Rio Tinto iron ore investment

(Posted on 03/12/18)

Rio Tinto is to develop its most technologically advanced mine following the full approval of a $2.6 billion¹ (A$3.5 billion) investment in the Koodaideri iron ore mine in Western Australia.

Koodaideri will deliver a new production hub for Rio Tinto’s world-class iron ore business in the Pilbara, incorporating a processing plant and infrastructure including a 166-kilometre rail line connecting the mine to the existing network. Construction will start next year with first production expected in late 2021. Once complete, the mine will have an annual capacity of 43 million tonnes, underpinning production of the Pilbara Blend, Rio Tinto’s flagship iron ore product.

Koodaideri Phase 1 will help sustain Rio Tinto’s existing production capacity by replacing depletion elsewhere in the system. The project will increase the higher-value lump component of the Pilbara Blend, subject to market conditions, from the current average of about 35 per cent to around 38 per cent. It is expected to deliver an internal rate of return of 20 per cent² and capital intensity of around $60 per tonne of annual capacity, highly competitive for a new mine considering the additional infrastructure of rail spur, airport, camp and road access required.

The operation has been designed to utilise an increased level of automation and digitisation, helping to deliver a safer and more productive mine which is expected to be Rio Tinto’s lowest cost contributor to its industry benchmark Pilbara Blend product. Through the use of digital assets, advanced data analytics and automation, Rio Tinto expects to significantly enhance the operation and maintenance of this new mine.

Rio Tinto chief executive J-S Jacques said “Koodaideri is a game-changer for Rio Tinto. It will be the most technologically advanced mine we have ever built and sets a new benchmark for the industry in terms of the adoption of automation and the use of data to enhance safety and productivity.
“As we pursue our value over volume approach, targeted high quality investments such as Koodaideri will ensure we continue to deliver value for our shareholders and Australians. This further investment in our iron ore business is also a multi-billion dollar vote of confidence in Western Australia. The project will also deliver significant opportunities for local companies and we expect more than A$3 billion will be spent with Australian-based businesses, with opportunities for about A$2.5 billion of spending for Western Australian-based businesses during its development.”

The investment is underpinned by an ore body of high-quality Brockman ore more than 20 kilometres long and three kilometres wide. In addition to mine infrastructure, an airport, mine support facilities and accommodation for employees will be built. Throughout the construction period Rio Tinto expects to employ over 2,000 people with 600 permanent roles created once the mine is operational.

Since completion of the pre-feasibility study in 2016, additional capital has been included for productivity enhancements to increase capacity to 43 million tonnes from the 40 million tonne base case. The project scope was also broadened to incorporate significant safety improvements and the development of additional infrastructure such as an airport and site access roads. Cost inflation for labour and materials also contributed to the capital increase.