* Rio Tinto extends timetable to expand in iron ore
* Rio eyes 20 pct growth over 3 years
* New schedule will save $3 billion
* Rio's London shares climb 3 percent
* Australian boost seen hitting West Africa's iron ore
By James Regan and Clara Ferreira-Marques
PERTH/LONDON, Nov 28 Miner Rio Tinto
has delayed the expansion of its iron ore operations in
Australia to 2017, slowing growth and cutting costs with a
revised plan which it says will save $3 billion by working
existing mines harder instead of digging new ones.
Rio, which makes the lion's share of its profits from iron
ore, still plans to boost production, but more efficiently, at a
time when heavyweight rivals BHP Billiton and Vale
are doing the same.
Previously the company had been expected to increase its
iron ore production capacity in Western Australia from around
260 million tonnes a year currently to 360 million tonnes by the
end of the first half of 2015, but the plans were stalled after
iron ore prices took a dive last year.
Under a new plan outlined on Thursday, management said its
infrastructure could still be ready to handle an annual 360
million tonnes by 2015 but the full ramp-up in production would
take longer as it has deferred development decisions on new
mines in the region such as Silvergrass and Koodaideri, while
lifting output from "brownfield" sites.
Ahead of two days of investor presentations, Rio said the
newly approved plans will still increase production capacity by
20 percent by 2017 but much of the low-cost growth will come
onstream by 2015, when annual output is expected to reach over
330 million tonnes.
That compares with a production run rate of 290 million
tonnes per year in the first half of next year.
However, some Rio shareholders have expressed misgivings
about a production boost, fearing it would flood the market with
iron ore and hit prices if demand fails to keep up.
Analysts at Liberum said the 40 million tonnes of extra
capacity in 2015 amounted to 3 percent of the seaborne market,
and more than half of expected incremental Chinese growth that
But investors welcomed the cost-cutting plan on Thursday,
sending Rio's shares up almost 3 percent to 3,229.5 pence in
London morning trade, outperforming a 0.1 percent rise in the
FTSE 100 index.
Like other major miners, Rio has come under pressure from
investors to cut spending, slash debt and boost returns as
commodity prices cool and has faced doubts over whether it
should go ahead with riskier projects like its Simandou iron ore
mine in Guinea, after facing hurdles in Mongolia.
"Whilst increased production could affect market dynamics,
expanding existing facilities will be seen as far lower-risk
capital expenditure compared to new greenfield adventures, such
as the Guinea and Mongolian projects," said one of Rio's 10
'BAD NEWS FOR WEST AFRICA'
The Australian expansion will deliver more than 60 million
tonnes of output a year by 2017 from a base of 290 million
tonnes, but Rio will still face tough competition from rivals.
Vale is targeting 480 million tonnes a year by 2018, up from 306
million this year.
"They've been able to take a leaf out of BHP's book and
squeeze the lemon," said UBS analyst Glyn Lawcock, referring to
moves by Rio Tinto rival BHP to maximise its production.
Under the new plan Rio has approved $400 million of spending
on plant equipment and additional heavy machinery to support the
work in Australia's Pilbara iron ore belt as it boosts
productivity while saving on new mine developments.
"The market will say that's $3 billion less to spend. That
means debt will come down quicker and you start thinking about
potential for capital management a little bit sooner," said
Lawcock, referring to a potential dividend or share buyback.
Des Kilalea at RBC Capital Markets in London said the plan
was unlikely to surprise many Rio watchers, but was bad news for
emerging iron ore players and projects like Rio's own in Guinea,
one of the largest untapped deposits in the world.
"BHP has an expansion prgramme, Fortescue too, and Vale -
with all these expansion plans there is not an awful lot of room
for anyone else in the next three to five years to put material
tonnes on the market, particularly West Africa," he said.
"Iron ore is basically about getting a return on a logistics
system. Rio may not have the best mines in the industry, but
they have a Rolls Royce logistics system (in Australia)."
Iron ore prices hit a low of around $80 a tonne in 2012, but
currently sells for $136 a tonne , giving Rio
Tinto a cash profit margin of about $100 a tonne.
"By delivering these additional tonnes we will capture a
greater share of demand and ensure we continue to enjoy the best
returns in the industry," said Andrew Harding, Rio Tinto Iron
Ore's chief executive.
Rio's chairman Jan du Plessis last week said the company
held plans to mine iron ore in Australia until at least 2067 and
expects to eventually become the world's biggest iron ore miner.