Rio Tinto goes ahead with $400m iron ore expansion

Mining giant Rio Tinto (ASX, LON, NYSE:RIO) announced Thursday it will invest $400 million to expand Australian iron ore mines in the Pilbara region, home to the world’s largest known reserves of the steel making material.

The move will allow the world’s second biggest miner to increase its iron ore production capacity to 360 million tonnes per annum, beginning with a output growth of 60 million tonnes a year between 2014 and 2017.

Rio said it expects to achieve the swift expansion by 2017, through boosting production at existing mines and developing its Silvergrass mine. However, the miner has deferred an investment decision on this operation until the third quarter of next year.

"The majority of the low-cost growth will be delivered in the next two years with mine production of more than 330 million tonnes in 2015," the company said in a statement.

Slashing spending

Rio Tinto chief executive Sam Walsh said the company will spend $3 billion less than previously planned, adding that the decision to expand Rio’s world-class, low-cost, high-margin Pilbara operations was in line with his commitment to only allocate capital to “opportunities that will generate the best returns to shareholders.”

The expansion would be delivered at an estimated capital cost of about $3 billion below previous expectations, Walsh said.

In 2012 alone, the company poured $3.4 billion into previous expansions at its Pilbara operations.