Rio Tinto set out its breakthrough plan to optimise the growth of its world-class iron ore business in Western Australia on Friday 28th November. Mine production capacity will rapidly increase towards 360 million tonnes a year (Mt/a) at a significantly lower capital cost per tonne than originally planned.

 

A series of low-cost brownfield expansions will bring on early tonnes to feed the expanded infrastructure currently being developed. From a base run rate of 290Mt/a by the end of first half 2014, mine production capacity will increase by more than 60 million tonnes a year between 2014 and 2017. The majority of the low-cost growth will be delivered in the next two years with mine production of more than 330 million tonnes in 2015.

This will be achieved primarily through a combination of expanding production at existing mines and securing further low-cost productivity gains, such as those delivered by Rio Tinto’s pioneering Mine of the Future™ programme, together with the proposed future development of the greenfield Silvergrass mine. Work continues on various further expansion options to optimise the next stage of the 360 programme.

 

In support of the brownfield expansions, Rio Tinto has today approved $400 million of capital expenditure for plant equipment and modification, and additional heavy machinery for use at various mine sites in the Pilbara.

 

The additional production will be achieved at a world-class all-in capital intensity of US$120-130 a tonne (low-US$100s a tonne Rio Tinto share), including the cost of infrastructure growth and mine capacity.

 

Rio Tinto chief executive Sam Walsh said “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 focussed on only allocating 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.”

 

Rio Tinto Iron Ore chief executive Andrew Harding said “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. By delivering these additional tonnes we will capture a greater share of demand and ensure we continue to enjoy the best returns in the industry.

 

“Today’s announcement (Fri 28th Nov) reflects our team’s commitment and dedication to retaining its edge as an industry leader. I am convinced the breakthrough iron ore optimisation pathway we have unveiled today represents the best use of capital for our shareholders and that our smart use of innovative technology will drive the business forward for decades to come.”