• Capacity at Silvergrass mine to increase by 10 million tons
  • Mine investment will lower costs at the Australian operation

Rio Tinto Group, the world’s second-biggest mining company, approved a $338 million iron-ore mine development in Australia, expanding a glut that’s more than halved prices for the steel-making raw material in the past five years.

Production capacity at the Silvergrass mine will be increased by 10 million metric tons after the investment that will lower mining costs, London-based Rio said Tuesday in a statement. The cost of the investment will be paid back in less than three years and has an internal rate of return “well in excess of 100 percent,” Rio said.

The price of iron ore has tumbled 65 percent since 2011 as producers like Rio and rivals BHP Billiton Ltd., Fortescue Metals Group Ltd. and Brazil’s Vale SA invested in new mines to meet rising demand from China’s steel mills. The four companies are the largest iron-ore exporters in the world.

Rio’s Silvergrass will be completed by the fourth quarter of 2017 though is still subject to approvals by the Western Australian state government.

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