SYDNEY/MELBOURNE, May 7 (Reuters) – Rio Tinto, the world’s No.2 iron ore miner, is set to press on with plans to boost production at its Australian mines by a quarter by 2015, shrugging off pressure to slow spending and conserve cash as the commodity boom cools.
In spite of forecasts of a looming global supply glut, shareholders expect Chief Executive Sam Walsh to tell the firm’s annual general meeting in Sydney on Thursday that it’s full speed ahead with a 70 million tonnes-per-year increase that will take output to 360 million tonnes annually by 2015.
The plan means that a major additional chunk of iron ore production will enter the world market in the next few years and will add to concerns about increased supply that could weigh on a recovery in prices.
“They should continue to expand what is a high margin, high returning project, one of the best returning mining projects in the world, because growth now will mean yield in the future,” said Ben Lyons, who helps manage A$400 million ($409.42 million)at ATI Asset Management, which holds Rio shares.
Rio Tinto’s board is not expected to make a final decision on the expansion plans, estimated to cost up to $5 billion, until later this year.
Walsh was named chief executive in January as part of a management shake up after a string of disastrous investments – crowned by the $38 billion acquisition of Alcan in 2007 just before aluminium prices crashed – drove Rio Tinto to its first annual loss ever in 2012.
Under Walsh, Rio Tinto has already cut hundreds of jobs and marked copper, coal and aluminium operations for sale or closure. None of them have been sold so far, though Walsh has said there is strong interest in its Pacific Aluminium division, a grouping of 13 assets marked for sale.
Analysts estimate the sale of Pacific Aluminium could bring in several billion dollars.
But despite some analysts questioning whether Rio Tinto should put the brakes on investment in iron ore, the sector appears sacrosanct for now.
Iron ore has been gobbled up by Chinese steel mills at a rate of nearly 1 billion tonnes a year, though mills have more recently been struggling with weak demand and over capacity, raising concerns China will need less ore in coming years.
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