Skip to main content

Rio Tinto will speed up its $14.8-billion (U.S.) iron ore expansion project in Australia by six months, joining other miners in hurrying production to fill a supply gap for the steel-making commodity.

Big miners are betting China's demand for raw materials to fuel industrial expansion will continue to surge, despite mounting fears of slowing economic growth as Beijing clamps down on bank lending.

Rio expects to expand its iron ore production by 50 per cent to 333 million tonnes a year by the first half of 2015, six months ahead of its earlier target.

"The demand outlook continues to be strong with supply lagging elsewhere in the industry and we are seeing new supplies proving slower to materialize than predicted," Rio Tinto iron ore division head Sam Walsh said in a statement.

Rio Tinto is not alone in beefing up in iron ore.

From the Australian outback to West Africa to South and North America, more mining companies are pegging new iron ore mines, many with the help of Chinese seed money.

AngloAmerican expects to nearly double iron ore production to around 80 million tonnes by 2014 as it digs new mines in Brazil and South Africa.

Fortescue Metals Group has said it plans to bring forward its Australian iron ore production target of 155 million tonnes a year by up to 12 months, while Vale of Brazil wants to push output up 50 per cent to 450 million tonnes, also by the start of 2015.


It's not hard to see why there's a rush into iron ore.

As of Wednesday, iron ore was selling for around $170 a tonne, up to five times the cost of production for most miners.

The bonanza is being fed by Chinese demand. The top steel producer's total imports of iron ore for the first five months of 2011 leapt 8.1 per cent to 283.25 million tonnes from a year ago, feeding steel production that hit another record in May.

The threat to iron ore producers comes from China's battle to control inflation, which could lead to a slowing of its breakneck growth.

China's central bank raised bank reserve ratios on Tuesday for the ninth time since October to try to curb inflation, which is running at its fastest pace in almost three years.

Chinese leaders are fearful that rising prices could not only unsettle the world's second-biggest economy but spark social unrest of the sort seen this week in southern China.


Rio Tinto said faster expansion work won't result in extra costs but will require bringing forward $676-million in spending, of which the company will shoulder $350-million. Its joint-venture partners, some in China, will pay the rest.

Rio said it now expects to increase its annualized iron ore mining capacity to 230 million tonnes by the end of the first quarter of 2012 from 225 million tonnes currently, rising to 283 million tonnes a year by the end of 2013.

Even more than most global mining houses, Rio Tinto sees much of its future in supplying iron ore to the swelling number of steel mills in Asia.

Its biggest customers for ore are China and Japan.

Iron ore accounted for 73 per cent of Rio Tinto's 2010 earnings, compared to a 40-per-cent contribution for No. 3 producer BHP Billiton's first-half earnings.

Only Vale mines more iron ore each year than Rio Tinto, which produces the majority of its ore in the Pilbara region of Australia and also in Canada.

Close rival BHP Billiton has already earmarked nearly $10-billion of a planned $80-billion capital-spending spree over the next five years to expand iron ore and coal mining.

Analysts believe this demonstrates the challenges miners face satisfying rising demand for industrial raw materials vital to steel production as industrialization in China spreads to India and elsewhere in Asia.

Chinese steel production continues to grow, with estimates approaching 680-700 million tonnes in 2011, according to UBS, from 627 million tons produced in 2010.

Report an error

Editorial code of conduct

Tickers mentioned in this story