Rio Tinto expansion plans might have to go through expenditure cut by USD 3 billion and also, targets to increase its annual production capacity by 2014.
Rio Tinto, world’s second largest miner is planning to spend around USD 3 billion less than the earlier expansion estimates for its flagship Iron ore mining operations in Australia. This will help the company to increase Iron ore production in Western Australia by 25 percent i.e. by more than 60 MnT during 2014-2017. They have targeted to reach around 360 MnT from 290 MnT by the end of H1 2014.
Rio is the second biggest exporter of Steel-making raw material after Vale of South Africa. It is now planning to address the increasing demand from China through its exports. Mining companies are looking forward to reduce costs after a decade long increase in prices. Liberum Capital Limited has estimated its expansion expenditures declined to USD 2 billion from USD 5 billion.
“While promoting a flood of new supply is not encouraging for the Iron ore price in longer-term, the reality is, in our view, that if Rio doesn’t do it, others will. Rio is in the best position to capture market share through its low-cost, world-class assets.” said Investec Plc analyst Hunter Hillcoat.
The faster-than-anticipated ramp up makes Liberum more cautious about Iron ore in 2015. The increased production of Rio is equivalent to around 3 percent of global exports and might cut the price by about USD 16/MT.
According to Liberum, Iron ore price in 2014 might be around USD 110/MT and in 2015 at around USD 120/MT.
Rio’s expansion will be mainly by increasing production at existing mines and cost improvements through its technology program, along with its proposed future development of the Silvergrass mines.
“This investment is driven by the attractive long-term fundamentals for Iron ore. By delivering these additional tons we will capture a greater share of demand” said Andrew Harding, chief executive officer of Rio’s Iron ore unit.
Rio has set its target of 2015 by when it plans to complete the expansion of port, rail and power infrastructure.