Rio Tinto to Move Ahead with Plans to Develop Hope Downs 4 Iron Ore Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Mining giant Rio Tinto plc (NYSE:RTP) (London, England) recently announced plans to invest US$1.6 billion to develop Western Australia's Hope Downs 4 iron ore project. The new mine will be connected to Rio Tinto's existing power, rail and port infrastructure in the Pilbara region. Rio Tinto expects to begin construction early next year, after obtaining the necessary regulatory approvals. When completed in 2013, the new open-cut mine is expected to produce 15 million tons per year of high quality iron ore.

The new mine site is located in southeastern Pilbara and has proven iron ore reserves of 73 million tons (63% iron) and additional probable reserves of 64 million tons (63.2% iron). The mine also has an estimated 163 million tons of measured, indicated and inferred high phosphorus Brockman Direct Selling Ore (DSO) mineral resources with about 62.5% iron content.

Rio Tinto and its 50:50 joint venture partner for the project, iron ore mining and exploration company Hope Downs Iron Ore Pty Limited (West Perth, Australia), will each invest about $607 million to develop the mine. Rio Tinto will invest another $425 million to cover the capital and developing cost of the required power, rail and rolling stock infrastructure. A 52-kilometer spur line from the Lang Hancock Railway will connect the new mine to the existing infrastructure. The project site will include an open-cut shovel and truck mining fleet, infrastructure to process wet ore and de-water mines, and living quarters for the approximately 600 personnel.

Commenting on the investment plan, Chief Executive Sam Walsh of Rio Tinto said, "This demonstrates the extensive high-grade resources Rio Tinto can bring online to sustain our current output at 225 million tons a year--an equally important consideration as we seek to expand our Pilbara production rate to 330 million tons a year by 2015."

Among other developments, the Western Australian government has passed new legislation that raises the royalty rates for Rio Tinto and mining giant BHP Billiton plc (NYSE:BHP) (Melbourne, Australia) from 3.75% to 5.6% of sales revenue. The 3.75% rate was set in the 1960s when the mining industry was first established. The new rate is in line with royalty rates paid by other mining companies and is expected to earn the state government about $306 million in revenue during the current financial year.

The new royalty rate is different from the Resource Super Profits Tax announced in May 2010 by former Australian Prime Minister Kevin Rudd. His government had intended to levy a 40% tax on the profits earned by resource projects. The proceeds were intended to fund Australia's business tax reform, infrastructure projects and boost the national savings. The country's powerful mining industry vehemently opposed the tax and shelved up to $186 billion in investment projects.

In July, new Prime Minister Julia Gillard revised the tax. The new Mineral Resource Rent Tax will cover only two commodities and will be effective when company profits exceed a 12% rate of return instead of the original 6%. Under the new tax framework, BHP Billiton and Rio Tinto are likely to pay a corporate tax rate of about 40% in place of the current 30%, a figure much lower than the 58% proposed by the Resource Super Profits Tax.

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