Shares in Rio Tinto (RIO) moved up on news that the expansion of its iron ore operations in Australia's Pilbara region could conceivably be delivered for $3bn (£1.85bn) below previous estimates.
Rio and the other big diversified miners have become far more circumspect with regard to their capital commitments after what some observers now view as their profligacy at the height of the resources boom, so it's no surprise that new chief executive Sam Walsh has opted to expand capacity primarily through Rio's existing mines, with only a relatively modest $400m of new capital expenditure approved by the board this week.
The Anglo-Australian miner said that iron ore production under the re-jigged 'Pilbara 360' pathway would reach "more than 330m tonnes in 2015", by which time its improved port and rail infrastructure would be capable of exporting 360m tonnes a year - that's around 35 per cent more than the current level.
Clarity on Rio's expansion plans was welcomed by the market, although some analysts still question the logic of building up capacity given lingering doubts over the future level of Chinese demand. But iron ore prices have been strong over recent months, as Chinese steel mills have been restoring inventories. Rio's peers Fortescue Metals and BHP Billiton (BLT) are also expanding their exports rapidly, working on the basis that the global supply/demand balance should remain relatively tight due to the fact that a number of lower-margin iron ore developments have been canned in recent times.
