Demand in China sees Rio step up spending

Miner Rio Tinto is to nearly triple capital spending to £7bn next year as it expands its lucrative iron ore mines in Australia, where it uncovered two billion tonnes more deposits.

The heavy spending on new mines outlined yesterday shows confidence by the Anglo-Australian miner that strong Chinese metals demand will keep metal prices buoyant.

Capex will shoot up from $4bn in 2010 as Rio seeks to boost iron ore output by more than 50 per cent in five years.

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Urbanisation in China and other emerging markets will underpin booming demand for metals, but prices are due to be volatile amid global economic uncertainties, Rio said.

"The Chinese economy continues to motor ahead," chief executive Tom Albanese said.

"The long-term picture remains very positive for our businesses, but there remain a number of risks in the mid to near-term, and for us this points to continued volatility."

Mr Albanese said high metals prices were resulting in strong cash flow and Rio might use some of the cash for takeovers.

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"Of course, that (capex) number excludes any small to medium-sized M&A deals that we may choose to execute. We do have a number of opportunities being evaluated."

Rio, the world's second-biggest iron ore producer, posted a record first-half profit in August and about 70 per cent came from iron ore sales.

At the time, Rio said it would spend at least $6bn on projects this year and $13bn during the 18 months to the end of next year.

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