This can't be a bad thing for IOH. Somethings should give next year RIO/FMG do we really care but I like Rio for it given the tie up with Kerry & Sam being able to do a deal.
Cheers Hotlegs
Resurgent Rio bets on iron Matt Chambers From: The Australian November 29, 2010 12:00AM Source: Bloomberg
RIO Tinto has forcefully declared that it is back in expansion mode. The miner has detailed plans for $US14.8 billion ($15.3bn) of iron ore spending in the West Australian Pilbara region and raised doubts about rivals' ability to bring on new capacity on time and on budget.
The world's third-biggest miner is also back on the hunt for "small or medium-sized" multi-billion-dollar acquisitions after clearing debt problems that had hamstrung growth from the start of the global financial crisis to well into this year.
In a London investor briefing due to be repeated in Sydney today, Rio iron ore boss and executive director Sam Walsh said that despite rising development costs, Rio's scale and track record meant it could deliver the lowest-risk and highest-return expansions in the region.
At the Friday night briefing, Rio took the unusual step of giving a detailed breakdown of $US10.4bn it plans to spend on yet to be approved expansions of mines, rail and ports as part of its plans to boost Pilbara capacity from 220 million tonnes a year now to 333mtpa by 2016.
It has already approved $US4.4bn of port and rail expansions to bring its infrastructure capacity to 283mtpa.
A further $US3.5bn will be spent on developing remote Pilbara mines to boost mining capacity to 283mtpa, while the remaining port, rail and mine spending to get to 333mtpa will cost $US6.9bn.
The average cost of the expansion is about $US130 a tonne, up from a pre-GFC estimate of $US100 a tonne.
Mr Walsh said plans by Andrew Forrest's Fortescue Metals Group to expand its operations by 100mtpa at $US84 a tonne (for a total cost of $US8.4bn) had "baffled" Rio.
He said Fortescue appeared to omit expansion of its port capacity from 120mtpa to 155mtpa and a mining fleet, given Mr Forrest was yet to decide on whether to use contract miners or his own equipment and workers.
"There are a lot of projects being talked about, being talked up in fact, that we just simply don't believe are going to happen in the way they are described," Mr Walsh said. "These projects are difficult in terms of controlling the costs and scope, difficult in terms of a whole range of approvals and physically getting these projects up, particularly if you have no engineering and construction base with your organisation -- that's why we're well positioned."
He also cited Citic Pacific's $US5.4bn Sino Iron magnetite project in the Pilbara, where costs had risen from $US100 a tonne of capacity to about $US270 a tonne.
It is not just the smaller miners that are having problems.
Rio's main Pilbara competitor, BHP Billiton, recently said its $US4.8bn Rapid Growth Project 5 (RGP5) was facing delays and cost overruns, while RGP4 tie-in activity reduced BHP's output in the March and June quarters this year.
Mr Walsh said he was confident Rio could maintain its Pilbara record of bringing projects to production on time and on budget and that there would be minimal impact on existing operations.
Chief financial officer Guy Elliott said Rio was looking at a number of small-to-medium acquisitions, but stressed most of them would not proceed because Rio would be disciplined.
"We're talking about low single-digit billion-dollar types of transactions," Mr Elliott said.
Speculation that a buyback or special dividend would be announced did not come to fruition.
IOH Price at posting:
$1.95 Sentiment: LT Buy Disclosure: Held
