Broker snap: Investec hails expansion plans at Rio Tinto

28th Nov 2013 09:43

Investec has maintained its 'buy' rating for mining group Rio Tinto after the company announced on Thursday that it plans to ramp up production at its iron ore business in Western Australia.The FTSE 100 group expects mine production capacity will increase by more than 60m tonnes per annum (mtpa) between 2014 and 2017 from a run base rate of 290mtpa by the end of the first half of 2014.The majority of the low-cost growth will be delivered in the next two years with mine production of more than 330m tonnes in 2015.Investec analyst Hunter Hillcoat said that the expansion plans have been flagged in recent months and should not be a surprise to the market. Nevertheless, near-term target rates are 10-20mtpa ahead of his current estimates; however he does still forecast production of 350mtpa in 2017 and 360mpta in 2018.Hillcoat said: "RIO's Chief Executive had always indicated that 360[mtpa] would go ahead - it was just the timing of this that was under question and today's announcement provides both confirmation and clarity, at least to 350mtpa. "While promoting a flood of new supply is not encouraging for the iron ore price longer-term, the reality is, in our view, that if RIO doesn't do it, others will. RIO is in the best position to capture market share through its low-cost, world class assets. A focus on brownfield expansion also provides some flexibility, enabling the expansion to remain sensitive to market conditions."The broker has kept its target for Rio Tinto's share price at 3,668p.The stock was up 2.79% at 3,226.5p by 09:54 on Thursday.BC