[miningmx.com] — GLOBAL miner Rio Tinto is to nearly triple its capital spending to $11bn next year as it expands its lucrative iron ore mines and bets that strong Chinese demand will keep metal prices buoyant.
Capex will shoot up from about $4bn in 2010, it said on Friday, as it seeks to boost iron ore output by more than 50% over five years.
“The long-term industrialisation and urbanisation story in developing countries continues apace,” CEO Tom Albanese said in a statement ahead of a presentation to investors.
“We believe the first and best use of our strong cashflows and robust balance sheet is to invest in the excellent range of value-adding growth projects across Rio Tinto’s product portfolio.”
Rio, the world’s second-biggest iron ore producer, posted a record first-half profit in August and about 70% came from iron ore sales.
At the time, Rio said it would spend at least $6bn on projects this year and $13bn during the 18 months to the end of next year.
On Friday, the Anglo-Australian group said the 18-month forecast was unchanged, but due to “re-phasing”, this year’s capex spending would be lower at $4bn.
The heavy capex spending next year, which Rio said would likely continue over the medium term, will help build infrastructure in the Pilbara region of western Australia where the bulk of the group’s iron ore is dug up.
Rio’s iron ore unit is its most profitable.
“The full capital intensity of the iron ore expansion brings home just how expensive additional capacity is,” Liberum Capital said in a note.
“At $130/tonne of installed capacity we think Rio’s iron ore expansion is around the mid-point for quoted capital intensity of the developing peer group.”
SHARES SLIDE
Rio’s shares in London shed 1.8% to 4,194 pence on Friday, largely in line with a weaker British mining index after metals prices fell.
Last month, Rio approved a $3.1bn iron ore expansion in Australia to boost annual iron ore output by 28% to 283 million tonnes by 2013.
New drilling in the Pilbara had revealed an additional 2 billion tonnes of iron ore, which would underpin Rio’s target to further boost capacity to 333 million tonnes by 2015, the head of the iron ore division Sam Walsh said.
Rio has pursued its own growth programme after it and BHP Billiton scrapped plans last month to form the world’s biggest iron ore joint venture due to opposition by regulators.
In the third quarter Rio produced a record amount of iron ore, but copper output fell 19 percent.
Rio warned on Friday that weak copper output would continue into next year before recovering in 2012.
Copper output would fall 18% to 661,000 tonnes this year. “The effect of lower grades will continue in 2011 but rebound in 2012,” it said.
The outlook was bright for its copper unit since its joint project in Mongolia, Oyu Tolgoi, was on track to launch in late 2012 and $2bn would be invested in existing copper assets over the next three years, Rio said.
In the group’s Alcan aluminium division, a further $1bn of “sustainable cash improvement” was being targeted by 2014, it added.
