Rio Tinto announces billions in new capital commitments

VANCOUVER — Rio Tinto (RIO-N, RIO-L) has announced billions of dollars in capital commitments to advance and upgrade some of its most high-profile assets.

At its sprawling Pilbara iron ore operation in Western Australia, the company has committed to spend US$3.7 billion to ramp up capacity, with partners adding another US$1.5 billion to total spending on the project.

Rio is working through an expansion program that will see production more than double from 170 million tonnes of iron ore in 2009 to 353 million tonnes by 2015. Capacity to produce roughly 230 million tonnes per year was achieved in the first quarter of 2012.

The latest capital commitments include US$3.5 billion on a 100% basis over four years to complete port and rail infrastructure expansion including two berths on the new Cape Lambert jetty and wharf, the replacement of the existing rail car dumper, and significant rail track duplication and rolling stock improvements. A further US$570 million will go towards a more efficient and less pollution gas-fired power plant at Cape Lambert. US$1.7 billion will go towards extending the life of the Yandicoogina mine to 2021 and expand its capacity from 52 million tonnes per year to 56 million tonnes.

In February Rio made further capital commitments to Pilbara, including US$2.2 billion to extend the life of its Nammuldi iron ore mine, and US$700 million, or US$1.2 billion on a 100% basis, for early work on the Cape Lambert port and rail expansion.

Overall Rio’s Pilbara operations include 13 mines, with Rio’s ownership share ranging between 50% and 100% for each mine. The Pilbara network also includes three shipping terminals, two ports, and some 1,400 km of rail networks.

Rio has also committed US$501 million, with partners putting up a further US$500 million, to advance the Simandou iron ore project in Guinea. Rio is developing the mine with Chinalco’s listed subsidiary Chalco, which, having made an earn-in payment of US$1.35 billion, now controls 47% of the joint venture and 44.65% of the Simandou project. Rio holds the rest of the JV and 50.35% of the project, while the International Finance Corporation holds the remaining 5% of the project. The Government of Guinea has the right to take up to a 35% stake in the project and a 51% stake in a company that controls the rail and port infrastructure.

The $1 billion in spending just announced will go largely towards work on a new deepwater port and the 650 km rail network needed for the project, while also covering more detailed studies and long-lead items. Rio plans to have the mine in production by mid-2015, with anticipated capacity of 95 million tonnes of iron ore per year. Overall Rio expects a total investment of more than US$10 billion to bring the operation on stream.

In making the commitments to its iron ore projects, Rio Tinto Iron Ore chief executive Sam Walsh stated that the company sees continued strong demand for the metal in China. Rio has forecast that China steel production will grow from around 700 million tonnes a year today to around 1 billion tonnes a year towards 2030.

As to its non-ferrous assets, Rio recently committed to spend US$660 million over the next seven years to extend the life of the Bingham Canyon mine in Utah from 2018 to 2029. Rio will spend the money pushing back the south wall to extract more ore from the area, which will allow production of 180,000 tonnes copper, 185,000 oz. gold, and 13,800 tonnes of molybdenum per year from 2019 through 2029. Along with the pit extensions Rio continues to study underground options to further extend the life of the mine, which has already been in operation for more than 100 years.

Also in North America, Rio continues to move forward with its US$3.3 billion modernization of the Kitimat aluminum smelter in northern British Columbia. Last December the company gave the green light to US$2.7 billion in spending on the project, which should allow the company to complete the project in 2014. The upgraded smelter should have 48% more capacity at 420,000 tonnes per year.

Other recent capital commitments by Rio include US$1.5 billion in bridge financing and US$1.8 billion in a standby rights offering to keep the Oyu Tolgoi copper-gold mine in Mongolia moving forward until project financing is in place; US$478 million for its driverless train system at its Pilbara operations, and US$1.4 billion for two projects that will increase production at its 30%-owned Escondida copper mine in Chile.

Overall Rio expects to spend US$16 billion on capital expenditures in 2012.