Mining expansion put on hold

Rio Tinto Group, the world's third-largest mining company and parent of Kennecott Utah Copper, said Monday that a plan to expand thermal coal output at the Mount Pleasant mine in Australia's New South Wales state remains on hold because of constraints in the transportation network.

London-based Rio Tinto's offer to invest in expanding the state's railways was rejected by the state government because of ownership issues, Preston Chiaro, chief executive for energy at Rio Tinto, said during a coal conference in Beijing.

"It's frustrating when we don't have control over the infrastructure," Chiaro said. "That limits us."

Surging coal demand driven by China's consumption has caused congestion at ports and on railways in Australia, the world's biggest exporter of the fuel. Coal exporters have blamed port operators for the delays and formed groups to push for new infrastructure investment.

Kathy Connell, a New South Wales government spokeswoman, said she couldn't immediately comment on Chiaro's remarks. "We're hoping bottlenecks in the Hunter Valley rail system could be resolved by next summer," Chiaro said.

Thermal coal is burned by power producers. Annual benchmark prices for the fuel increased by as much as 20 percent starting this month because of rising demand.

It had considered two open-cut mines at Mount Pleasant in the Hunter Valley, which together would have a combined mine life of more than 25 years, according to the Web site of Coal & Allied Industries Ltd., Rio Tinto's coal unit. The project has marketable coal reserves of 350 million metric tons, according to Coal & Allied's annual report.

Port Waratah Coal Services Ltd., which operates the coal terminals at Newcastle port in New South Wales, last April had to introduce a quota system for Rio Tinto and other miners to reduce shipping queues. It expects to increase the volume of coal handled by 17 percent over two years to 91.7 million tons in 2006, Port Waratah chairwoman Eileen Doyle said on Jan. 14. Coal exporters wanted to schedule 95 million tons of exports, Doyle said.

Rio Tinto will focus on expanding production of coking coal, used by steelmakers, in Queensland state, Chiaro said Monday.

"In Queensland, the rail situation is robust and improving, so it is not a constraint," said Chiaro. "As long as the transportation capacity can be upgraded, Rio Tinto's new production capacity can come on stream quite quickly."

Rio Tinto is spending $120 million expanding annual capacity at its Hail Creek mine in Queensland to 8 million tons a year, from 6 million tons, by the end of 2005. It is also considering further expansion of the mine, it said during its earnings announcement on Feb. 3.

Demand for coking coal from steelmakers in India and China is "insatiable," Chiaro said Monday.

Annual benchmark contract prices for coking coal more than doubled starting this month. Coking coal prices may remain high for the next couple of years, Chiaro said. Thermal coal prices should hold at current levels for at least a year to 18 months, he said.