26/11/2007 - 12:02

Rio ramps up growth to fend off BHP

26/11/2007 - 12:02

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Rio Tinto Ltd today announced a $2.7 billion expansion of its Pilbara iron ore mining operations, which it will use to support its claim that it has better growth prospects than its competitors, including would-be suitor BHP Billiton Ltd.

Rio ramps up growth to fend off BHP

Rio Tinto Ltd today announced a $2.7 billion expansion of its Pilbara iron ore mining operations, which it will use to support its claim that it has better growth prospects than its competitors, including its would-be suitor BHP Billiton Ltd.

Rio chief executive Tom Albanese said the rise in global mineral demand was expected to continue for decades and the value of Rio was yet to be fully reflected by the market.

"We believe we have a better growth pipeline than our competitors, which puts Rio Tinto in a strong position to supply the metal-hungry world," he said.

"We have the people, execution capability and resources to work smarter, faster and better than our competitors."

Mr Albanese's statement came as a Chinese weekly newspaper reported the country's new sovereign wealth fund, the China Investment Corp, was considering teaming up with major steel producers to counter offer about $US200 billion for Rio Tinto.

By comparison, BHP Billiton's all-share offer for Rio was worth about $US124 billion ($A141 billion), based on BHP's share price, one of the priciest-ever takeover attempts.

"The plan now is for Chinese steel makers and CIC to jointly set up a team to join the bidding for Rio," the China Business newspaper reported, citing an unidentified source.

CIC, established in September to manage $US200 billion of China's $US1.43 trillion ($A1.63 trillion) in foreign exchange reserves, would link up with steel makers including Baoshan Iron and Steel Co (Baosteel), the paper said.

Baosteel and other Chinese steel makers told BHP Chief Executive Marius Kloppers last week they were worried that a combination of BHP and Rio would have too much power in setting the price of iron ore, the main feedstock for steel.

China already takes half of all the iron ore that BHP mines. BHP, Rio and Brazil's CVRD control about 70 per cent of the iron ore that China buys.

Rio Tinto highlighted its iron ore operations today as one of the key areas poised for "exceptional growth".

The company says it has a conceptual pathway to treble production to over 600 million tonnes per annum.

Rio Tinto says the company could potentially produce about 420 million tonnes from the Pilbara region in Western Australia and has committed $US2.4 billion ($A2.73 billion) to the development of two projects - Mesa A and Brockman 4.

Mesa A will have an initial production of 20Mtpa increasing to 25Mtpa by 2011 while Brockman 4 will have annual output of 22Mtpa.

Outside of the Pilbara, Rio Tinto has identified the Simandou project in Guinea, Africa, to potentially produce up to 120 million tonnes annually, with first production slated for 2013.

Rio Tinto has also increased the post tax synergies it could extract from its merger with Canadian aluminium producer Alcan Inc.

The company has increased the synergy target to $US940 million ($A1.07 billion), up from a previous estimate of $US600 million ($A682.56 million), to be achieved by 2009.

Rio Tinto said there was a strong outlook for the pricing and demand of aluminium.

The company positioned itself as the world's largest aluminium producer after swallowing Alcan through a $US38.1 billion ($A43.34 billion) takeover.

Rio Tinto also talked up its copper business, where the company said it had an "impressive pipeline of exciting projects".

The company said its La Granja project in Peru, which was acquired from BHP Billiton in 2005, had the potential to produce in excess of 500,000 tonnes of copper per annum, double what was previously anticipated.

Rio Tinto has flagged first production from the project in 2014.

The company said it was on track to become a top tier nickel producer through its emerging projects in the United States and Indonesia.


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