Rio Tinto fast tracks iron ore mine

SYDNEY - World No 2 iron ore miner Rio Tinto said yesterday it would speed up development of a giant new lode in the Australian outback to meet growing demand from steel mills for raw material.

Rio Tinto and its close rivals BHP Billiton and Brazil's CVRD are seeking to increase iron ore prices this year to help underwrite expansion plans costing billions of dollars.

Rio Tinto iron ore division chief executive Sam Walsh said the new mine project, called Hope Downs, was awaiting approval from the Western Australian state Government to proceed and would become one of the "most significant mine developments" in the company's history once in operation.

At peak output, targeted for later this decade, the project could lift Rio Tinto's output in the Pilbara region by around 20 per cent.

Rio Tinto acquired a 50 per cent interest in the project, holding deposits of more than one billion tonnes of ore, in July 2005, when construction costs were estimated at around US$1.3 billion ($2 billion).

"We will fast track its development and bring the deposit to market in the shortest time possible to meet current strong market demand," Walsh said in a statement.

The project is a joint venture with Hancock Prospecting, a private company run by one of Australia's richest women, Gina Rinehart.

Rio Tinto plans to use its existing rail lines and port facilities to ship the ore to export markets.

Iron ore mining is a low-margin, high-cost business, where hundreds of millions of tonnes of ore must be dug up and sent to distant ports for shipment to the giant steelmaking mills of Japan, Korea, Taiwan and, increasingly, China.

Rio Tinto and BHP Billiton export much of the ore in the Pilbara - the world's single largest deposit - to Japan.

Each company has its own railways and ports but refuses to share them, adding to transport costs.

Fully developed, Hope Downs could yield around 30 million tonnes a year. Rio Tinto already mines about 126 million tonnes of ore in the Pilbara and a further 11.5 million tonnes in Canada.

Besides the joint venture with Hancock Prospecting, Rio Tinto last year earmarked around US$1 billion to find new iron ore deposits in the Pilbara shortly after settling supply contracts with steel mill customers at prices 71.5 per cent higher than the previous year.

Those contracts expire on April 1, though no new price settlements have been reached. China has threatened to cap further increases, but has not said at what price.

Each 1 per cent rise in iron ore prices adds about A$14 million ($16.1 million) to Rio Tinto's bottom line.

Chinese mills, headed by Baosteel Group, have demanded a price cut, causing a deadlock in talks, but many analysts and industry officials say a rise is inevitable, since China's steel output has risen since the last deal was agreed.

The China Iron and Steel Association said last month the country would need to import 300 million tonnes of iron ore this year, up from 275 million last year.

Rio shares were almost 3 per cent higher at A$71.42, helped by firmer metals prices overnight, outpacing gains in the wider S&P/ASX 200.

- REUTERS