Rio Tinto plc Announces ‘Breakthrough’ Plan To Advance Iron Ore Production By 24%

The shares of Rio Tinto (LSE: RIO) (NYSE: RIO.US) climbed 56p to 3,195p during early trade this morning after the miner unveiled a “breakthrough” plan to expand its iron ore operations in Western Australia.

Rio said its mine production capacity would increase by 24% at a “significantly lower cost per tonne than originally planned“.

The FTSE 100 member confirmed the plan would take production levels from a base rate of 290 million tonnes during 2014 to 330 million tonnes by 2015 and to 360 million tonnes by 2017.

A “series of low-cost brownfield expansions” involving capital expenditure of $400m was cited as supporting the development, with the additional production forecast to cost between $120 and $130 a tonne.

Rio claimed the cost of the entire expansion would be more than $3bn below its previous expectations.

Sam Walsh, Rio’s chief executive, said:

Expanding our world-class, low-cost, high-margin Pilbara operations represents the most attractive investment opportunity in the sector and is in line with my commitment to be totally focussed on only allocating capital to opportunities that will generate the best returns to shareholders.

Doubling up Rio’s interim results from August would give 2013 annual earnings of 284p per share, which would support a potential P/E of 11.

Of course, whether that multiple, today's "breakthrough" plan as well as the wider prospects for iron ore all combine to make Rio a 'buy' right now is something only you can decide.

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> Maynard does not own any share mentioned in this article.