Rio Tinto's Investment Plans - Analyst Blog

Rio Tinto Plc. （RIO） has decided to invest C$10 million （approximately US$10.1 million） for five years to build a Rio Tinto Centre for Underground Mine Construction. The new centre would improve construction activities in underground mines and help maximize output.

Rio Tinto is also on an investment spree to enhance production based on the gradual market recovery.  Recently, Rio Tinto announced plans to invest $2.1 billion for further development of its Pilbara iron-ore mine and $140 million in addition to $347 million to increase production of billets at its plant in Straumsvik, Iceland.

Rio Tinto has queued up a massive investment plan, including $800 million for completion of the underground block cave project at the Argyle Diamond Mine located in Australia, $1.6 billion investment for development of the Hope Downs 4 iron ore project,expected to be operational by 2013 with an annual capacity of 15 million tons, a $563 million MoU with Aluminum Corporation of China Limited – Chinalco （ACH） for the development and operation of the Simandou iron ore project in Guinea, etc.

After acquiring a 22.3% stake in Ivanhoe Mines Ltd. （IVN） in June 2010, Rio Tinto in September acquired an additional 5.3% stake by exercising its warrants.

Increased investment plans will decrease cash in hand, but investment in various growth projects will enable Rio Tinto to feed the long-term demand for its commodities.

With its long-life, low-cost assets, and a strong pipeline of attractive growth projects, Rio Tinto has assets that can generate positive cash flow under difficult market conditions. Though commodity demand from China and other emerging economies has slowed in the last couple of months, management is confident that industrialization and urbanization will continue in these markets, thereby strengthening the demand for Rio's products.

China is expected to grow by 9% in 2010. Chinese steel consumption is expected to increase 6.7% to 579 million tons in 2010. China is expected to remain the largest consumer of metals in the years to come. Hence, the medium-term outlook for metal commodities remains encouraging.

Management expects the global demand for its key products such as iron ore, copper and aluminum to double by 2022, primarily driven by China, India and the emerging markets bloc. Rio Tinto's investment in various growth projects will enable it to capitalize on long-term demand.