Rio Tinto leads FTSE on iron ore project savings

Rio Tinto PLC
Rio Tinto PLC

ANGLO-AUSTRALIAN miner Rio Tinto topped the FTSE 100 yesterday morning, after it delighted investors with $3bn (£1.84bn) of unexpected cost cuts to its iron ore expansion project.

The company said production capacity at the Pilbara iron ore mine in western Australia would hit the previously announced 360m tonnes per year target at a significantly lower capital cost than originally planned.

Due to the expansion of five existing mines, the miner is deferring its investment decision on whether to build new projects Silvergrass and Koodaideri until at least the third quarter of 2014 and 2016 respectively.

Rio Tinto expects to produce 290m tonnes per year at Pilbara by the middle of 2014. Capacity will increase by more than 60m tonnes per year between 2014 and 2017.

Chief executive Sam Walsh admitted at a press conference earlier this year that Rio Tinto’s shareholders had mixed views on the Pilbara expansion, which will increase supply and inevitably lower the already dwindling iron ore price.

The mining sector is at the bottom of the cycle, hindered by a slowdown of growth in China, the world’s largest commodities consumer.

“This investment is driven by the attractive long-term fundamentals for iron ore which are underpinned by urbanisation and income growth in the developing world, particularly China,” said Andrew Harding, iron ore chief executive at Rio Tinto.

Shares closed 3.9 per cent higher.

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