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Rio Tinto Group

Rio Tinto to go ahead with US$1.9b bauxite expansion in Australia

PUBLISHED : Friday, 27 November, 2015, 5:34pm
UPDATED : Friday, 27 November, 2015, 5:34pm

Rio Tinto gave the go-ahead on Friday to expand its bauxite output in northern Australia with a US$1.9 billion project, approving a major mine at a time when most rivals worldwide are slashing spending.

The Amrun project in Queensland state will initially produce 22.8 million tonnes of bauxite a year, replacing output from Rio's East Weipa mine and boosting its Cape York exports by 50 per cent, as the company aims to meet soaring demand from Chinese aluminium makers.

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Amrun is one of Rio's top three growth projects, alongside its Australian iron ore expansion and its planned expansion of the Oyu Tolgoi copper mine in Mongolia, where US$4.5 billion in project finance is due to be sealed in December.

The bauxite project cost is up to US$500 million less than some analysts had expected, with Rio able to take advantage of cheaper labour and equipment as projects have dried up amid the mining bust.

It aims to start producing at Amrun, previously called South of Embley, in 2019 and said it hoped to eventually expand the mine to produce 50 million tonnes a year, tapping into 1.5 billion tonnes of reserves.

“It is quite an amazing project and it has potential for growth,” Rio Tinto's aluminium chief executive Alfredo Barrios said.

Operating costs are expected to be lower than current unit costs at its Australian bauxite mines, he said.

“What is clear is it's a tier one asset,” he said, declining to comment on the expected returns.

He said Chinese refineries producing alumina from bauxite valued the security of supply and the consistent grade of material they get from Rio's mines, and will need more as Chinese bauxite production declines and quality deteriorates.

“As they look to increase their refining capacity, we clearly are ideally situated to provide bauxite for those refineries,” Barrios said.

China's demand for bauxite imports is forecast to more than triple between 2014 and 2025 to 125 million tonnes, he said.

READ MORE: Miners bid to develop Australian bauxite project

Sceptics who have watched Rio Tinto sink billions of dollars to expand during the boom years while its share price has sunk to close to a six-year low question the wisdom of pouring money into a project now.

“The outlook for aluminium demand is much stronger than iron ore and copper. But you've still got that overall backdrop that's applying to everything,” said Morningstar resources analyst Mathew Hodge.

“As long as capital and operating costs are declining, that implies lower long-term prices,” he said.

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