Rio unveils new growth path
Rio Tinto has hinted its iron ore expansion to 360 million tonnes could be delivered at less than half the $US5 billion ($5.5 billion) it was originally tipped to cost, after the miner late on Thursday outlined a strategy for reaching the target.
However the strategy will mean current plans to build a new greenfield mine at Koodaideri in the Pilbara have been shelved for at least three years, while another greenfield mine called Silvergrass may still be built, although a decision on that has been deferred for another year.
Rio will pursue growth largely through expansion of existing mines and efficiency measures across its export system, with just $US400 million worth of new capital spending approved by the board this week.
There was also a hint the project could advance slower in some aspects, despite Rio saying its port and rail assets would be capable of exporting 360 million tonnes annually by the original target of 2015.
Rio said it could be 2017 before the mines that supply the ore have a capacity of 360 million tonnes.
The target is about 35 per cent more than the 265 million tonnes Rio plans to export this year.
Rio's iron ore export division is the biggest and most valuable business in Australia's most lucrative export industry, underpinning why the market has been eagerly awaiting clarification from Rio on how it would proceed with an expansion.
Despite iron ore already dominating Rio's revenue streams, chief executive Sam Walsh said he was happy to continue investing in it.
"Expanding our world-class, low-cost, high-margin Pilbara operations represents the most attractive investment opportunity in the sector and is in line with my commitment to be totally focused on only allocating capital to opportunities that will generate the best returns to shareholders," he said.
The $US400 million of new spending will go on plant equipment and machinery at the existing mines that will be expanded.
Once expected to be a $US5 billion expansion, the more gradual path outlined by the miner suggests costs could be kept closer to $US2 billion over more than five years.
The plan will be fleshed out on Tuesday when Rio holds a major investor day in Sydney.
Iron ore prices have been strong over recent months, emboldening the Pilbara miners that have expansion projects under way.
Rio's neighbours Fortescue Metals and BHP Billiton are also expanding their exports rapidly.
The move on iron ore comes as Rio Tinto this week poured further doubt on the Gove alumina refinery in the Northern Territory. Rio this week said it would abandon long-running efforts to convert the plant to a cheaper form of energy.
Federal and territory governments have been trying to strike a deal with Rio for more than a year to bring gas to Gove, thereby reducing the operating costs of the asset.
Despite up to 10 years of gas being available, Rio confirmed on Tuesday it would not be embracing a gas conversion for the refinery, which has been losing money on the back of low alumina prices and the high Australian dollar.