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US$2.6B investment in new Pilbara mine

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

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The Koodaideri mine in Western Australia will deliver a new production hub for the miner’s world-class iron ore business in the Pilbara, incorporating a processing plant and infrastructure including a 166-km 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 Mt, underpinning production of the Pilbara Blend, Rio Tinto’s flagship iron ore product.

 

Rio Tinto said that Koodaideri Phase 1 will help it sustain 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% to around 38%.

 

It is expected to deliver an internal rate of return of 20% and capital intensity of around US$60/t 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.

 

Jean-Sébastien Jacques, CEO of Rio Tinto, 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$3B will be spent with Australian-based businesses, with opportunities for about A$2.5B 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 km long and 3 km 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 Mt from the 40 Mt 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.

 

A US$44M pre-feasibility study into Koodaideri Phase 2 has also been approved. The expansion could increase annual capacity from the Koodaideri production hub to 70 Mt and beyond. A final investment decision is subject to study outcomes and Rio Tinto’s value over volume approach.

 

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