Ann: Change of Director's Interest Notice, page-22

This substantially repeats what I wrote about three weeks ago about RIO's Silvergrass mine. A new blurb on the topic in the Australian Financial Review being the trigger for me revisiting the topic today.

NWH is beavering away on the RIO $140m, 2-year, Nammuldi-Silvergrass contract that started in August 2015.Hopefully, there will some upward scope creep to get more of the $700m spend mentioned in the article at http://www.copyright link/business/...or-second-time-in-four-months-20151208-glif2h. The bit pasted below underscores what I wrote on 14/11/2015 about RIO's expansion of the Silvergrass part of the Nammuldi-Silvergrass Project – it's not a more-capacity-for-RIO initiative, it's a matter of RIO having the right low-phosphorus ore to make up RIO's Pilbara Blend, which is pivotal to RIO's iron-ore marketing strategy, and consequently, cut backs in RIO's total ore extraction, if they should occur, would not affect the Silvergrass initiative.

Rio project not new capacity

If Rio pursues its $US700 million new iron ore mine, Silvergrass, the operation would not add new capacity but instead be used to maintain its benchmark "Pilbara blend", Mr Walsh said.

Michelle Lopez, senior investment manager at Aberdeen Asset Management, told the Financial Review last week that Rio could look to use production from Silvergrass to replace some of its higher cost iron ore, which it could shut down if market dynamics don't change.

"We would expect them to be rational, and use it to replace higher cost ore rather than add more product into an oversupplied market. Silvergrass is more marginal [as a growth option] but a premium product."

That does not imply that Rio would change its production guidance for the next two years. But it means that from late 2017, when Silvergrass would be ramping up, Rio will be pushed to look to the price to judge how quickly it gets to its ultimate production target of 360 million tonnes.

Mr Walsh was bullish on demand for iron ore, and "all our commodities" and pointed to infrastructure investment like China's Silk Road fund, which will require "all of the commodities that we supply".

"So the prognosis is good, we are just going through an adjustment process."

Rio is expected to approve Silvergrass, at a cost of $US700 million to $US1 billion, early next year after repeatedly pushing back the board review date.

"Importantly, we've got the ability to take advantage of the economics of a low relative Australian dollar for project, the impact of less projects with contractors, lower input costs and the experience we've gained through the iron ore construction team which we now have building all our projects. So its an opportunity for us to continue to invest through the cycle, while at the same time, recognising the importance of dividends to our shareholders."