Rio Tinto is preparing to develop its 100% owned Koodaideri iron ore mine in Western Australia following the full approval of a $2.6bn investment.

Koodaideri, which is located about 35km north-west of Rio Tinto’s Yandicoogina mine site, will incorporate a processing plant and infrastructure including a 166km rail line that will connect the mine to the existing network.

Construction on the mine is set to begin next year and the first production is expected in late 2021. It will have a capacity of 43 million tonnes per annum upon completion.

Phase I of the operation is expected to help sustain Rio Tinto’s existing production capacity by replacing depletion elsewhere in the system.

The higher-value lump component of the Pilbara Blend is expected to increase from the existing average of about 35% to around 38% with the new project.

Furthermore, it is set to deliver a 20% internal rate of return and capital intensity of around $60 per tonne of capacity a year.

Rio Tinto chief executive J-S Jacques said: “The project will also deliver significant opportunities for local companies and we expect more than A$3bn ($2.1bn) will be spent with Australian-based businesses, with opportunities for about A$2.5bn ($1.81bn) of spending for Western Australian-based businesses during its development.”

The operation will use an increased level of automation and digitisation, digital assets, advanced data analytics and automation for the improvement of operation and maintenance.

More than 2,000 jobs are expected to be created throughout the construction period.

“The project will deliver significant opportunities for local companies and we expect more than $3bn will be spent with Australian-based businesses.”

Rio Tinto also announced the approval of a $44m pre-feasibility study into Koodaideri Phase II.

The expansion is set to increase annual capacity from the Koodaideri production hub to 70 million tonnes and more than that.

Koodaideri will feature technology such as autonomous trucks, trains and drills, and implement systems already in use across Rio Tinto. The development remains subject to final approval by Western Australian Government.