Thu, Oct 21, 2010 - Page 10 News List

Rio Tinto boosting iron ore production

ASIAN DEMAND:The mining giant has maped out a plan to raise output by 28 percent, one day after BHP Billiton said it would increase its quarterly production by 6 percent

Reuters, SYDNEY

Global miner Rio Tinto approved a US$3.1 billion iron ore expansion yesterday, staking a claim to become the world’s top producer and defying industry concerns over a new Australian mining tax.

Iron ore miners are ramping up production to meet booming demand from Asia, with most of the growth in output set to come from Australia where two of the world’s biggest producers, Rio Tinto and BHP Billiton, dominate.

Rio Tinto’s move to boost output by 28 percent follows this week’s demise of a planned joint venture with BHP Billiton in northwest Australia’s Pilbara region aimed at saving the companies US$10 billion in costs.

“Rio and BHP are obviously not taking much notice of the mining tax if they are planning all these investments in iron ore,” said an analyst in Perth, who asked not to be named because he is not authorized to speak to media.

BHP Billiton unveiled a 6 percent rise in quarterly iron ore output yesterday and is also planning to expand its Australian iron ore operations to meet booming Asian demand.

Rio Tinto’s announcement, combined with BHP Billiton’s production surge, eclipsed news reports that suggested they and other miners risked being double-taxed under Australia’s proposed 30 percent tax on iron ore and coal.

Rio Tinto, BHP Billiton and London-listed Xstrata — the big three of Australian iron ore and coal — accuse Canberra of reneging on a guarantee to refund all of the money the miners pay state governments in the form of royalties, newspapers said. Without that guarantee, they could effectively be double-taxed.

But neither industry analysts nor political experts believe the issue will reignite the tax issue and hurt mining investment, and pointed to Rio Tinto’s expansion plan as evidence.

“They see the benefits of selling more iron ore outweighing the extra tax they will have to pay,” the Perth analyst said.

Iron ore prices tracked by Thomson Reuters are near five-month highs, suggesting producers will see higher sales margins. Most ore is sold on a quarterly system based on the previous quarter’s average price.

Rio Tinto’s US$3.1 billion plan would take its annual Australian production to 283 million tonnes a year in 2013 from 220 million tonnes. It plans to boost it further to 333 million tonnes, which could bring it alongside Brazil’s Vale, now the world’s top producer.

BHP Billiton is running at around 125 million tonnes a year, with near-term plans to take that to 155 million tonnes.

BHP Billiton, the world’s biggest miner said it was now running most of its assets at full capacity as suppliers struggle to keep pace with the global appetite for industrial raw materials.

“Despite ongoing uncertainty in the developed world, BHP Billiton remains positive on the prospects for many of its core commodities and the underlying performance of its business due to strength in the emerging economies and the ongoing delay in the supply side response,” it said.

Mining shares fell yestersday, but attention was focused on the possibility of a slowdown in Chinese demand after Beijing raised interest rates for the first time since 2007.

Rio Tinto said last week it produced a record 47.6 million tonnes of iron ore in the quarter and was similarly driving all its divisions near or above capacity to take advantage of an upsurge in mineral prices.

Both Rio Tinto and BHP Billiton had threatened to pull investments in Australia when Canberra first announced its mining tax proposal in May, but struck a truce with the government in July when it agreed to cut the tax to 30 percent from an original 40 percent and narrowed its scope to iron ore and coal mines.

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