MINING giant Rio Tinto plans to spend $5bn on raising iron ore production this year, despite analysts’ warnings that increased supply will lower prices.
Shareholders expect chief executive Sam Walsh to tell the firm’s annual general meeting in Sydney tomorrow that it is full speed ahead with a 70 million tonnes-per-year increase that will take output to 360m tonnes annually by 2015.
The plan means that a major additional chunk of iron ore production will enter the world market in the next few years and will add to concerns about increased supply that could weigh on a recovery in prices.
“They should continue to expand what is a high margin, high returning project, one of the best returning mining projects in the world, because growth now will mean yield in the future,” said Ben Lyons, who helps manage A$400m (£262m) at ATI Asset Management, which holds Rio shares.
Rio Tinto’s board is not expected to make a final decision on the expansion plans until later this year.
Walsh was named chief executive in January as part of a management shake up after a string of disastrous investments – crowned by the $38bn acquisition of Alcan in 2007 just before aluminium prices crashed – drove Rio Tinto to its first annual loss ever in 2012.
Under Walsh, Rio Tinto has already cut hundreds of jobs and marked copper, coal and aluminium operations for sale or closure.