Rio Tinto unveals investment plans

The Business of Mining - thebusinessofmining.com | November 29, 2010 | 10:18 am Base Metals Copper 

“Tom Albanese, chief executive, Rio Tinto said: ‘We believe the first and best use of our strong cashflows and robust balance sheet is to invest in the excellent range of value-adding growth projects across Rio Tinto’s product portfolio.


The long-term industrialisation and urbanisation story in developing countries continues apace. Over the next 15 to 20 years, this will lead to a doubling in iron ore, aluminium, and copper demand which will require a significant supply response. With our large suite of low cost, large scale, expandable assets along with our core skills in operating excellence, exploration, technology and innovation, we are very well positioned, and are investing to take full advantage of these opportunities.’”

Source: Rio Tinto, November 26 2010

Observations:

The plans presented to the investor community include:

  • $13bln expected investments up to end of 2011, including $4bln for 2010;
  • 50% capacity expansion in Pilbara over 5 years, leading to $130/tonne costs for added capacity;
  • Copper output for 2010 at 661Kt, increasing from 2013 due to Oyu Tolgoi;
  • Over $2bln planned investment in copper assets.

Implications:

  • Copper production comes down from 800Kt in 2009, a productivity drop of close to 20%, mainly attributed to grade variation. As copper accounted for 14% of revenues in 2009 this is a significant hit on the income statement.
  • Though the expansion of Pilbara will give Rio Tinto crucial access to iron ore, the estimated $130/tonne give a signal to steel producers that the ore costs will not permanently return to levels below this threshold.
  • Rio Tinto appears to have recovered from the bad competitive position when entering the downturn, but it still is a small buyer of assets in the industry compared to the major competitors.

©2010 | Wilfred Visser | thebusinessofmining.com

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