Rio Tinto’s plans to expand its iron ore operations in Western Australia

June 21, 2011
By Greg Fraser

Rio Tinto’s plans to expand its iron ore operations in Western Australia are going so well, it’s speeding them up.
Asian demand for the raw materials that go into steel-making — iron ore and coking coal — is stoking the capital-expenditure fire in Rio Tinto’s iron ore operations in the Pilbara region of Western Australia.

Last year, the company produced 239 million tonnes of iron ore that found its way mostly to Asian steel factories. Now it is well under way with a staged expansion of that capacity towards 333 million tonnes every year, with potential to nudge it towards 433 million tonnes per annum in the future.

Rio’s view of the iron ore market is predicated on demand for ever greater volume as China increasingly urbanises its population, requiring enormous quantities of steel. India will eventually follow suit.

Estimates expect the global demand for iron ore will require the addition of about 100 million tonnes of iron ore capacity every year. Rio intends to meet its share of that demand mostly through its vast reserves in the Pilbara. The expansion requires significant amounts of infrastructure to be built at the Cape Lambert port and additional work at the Dampier Port.

By 2015 when the expansion is complete, the three terminals at the ports will be fed by about 185 locomotives hauling 12,000 ore carts with about 40 trains dumping product at the ports every day.

Automation

Rio Tinto is spending $US676 million ($641 million) of its budget a little earlier than planned so that the expansion will be completed six months early, in the first half of 2015.

It’s not just the ports and railways that are being upgraded. Rio Tinto’s mines will be making greater use of automation technology that will lift production. It has been trialling five driverless dump trucks at its West Angelas operation and will now install five 290-tonne driverless trucks at its Yandi operation. The trucks will eventually be controlled from the Perth operations centre using GPS and other technology that allows them to move 25 per cent faster than manned trucks. Automation extends to drilling rigs and trains, and the scope to increase productivity using technology is exciting.

Price

Last year, very high iron ore prices contributed $6 billion of Rio Tinto’s group underlying profit increase of $7.6 billion. In future, greater volume will underpin its earnings from this resource. Rio Tinto is a great buy at the current price of about $80 a share. (By SMH)