentiment around the plans.
Investors should watch for the board decision in November, any final spending approvals, the company’s stated development pace (gradual vs. immediate), and signals of market demand for additional iron ore — all factors the company says will determine timing and value for shareholders.
Call 1300 880 160
Start a chat
Schedule a call
