File photo.

Resources giant Rio Tinto is taking the next steps in its phased investment programme by committing US$4.2 billion (100 per cent basis US$6.2 billion) to develop its tier one iron ore business.

The investment covers US$3.7 billion (100 per cent basis US$5.2 billion) for expansion of the industry-leading Pilbara iron ore operations in Western Australia and US$501 million (100 per cent basis US$1.0 billion) for further infrastructure development at the Simandou iron ore project in Guinea.

Rio Tinto chief executive Tom Albanese said the group was directing investment to projects that would generate the most attractive returns for shareholders and are resilient under any probable macroeconomic scenario.

“Our superior Pilbara iron ore business has one of the highest margins in the industry, low capital intensity of investment and a strong track record of completing projects on time and budget,” said Albanese.

“Today's announcement is in line with our long-held strategy of investing in and operating long-life, low-cost, tier one assets, and consistent with our view of the economic outlook. We are mindful of short-term uncertainties, and remain fully committed to a balanced approach to investment, while maintaining a single A credit rating and a progressive dividend policy,” he added.

Rio Tinto is tightly managing its overall investment programme, retaining flexibility and taking steps to reduce and re-phase capital expenditure as appropriate.

The project approvals announced today do not affect the previously announced capital expenditure outlook of US$16 billion in 2012.

Rio Tinto Iron Ore chief executive Sam Walsh said the group continues to see positive prospects for medium- to long-term iron ore demand driven by ongoing growth in Chinese consumption.

“We continue to forecast that annual Chinese steel production will grow from its current level of around 700 million tonnes to around one billion tonnes a year out towards 2030. This demand growth is coupled with an increasingly challenged supply response, as several high-profile competitor projects have recently been either delayed or postponed.”

“Our Pilbara expansion is already well underway, positioning us to capture the opportunities of this market environment. And we have the natural advantages of a readily-expandable Rio Tinto-operated port and proximity to the Chinese market,” he said.

“The investment we and our partners are making in Simandou takes us a step further towards the phased development and ramp up of a new world-class iron ore resource. Further investment will be made as the Government of Guinea progresses its financing strategy and grants approvals for the next steps in developing rail and port infrastructure. The experience gained in expanding our Pilbara operations will be invaluable as we develop Simandou,” he added. - I-Net Bridge