Rio Tinto Group, the world’s second-largest exporter of iron ore, has committed $4.2 billion to expanding mines in Australia’s Pilbara and the Simandou operation in Guinea as Chinese demand grows.
It will spend $3.7 billion expanding a mine, building new port berths and extending railways in Western Australia as part of a plan to boost output to 353 million metric tons a year by 2015, the London-based company said in a statement today. It also allocated $501 million to building rail and port at its Simandou development project in Guinea.
Rio, which ranks behind Brazil’s Vale SA for iron ore exports, is expanding output for the steelmaking ingredient while flagging plans to trim spending on other commodities. China, the world’s largest steel producer, will boost output by 43 percent to 1 billion tons by 2030 as it continues to urbanize, according to Rio.
“We are directing investment to projects that will generate the most attractive returns for shareholders and are resilient under any probable macroeconomic scenario,” Chief Executive Officer Tom Albanese said today in the statement.
Rio gained 1.7 percent to A$57.72 at the close in Sydney trading, paring its decline for the past year to 25 percent.
Mining company valuations have plunged 24 percent in the last 12 months on concern global economic uncertainty will curb commodity demand. Iron ore prices have dropped 21 percent in the same period, according to The Steel Index.
Rio today said it would reduce its capital spending, joining BHP Billiton Ltd. in rationing cash as prices tumbled. Rio said June 16 it is conducting an organizational review that may lead to job cuts and staff relocations in Australia to cut costs.
The company withdrew from talks to take part in a A$9 billion ($9.2 billion) port expansion in Queensland where some of its coal mines are located, Rio said in April, citing economic volatility and higher costs.
The project approvals announced today won’t affect plans for $16 billion in capital spending for this year, Rio said.