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Rio Tinto drops slightly on rail uplift timing revelation

Rio Tinto's ASX shares closed nearly 2% down June 18 after it reported plans to remove a bottleneck in its rail transportation capacity to bring it in line with its nameplate 360 million-tonne port capacity by the end of 2019, while also whetting investor appetite for Koodaideri, its first "intelligent mine."

Rio's iron ore head, Chris Salisbury, said during an investor seminar in Perth before a site tour of its Pilbara operations that its pioneering autonomous rail project, AutoHaul, is on schedule to be implemented by the end of 2018.

He said Rio's targeted mine capacity of about 360 mtpa will come from productivity gains in existing mines plus additional capacity from when the newest mine, Silvergrass, fully ramps up.

In December 2017, Rio tested its operations' "sprint capacity" and achieved a record throughput run rate of about 390 mtpa, which Salisbury said demonstrated the "inherent upside capability" in the assets.

"Working on increasing flexibility in the system through removing our bottleneck in rail remains a key priority," he said. "This work is progressing well, and rail and mine capacity should be in line with the nameplate port capacity by the end of 2019.

"However, capacity is not the same as tonnes shipped. How we use the capacity of our system will be dynamic and in line with our strict value-over-volume approach.

"Our aim is to be more responsive to short-term market conditions, with the ability to flex to deliver the right product to the right customer at the right time, which is the essence of our 'value-over-volume' strategy."

Mines have a role to play in rail de-bottlenecking

Matthew Holcz, Rio's acting managing director of the Pilbara mines, told investors that mines have an important part to play in increasing rail capacity through a focus on two primary levers: maximizing the tonnes loaded into each car and minimizing the time to load a train, thus contributing to a shorter cycle time so more trains can be passed through the system.

To achieve the first lever, Holcz said Rio is progressively rolling out automated train loading across its sites and deploying expert control systems to enable dynamic tuning for mass or volume-constrained sites.

He said that by doing this, Rio delivered a 2% increase in tonnes loaded into each train car in 2017.

The second lever is done by improving stockpile management, efficiency and trainload reliability which have reduced the average loading time by two minutes per train.

"Through focusing on interface with rail, we have unlocked an additional 6 million tonnes of annual rail capacity for a negligible cost," Holcz said.

Replacement production needed

Over the next three years, Rio expects to spend about US$1 billion a year, or about US$3 per tonne, on sustained capital, and about US$2.2 billion on replacement mines. In the near term, this will see a number of its mines such as Yandicoogina, West Angelas and Robe River (Pannawonica), also called Robe Valley, requiring access to new deposits within their existing mining areas.

However, Salisbury said that in most cases, those developments will leverage off existing footprints and plant infrastructure, making them low in capital intensity.

"Koodaideri, however, is different, as it involves the development of a new hub which requires additional infrastructure, and as a large-scale, low-cost, high-quality replacement project, the ore body is 50 kilometers long and up to 5 kilometers wide, a Brockman-type ore that will be part of the Pilbara Blend," he said. "Subject to approval, construction is scheduled to start in 2019, with first tonnes due to be delivered in 2021."

Koodaideri's capital needs have previously been communicated at about US$2.2 billion, and Salisbury said Rio is in the process of finalizing the feasibility study. Kellie Parker, Rio's managing director for planning, integration and assets, said the company has identified more than 100 "innovation opportunities" in the study.

The operation will include over 170 kilometers of AutoHaul rail.

The US$118 million Billiard South sustaining project is also in development, helping to support Rio's Yandicoogina operations, with production due to start in 2019.