Mining major Rio Tinto has announced it is spending $400 million to expand its iron ore production capacity to 360 million tonnes a year by 2017.
Unveiling the revised plan on Thursday, the diversified miner said its new expansion pathway will result in lower capital cost per tonne with a number of brownfield expansions delivering early tonnes to feed infrastructure currently being developed.
Rio chief executive Sam Walsh said the new expansion plans are $3 billion lower than previous estimates and are in line with the company’s commitment to allocate capital to opportunities that will generate the best returns to shareholders.
“The breakthrough pathway we have identified, combining brownfield expansions and unleashing low-cost productivity gains, means we will deliver the expansion at an estimated capital cost of more than $3 billion below previous expectations,” he said.
The miner said all-in capital intensity for additional tonnes is estimated to be between $US120 and $US130 a tonne, including the cost of infrastructure growth and mine capacity.
Previously Rio was looking to expand capacity to 360 million tonnes a year by 2015. However, the new expansion plan means it will produce 330 million tonnes a year by 2015.
Rio said the approved capital expenditure will be spent on plant equipment modifications and additional heavy machinery for use at its Pilbara operations.
Following the completion of phase one of Rio’s port and rail infrastructure expansions, the company expects to achieve a base run rate of 290 million tonnes per annum in mid 2014 and is looking to add an extra 60 million tonnes in mine production capacity over three years.
Phase two of the port, rail and power upgrades is already underway and is scheduled for completion in 2015.
Setting a target of 330 million tonnes in 2015, Rio said the majority of growth would be experienced over the next two years by taking advantage of expanding production at its existing mines.
It said it will be focussing on productivity gains at Brockman 2, Brockman 4, Yandicoogina, Paraburdoo and West Angelas.
The early tonnes delivered from brownfields expansions has resulted in an investment decision on the development of Rio’s proposed greenfield Silvergrass mine deferred until the third quarter of 2014.
It is understood later stages of the expansion plan may hinge on additional tonnes being delivered from Rio’s slated greenfield projects.
The go ahead on Rio’s proposed Koodaideri greenfield mine has been pushed back to 2016 at the earliest.
Rio Tinto iron ore chief executive Andrew Harding said the company is confident about the long-term prospects of iron ore and by adding tonnes Rio will be able to capture a greater share of demand.
“This investment is driven by the attractive long-term fundamentals for iron ore which are underpinned by urbanisation and income growth in the developing world, particularly China,” he said.