Rio Tinto: Massive Investment Plans - Analyst Blog

Rio Tinto Plc. (RIO) decided to invest $758 million in the AP60 plant in Saguenay-Lac-Saint-Jean, Quebec to enhance its production at a reduced cost. Further, an investment of $300 million has been declared for erecting a Kitimat smelter in British Columbia

The former amount will increase production by approximately 40% while the latter will increase by 48.0%. The AP60 plant is expected to have annual production capacity of 60,000 tons of aluminium by 2013.

Rio Tinto queued up a massive investment plan including $2.1 billion in September 2010 for further development of its Pilbara iron-ore mine; $800 million for completion of the underground block cave project at the Argyle Diamond Mine located in Australia, and $1.6 billion investment for development of the Hope Downs 4 iron ore project.

Rio Tinto formed a MoU and joint venture with Aluminum Corporation of China Limited - Chinalco (ACH). The MoU was for the development and operation of the Simandou iron ore project in Guinea and exploration of mineral deposits in China. Rio Tinto will have a 49% share in the latter while Chinalco will own the balance.

Thus, 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 Tinto's products.

China is expected to grow by approximately 10% in fiscal 2011. The Chinese steel consumption is expected to increase by 3.5% in fiscal 2011. 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.