Rio chief executive Jean-Sebastian Jacques.

Rio commits $US338m to develop Silvergrass

Wednesday, 3 August, 2016 - 11:39
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Rio Tinto says it will spend $338 million developing its Silvergrass iron ore mine in the Pilbara, on the same day it disclosed a slump in underlying earnings and dividend payments.

Rio said in a statement the new investment would lower operating costs by replacing road haulage with a more efficient conveyor system linking the Silvergrass operations to the group's existing processing plant at Nammuldi.

The Silvergrass mine lies adjacent to Rio’s Nammuldi mines and forms part of the Greater Nammuldi precinct.

The Silvergrass project was originally expected to cost in excess of $US1 billion, however the project was effectively split into three stages.

The first two stages, named Nammuldi Incremental Tonnes stages one and two, incorporated construction of mine haul roads and other infrastructure.

NRW Holdings had a key role in the NIT project via a $140 million contract awarded in July last year.

The two NIT stages and the Silvergrass mine form the Silvergrass Complex, and will add an additional 20 million tonnes per annum capacity to the Greater Nammuldi precinct.

“The brownfield expansion of the high-grade Silvergrass mine offers attractive returns, with an expected internal rate of return for this investment well in excess of 100 per cent and a payback of less than three years,” the miner said.

“It is a key element in maintaining Rio’s premium Pilbara blend, and also delivers incremental tonnage and lower unit costs.”

Rio chief executive Jean-Sebastien Jacques said the company was committed to disciplined capital allocation and the approval of the final phase of the Silvergrass development was an example of this.

“The additional low-phosphorus tonnes that Silvergrass delivers will sustain the long-term viability of our Pilbara blend, ensuring continued premium pricing, whilst also lowering our operating costs through infrastructure improvements,” he said.

Meanwhile, Rio today reported a jump in half-year profit to $US1.71 billion ($A2.25 billion), up from $US806 million in the previous corresponding period, as the mining giant benefits from a rebound in iron ore prices over the last few months.

However underlying profit for the six months to June 30 was down 47 per cent from a year ago to $US1.56 billion, reflecting smaller impairment charges plus a turnaround from massive losses on US dollar movements in the prior corresponding period.

Rio declared an interim dividend of 45 cents a share, down from $1.075 a year ago, in line with its changed dividend policy.

Revenue in the period of $US15.5 billion was down $US2.5 billion from a year ago.

Underlying earnings fell in the company's iron ore, aluminium, and copper and diamonds operations, but rose in energy and minerals.

"The credit-fuelled bounce in Chinese construction activity has had a positive impact on commodity markets in the first half of 2016, but its impact has been uneven, benefiting most steel raw materials," Rio Tinto said in a statement.

"This has pulled prices up from the multi-year lows seen at the start of the year, as markets continue to rebalance."

Analysts had expected the company to report a half year profit of $US1.5 billion.

Rio Tinto said its capital expenditure is expected to be $US4 billion in 2016 and $5 billion in 2017.

The company has maintained its full year shipment guidance of 350 million tonnes of iron ore, despite posting slightly weaker-than-expected June quarter volumes.

Shares in Rio were 0.9 per cent higher to $49.88 each at 11:30am.

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