Brockman 4

Mining major Rio Tinto is set to proceed with the $5bn expansion of its iron ore mines in Western Australia, despite concerns over a looming supply glut.

Chief executive Sam Walsh told institutional investors in Sydney that the company will proceed with the expansion plan unless there are significant changes to the global demand-supply situation.

The company’s board is expected to make a final decision on the plans in the final quarter of 2013, reports Reuters.

Iron ore is the most profitable business for Rio and is set to generate 85% of the company’s earnings before interest this year.

The firm intends to expand its iron ore operations in the Pilbara region in two stages, from an existing capacity of 225 million tonnes per annum (Mtpa) to 283Mtpa in 2013 and to 360Mtpa by 2015, marking an increase of more than 50%.

But some analysts are questioning the feasibility of Rio’s expansion plans at a time when the iron ore market is moving into surplus – the first surplus in about ten years – due to high output.

There are concerns China will need less iron ore in coming years as its steel-making mills struggle with overcapacity from Australia.

Image: Rio’s expansion plan will raise annual output from its Pilbara iron ore mines to 360 million tonnes per annum by 2015.

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