Rio unveils new growth path
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.
Frequently Asked Questions about this Article…
Rio Tinto's new growth strategy involves expanding its existing mines and implementing efficiency measures across its export system. This approach is expected to cost less than half of the originally estimated $US5 billion, potentially keeping costs closer to $US2 billion over more than five years.
Rio Tinto has decided to shelve the Koodaideri greenfield mine project for at least three years as part of its strategy to focus on expanding existing mines and improving efficiency, which is a more cost-effective approach.
Rio Tinto has approved $US400 million worth of new capital spending for its iron ore expansion, which will be used for plant equipment and machinery at the existing mines that will be expanded.
Rio Tinto expects its port and rail assets to be capable of exporting 360 million tonnes annually by 2015, but it may take until 2017 for the mines supplying the ore to reach this capacity.
Iron ore already dominates Rio Tinto's revenue streams, and the expansion is seen as an attractive investment opportunity that aligns with the company's focus on generating the best returns for shareholders.
Other companies in the Pilbara region, such as Fortescue Metals and BHP Billiton, are also rapidly expanding their iron ore exports in response to strong prices.
Rio Tinto has decided not to proceed with converting the Gove alumina refinery to a cheaper form of energy, despite efforts by federal and territory governments to strike a deal to bring gas to the facility.
Rio Tinto is not pursuing a gas conversion for the Gove alumina refinery due to the plant's ongoing financial losses, which are attributed to low alumina prices and the high Australian dollar.
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