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18. December 2007

Rio Tinto to invest $351m in US nickel mine

Rio Tinto has approved its second major development in two days and flagged plans to sell more iron ore into the spot market as its steps up its defence against predator BHP Billiton.

The company today approved the development of the Eagle nickel project in the United States, 24 hours after it pledged to spend $US793 million ($928 million) on an expansion of the Kestrel coal mine in Queensland.

The major miner has also flagged plans to sell up to 15 million tonnes of iron ore into the lucrative spot market in 2008 to take advantage of inflated prices.

Rio Tinto has stepped up its defence against a $US122 billion ($142.8 billion) unsolicited approach from larger rival BHP Billiton as it awaits a decision on the bid from the UK Takeovers Panel.

The so-called ‘put-up or shut-up’ clause under Britain’s takeover laws, which would set BHP Billiton a six to eight week period in which to launch a formal bid or withdraw from the takeover process, is expected this week.

Meanwhile, Rio Tinto’s $US300 million ($351 million) Eagle project will be the company’s first foray into the nickel sector when production starts in 2009.

The project is slated to produce about 16,000 tonnes of nickel per year over a seven year period, along with copper, platinum, palladium and cobalt by-products.

“Eagle gives Rio Tinto a valuable opportunity to enter the market for nickel, a key input into stainless steel,” Rio Tinto copper chief executive Bret Clayton said.

“Eagle is just one of many projects that will add to Rio Tinto’s growth and value.”

Rio Tinto said it was also in final contract negotiations to develop a second nickel project at Sulawesi in Indonesia.

The company has flagged first production from the Sulawesi operation in 2015 at a production rate of 46,000 tonnes per year.

“Demand for nickel is rising strongly, led by the development of new infrastructure in developing economies, as well as rising demand for consumer products and the development of associated processing plant and equipment,” Mr Clayton added.

Elsewhere, Rio Tinto said its planned iron ore expansions over the next decade would allow the company to sell more tonnage into the spot market while continuing to meet long-term contractual commitments.

Benchmark contracts are fetching about $US85 per tonne for iron ore compared with spot prices of about $US190 per tonne.

“The iron ore market is changing,” Rio Tinto chief executive Tom Albanese said.

The company sold about one million tonnes of iron ore into the spot market in December at $US190 a tonne and a similar shipment has been sold for January at an average price of $US187 per tonne.

Rio Tinto has been busy spruiking an independent future amid the merger proposal of three BHP Billiton shares for every Rio Tinto share, which the target has labelled as “out of the ball park”.

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