Rio Tinto has highlighted the dramatic shift in strategy by the big mining houses by unveiling a ‘low-cost’ expansion for its Pilbara iron ore business, with plans to lift production at five existing mines before it considers developing any new mines.
It has deferred making a decision on its proposed Silvergrass mine until the third quarter of 2014 at the earliest, and the larger Koodaideri mine until 2016 at the earliest.
Rio said the ‘brownfields’ expansions will save it more than $3 billion on capital spending, compared to its earlier expectations.
Its decision will be disappointing for contractors, which have been eyeing projects like Silvergrass and Koodaideri for future work.
Calibre Group, for instance, has been undertaking engineering studies on Koodaideri and would have been hoping for more.
Rio said its Pilbara iron ore capacity will increase from a base run rate of 290 million tonnes per annum by the end of June 2014 to more than 350mtpa by 2017.
It said most of the growth will be delivered in the next two years, with mine production of 330mtpa in 2015.
Rio has previously committed to upgrades of its rail, port and power infrastructure that will lift its capacity to 360mtpa by the first half of 2015.
It has already approved US$5.9 billion of spending on its latest round of infrastructure projects and has a further US$1.9 billion left to commit.
However the missing link in its expansion strategy has been its mine plan.
It said today the extra output would come from multiple mines, including Brockman 2, Brockman 4, Yandicoogina, Paraburdoo and West Angelas.
Rio said it also anticipates further low-cost productivity gains from its ‘mine of the future’ program.
In support of the brownfield expansions, Rio has approved US$400 million of capital spending on various heavy equipment.
The additional production will be achieved at an all-in capital cost of $US120-130 per tonne, including the cost of infrastructure and mine capacity.
Chief executive Sam Walsh said “expanding our world-class, low-cost, high-margin Pilbara operations represents the most attractive investment opportunity in the sector”.
“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 has previously indicated that Silvergrass would have capacity of 21mtpa and Koodaideri 36mtpa.
