Rio Tinto (ASX:RIO, NYSE:RIO, LON:RIO) is boosting capacity, with significant cost savings, to reach 360 million tonnes a year at its iron ore operations in Western Australia.
Reaching that target would be nearly triple what the mining giant produced in the first half of this year, despite wet weather and a conveyor belt breakage.
Rio produced 127 million tonnes of iron ore in the first six months of 2013, an increase of 6% on the previous year. It came even though floods hampered operations in the iron-rich Pilbara region of Australia and a breakage side-lined one of the five ship loaders for almost three weeks.
The company said the capacity boost will come at a lower capital budget than originally planned--with all-in costs between US$120 to $130 a tonne--as it embarks on a series of brownfield expansions to bring on early tonnage. Through savings from higher productivity, it expects to capital expenditures to be $3 billion lower than originally planned.
The company forecasts an annual base run rate of 290 million tonnes at the end of the first six months of 2014 and, beginning in the second half of next year, it expects to add an additional 60 Mt/a until the end of 2017.
The majority of production will come in the next two years, with mine production of more than 330 million tonnes in 2015, mostly due to a ramp up at Brockman 2 and Brockman 4, Yandicoogina, Paraburdoo and West Angelas, the company said in a statement on Thursday.
Rio has allocated $400 million towards plant equipment and heavy machinery for use at various mine sites in the Pilbara.
"Expanding our world-class, low-cost, high-margin Pilbara operations represents the most attractive investment opportunity in the sector Rio Tinto chief executive Sam Walsh said.
To reach the 360 Mt/a run-rate capacity, Rio said it will need to complete two phases of expansion of port, rail, mine and power infrastructure, which it expects will happen sometime in the first half of 2015.
Rio shares jumped 1.5% to $50.94, offsetting a 12% dip this year.
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