Rio Tinto plc (RIO), a leading name in the mining industry, enhanced its coal output, as the company-operated Kestrel Mine Extension started coal production. The Extension is a $2 billion project in central Queensland.
The mine construction was started in 2008, with the first glimpse of coal in Jul 2011. The extension, Kestrel South, will increase the production capacity of the mine by roughly 20 years. The mine will reach full capacity by 2014, and will be capable of producing roughly 5.7 million tonnes of coal per year, for the next 20 years. A 4.9 miles (7.9 kilometer) conveyor belt has been built with the capacity to carry 3,500 tonnes of coal per hour. It is expected that the mine will have its first shipment in a few weeks.
The strategic location will enable Rio Tinto to utilize its Australian platform and cater to the demand from South Eastern Asian counties like Japan, Korea, Taiwan, China and India.
Rio Tinto’s subsidiaries have achieved a significant milestone this current month. Another subsidiary, Oyu Tolgoi’s copper and gold mine in Mongolia has conducted its first outward shipment. The mine has an annual production capacity of 430,000 tonnes of copper and 425,000 ounces of gold, over the next 20 years.
Demand for steel is expected to improve by 2.9% and 3.2% in 2013 and 2014 respectively, according to World Steel Association. In light of the same, Rio Tinto’s prospects would improve with production of its major commodity, iron ore, which is used in the production of steel. However, Rio Tinto faces tough competition globally from Brazil-based Vale S.A. (VALE) and Australia-based BHP Billiton Limited (BHP) as production of iron ore by Vale is more cost effective and the transportation costs are lower for BHP due to Australia’s geographical location.
Rio Tinto currently carries a Zacks Rank #5 (Strong Sell). Stillwater Mining Co. (SWC), carrying a Zacks Rank #1 (Strong Buy), is worth considering in the industry.
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