Rio Explores $1bn Bauxite Expansion

Rio Tinto said on Tuesday it was looking at spending $1bn to expand its Australian bauxite production and take advantage of strong growth in demand for aluminium.

The mining group is the world’s largest producer of bauxite, which is refined to become alumina then smelted to make aluminium. Its biggest bauxite mine is the Weipa mine in northern Queensland, which accounts for 18.2m tonnes of its total annual output of 32m tonnes.

Rio said on Tuesday it was spending $30m on a feasibility study for a new bauxite mine to the south of the existing Weipa operation. If approved, the new mine would cost $1bn and increase Weipa’s total bauxite production to 35m tonnes a year by 2013.

The new development would eventually replace the existing Weipa mine and provide a platform for further expansion to the south, where there are large unexploited bauxite reserves.

Steve Hodgson, head of bauxite and alumina at Rio Tinto Alcan, Rio’s aluminium division, said: “The Weipa operation is a vital cornerstone for our global aluminium business.
“The feasibility study will also examine a new port and stockpile facilities that would be built at a cost of about $400m to service the new mine. This project will ensure the future growth of Rio Tinto Alcan’s alumina business on Australia’s east coast.”

Mr Hodgson added that the expansion of Weipa would feed the $1.8bn expansion of Rio’s Yarwun alumina refinery “and will underpin Rio Tinto Alcan’s plans to be a major participant in the global third party bauxite sales market”.

Dick Evans, head of Rio Tinto Alcan, said last week that the group was talking to Chinalco of China about co-operating on the development of new bauxite mines near Weipa.

Chinalco is Rio’s largest shareholder having bought 9 per cent of the group’s shares in a surprise move in January, and plans to spend several billion dollars developing the Arukun bauxite deposit just south of Rio’s Weipa concession.

Mr Evans said the talks with Chinalco about working together on Weipa and Arukun started before Chinalco’s raid on Rio’s shares.
“We have had some talks, they have been ongoing for months,” he said. “We are open to doing something co-operatively.”

Mr Evans said no deal had yet been struck, but agreements could include forming a joint venture to develop new bauxite mines and sharing port facilities.

Separately, The Australian newspaper reported on Tuesday that Chinalco may increase its stake in Rio Tinto.

Xiao Yaqing, Chinalco president, was quoted as saying: “If conditions are favourable, we probably will consider the possibility of doing something.”

Analysts said that further stake-building in Rio by Chinalco was more likely than the rumoured purchase of BHP Billiton shares by Chinese steel companies.

Chinalco’s purchase of Rio shares has been interpreted as a bid to scupper a $167bn hostile takeover bid by its rival BHP, reflecting Chinese fears that the combined company would have too much pricing power, especially in the iron ore market.

Rio has rejected BHP’s offer of 3.4 BHP shares for each Rio share as too low.