Rio Tinto to go ahead with $1.9 bln bauxite expansion

Rio Tinto expects to produce 2.8 million tonnes of bauxite a year and replace the output from the depleting East Weipa mine. It slashed its budget for major projects to roughly $5.5 billion for 2015 from more than $17 billion three years ago. The project also provides further expansion options which could increase annual output to 50 million tonnes.

In 2011 commodities saw a minor spike, but haven't been able shake off their downwards trend since.

Chief executive, Sam Walsh, said the project would provide 1,400 permanent jobs and 1,100 in the construction phase, set to begin in 2017.

Norsk Hydro ASA, Europe's third-largest aluminum producer, last month signed a letter of intent to acquire Vale SA's 40 per cent stake in Brazilian bauxite producer Mineracao Rio do Norte SA.

It is expected to come online in the first half of 2019, and Rio has agreed to change the project name to Amrun in a deal with its traditional land owners.

The Anglo-Australian miner has been edging closer to exiting the coal industry, analysts have argued, as it shifts focus to its higher-margin assets, such as iron ore at Pilbara, bauxite at Cape York and the huge Oyu Tolgoi copper mine in Mongolia.

Alcoa has also flagged plans to grow its bauxite exports from Western Australia in coming year, while juniors like ASX listed Australian Bauxite Limited are also trying to seize on the rising prices.

Still, Mr. Jacques on Thursday said it wasn't Rio Tinto's strategy to diversify for the sake of it. "Diversification has not proven to, necessarily, be a hedge against bad times, as many had previously thought", he said. "As long as capital and operating costs are declining that implies lower long term prices", he said.

What does this mean for Rio Tinto's shares?

'I was honoured to agree to their request to rename the project from South of Embley to Amrun, which is the indigenous language name for the area in which we will be operating, ' Mr Walsh said. "However, it does raise broader questions as to whether Rio should be incentivizing more Chinese aluminium capacity, cannibalizing their own smelting margins in the process, or increasing capex (and reducing dividend coverage) at this point in the cycle?"