Rio Tinto Plc (RIO) plans to accelerate its $14.8 billion Pilbara iron ore expansion project in Western Australia, expanding its iron ore production capacity, in order to reach 333 million tonnes a year by the first half of 2015. The mining giant began implementation of its Pilbara expansion plan in 2010. Presently, the company aims to lift the capacity by 50%, six months ahead of its previous target.
On the backdrop of a strong iron ore demand fueled by worldwide industrial expansion, lagging supply pressures and Chinese import leap of 8.1% y/y, Rio expects to increase its annual iron ore mining capacity to 230 million tonnes by the first quarter of 2012 from the current 225 million tonnes. Moreover, it is expected to rise 283 million tonnes a year by the end of 2013.
The company’s rapid expansion will not incur any extra cost but will bring forward $676 million in spending, previously estimated, of which Rio Tinto is expected to bear $350 million. The rest will be paid by the company’s joint venture partners. The above capital spending is intended to be used in engineering works for port and rail infrastructure. The early port works include extra accommodation, dredging, marine works and stockyard earth works and the purchase of equipment.
One of Rio’s major competitors, ValeS.A(VALE), engaged in mining majority of ore in the Pilbara region of Australia and Canada, plans to boost output by 50% to 450 million tonnes, by the start of 2015. Another peer, BHP Billiton Limited (BHP) has also earmarked nearly $10 billion of a planned $80 billion capital-spending for expanding its iron ore and coal mining over the next five years.
The company currently retains a Zacks #3 Rank, which translates into a short term (1-3 months) Hold recommendation. We prefer to maintain a long-term Neutral recommendation on the stock.
Headquartered in London, UK, Rio Tinto Plc. is engaged in exploring, mining, and processing the earth's mineral resources, producing a broad range of metals and minerals. Rio’s business activities are spread across the world with a strong base in Australia and North America, and significant foothold in South America, Asia, Europe, and southern Africa.
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