Rio Tinto to push ahead with iron ore expansion
Rio Tinto will proceed with a multibillion-dollar expansion of its Australian iron ore division, after chief executive Sam Walsh gave his clearest comments to date on the plan to expand to 360 million tonnes per year.
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.