Rio Tinto to Go Ahead with $15B Expansion Plan Despite 22% Dip in Profit

Mining giant Rio Tinto (ASX: RIO) announced on Wednesday that it will push through with its $15-billion expansion plans despite a 22 per cent dip in its half-year profit and weak commodity prices.

Rio reported that its six-month profit is down to $5.6 billion and underlying profit fell by 34 per cent to $5.2 billion. The firm's profit mainly came from its production of iron ore which grew 4 per cent of 3.6 million tonnes more compared to the same period in 2011 when Rio produced a total of 94.3 million tonnes of iron ore.

Despite the decline in profit, Rio Tinto Chief Executive Tom Albanese said he expects long-term demand for iron ore from China to remain strong; hence, the miner is going ahead with its expansion plans. The same sentiment was echoed by Rio Chairman Jan du Plessis.

"Whilst we are mindful of short-term uncertainties we remain convinced of the strength of the long-term demand outlook. We have taken a considered approach to investment committing capital only to projects that will deliver value for shareholders under any profitable macroeconomic conditions," Mr du Plessis said in a statement.

In June, Rio approved a $4.2-billion spending plan to expand its iron ore operations in Pilbara, Western Australia which would boost capacity to 283 million tonnes a year. The expansion is slated to be completed by the end of 2013.

Mr Albanese disclosed that the firm's iron ore project Simandou in Guinea is on track to have its first commercial production in 2015 as well as its copper mine venture in Mongolia, Oyu Tolgoi.

Rio is also considering selling its diamond mines such as Diavik in Canada where it has a 60 per cent stake, the Argyle mine in Western Australia and the Murowa mine in Zimbabwe where it has a 78 per cent share.

The miner also confirmed it would shutter its Blair Athol coal mine in Queensland which would result in the loss of 140 jobs. Rio has started the two-year scale back of the mine in 2010.

Rio's decision to push through with its expansion plans contrasts with downsizing by other major miners such as BHP Billiton which said in May that it would not meet the five-year $80-billion spending target for new mines and expansion, and Xstrata which reduced on Wednesday its spending plan for 2012 by $1 billion to $7.2 billion.

"We have been signaling for some time that markets would remain volatile and we have seen challenging conditions in the first half. Although sentiment remains negative in Europe and the US, recovery is still fragile, our order books are full and we expect Chinese GDP growth to be around 8 per cent in 2012," The Australian quoted Mr Albanese.