Rio to Spend $500 Million on New Power at Ore Mines

By Rebecca Keenan

July 15 (Bloomberg) -- Rio Tinto Group, the world's third- largest mining company, will spend $500 million upgrading power generation at its iron ore operations in Western Australia, reducing carbon emissions by 25 percent.

Two steam power stations will be shut down and replaced with natural gas turbines, supporting Rio's expansion of production, the London-based company said today in a statement.

Australia is set to release a carbon emissions trading proposal tomorrow as part of a government plan to help reduce greenhouse gases 60 percent by 2050. Western Australia has been battling a natural gas shortage after a plant explosion last month cut supplies by a third.

``At an annual production rate of 220 million tons of iron ore, a rate we expect to reach in the fourth quarter of 2008, we will be saving 200,000 tons a year of greenhouse gas emissions,'' Rio Iron Ore Group Chief Executive Sam Walsh said in the statement to the Australian stock exchange.

Rio fell as much as 1.9 percent, or 1.6 percent, to A$121.62 and was A$122.11 at 2:04 p.m. Sydney time on the exchange.

The turbines will use gas from existing supply agreements with Apache Corp. and the North West Shelf LNG venture, operated by Woodside Petroleum Ltd., Rio spokeswoman Amanda Buckley said from Melbourne. The new power stations will be commissioned in 2010, Rio said.

Rio will also build a power line from the new power station, adjacent to the 7 Mile Rail operations site, to the export ports at Cape Lambert and Dampier.

About 57 percent of gas supply from the damaged Apache plant is expected to resume by mid-August with full capacity expected in December. Rio Tinto said last month iron ore production, the company's biggest source of earnings, won't be affected by the explosion.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net