Mining giant BHP Billiton is planning to invest A$3.5bn ($3.25bn) in expanding its iron ore mines in the Pilbara region of Western Australia, with the aim to increase production.

When compared to the previous target of 270 million tonnes (Mt) a year, the company now aims to produce 290Mt a year following the expansion, which is on top of its plans to increase output to 225Mt a year.

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The decision came after iron ore prices fell to $90.10 a tonne last week due to reduction in iron ore inventory by Chinese steel mills, low steel prices, low demand and expanded production from BHP, Rio Tinto and Fortescue Metals Group.

"We would say it is quite unlikely that we would see prices north of $100 a tonne, so our forecasts are obviously based on something below that."

BHP Billiton CEO Andrew Mackenzie told the Australian : "We would say it is quite unlikely that we would see prices north of $100 a tonne, so our forecasts are obviously based on something below that."

According to analysts from Australian lender Macquarie, the steel orders in August were low and inventories remained higher, which would further reduce the possibility of buying the mineral.

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Macquarie said in a note to clients: "Mills do report that they plan to increase purchasing activity of both iron ore and coking coal, although whether this happens or not will almost certainly depend on how demand conditions evolve in the coming weeks."

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Mackenzie was quoted by Business Spectator as saying: "We have looked at quite big capital costs and so on, but by just sitting back with what we’ve got and making what we’ve got much more productive, we’ve seen our way through to achieving that with minimal capital."

The investment at the Pilbara mines is expected to help the company generate an additional $5.85bn of revenue a year.

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