Rio Tinto backs its positive outlook for China
John Feary, 21st Jun 2012
JUNE 21 – Rio Tinto is backing its expectations of continued long-term growth in the Chinese economy, even if there are some wobbles on the way, with its commitment to spend $US4.2 billion on the expansion of its iron ore operations in Australia and Guinea.
In what it calls phased investment in its tier one iron ore business, the company will spend $3.7B to expand its Pilbara operations in Western Australia and $501M on infrastructure for the Simandou project in Guinea.
When the contributions from joint venture partners are added, the investment amounts to $6.2B.
One of the main justifications for the investment is the company’s forecast that Chinese steel production will grow from around 700Mtpa currently to a billion tonnes a year towards 2030 – translating to growth of under 2.5% a year.
“We continue to see positive prospects for medium- to long-term iron ore demand driven by ongoing growth in Chinese consumption,” said Rio Tinto Iron Ore chief executive Sam Walsh.
“This demand growth is coupled with an increasingly challenged supply response, as several high-profile competitor projects have recently been either delayed or postponed.”
Chief executive Tom Albanese said Simandou and the Pilbara projects “are resilient under any probable macroeconomic scenario”.
The Pilbara spending in the main is directed to achieving Rio Tinto’s already expressed target of lifting the capacity of its mine-rail-port system to 353Mtpa.
It includes $2.9B (100% basis) over the next four years for an additional two berths on the new Cape Lambert jetty and wharf, replacement of the original Cape Lambert rail car dumper and rail track duplication and rolling stock improvements under the Rail Capacity Enhancement project. A new gas-fired power station will be built at Cape Lambert at a cost of $570M.
In addition, $1.7B (Rio Tinto 100%) will be spent to expand the capacity of the Yandicoogina mine from 52Mtpa to 56Mtpa and extend its life to 2021 – subject to government and JV approvals. A new wet processing plant will maintain product specification levels and provide a platform for possible future expansion.
In Guinea, Rio Tinto will put up $501M of the $1B cost of detailed design studies, early works and long-lead items for the Simandou project, primarily for rail and port infrastructure. The Simandou mine, due to reach commercial production in mid-2015, is seen as a long-life, low-cost operation producing one of the highest grade iron ores on the market.
Timing of the Simandou ramp-up is dependent on approvals and the finalisation of its financing strategy by the Guinea government.
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