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BHP to spend $1.93bn on Australian iron ore

The move comes as analysts predict contract iron ore prices could rise by 40% or more in 2010

Posted: Friday , 29 Jan 2010

SYDNEY (Reuters) - 

BHP Billiton Ltd (BHP.AX: Quote), the world's biggest miner, has approved $1.93 billion of capital expenditure to expedite growth of its Western Australia iron ore business, reflecting continued strong demand for the commodity.

Analysts forecast contract iron ore prices under negotiation with steel mills could rise by 40 percent or more this year as the global economy recovers, steelmakers ramp up production and miners struggle to keep pace.

"This investment is the continuation of our long-term strategy of adding capacity in our high quality iron ore business to support our confidence in the longer term demand for iron ore globally," Ian Ashby, president of BHP's iron ore division said in a statement on Friday.

BHP's share of the Western Australia iron ore business stands at $1.73 billion and the funding will help boost installed capacity at the Western Australia iron ore assets to 240 million tonnes a year in 2013, the company said.

BHP has been keen to deploy its surplus cash into development projects and acquisitions. On Thursday, BHP greed to buy Canadian potash explorer Athabasca Potash (API.TO: Quote) for C$341 million ($323 million) in cash.

Demand for iron ore, the main material in steelmaking, has been underpinned by strong demand from China. Last week the company gave its most upbeat outlook for commodities since the global downturn and reported an 11 percent rise in the December quarter iron ore output from a year earlier. BHP's (BLT.L: Quote) continued investment in iron ore comes at a time when it is bedding down its $116 billion iron-ore joint venture with smaller rival Rio Tinto Ltd (RIO.AX: Quote)(RIO.L: Quote).

BHP said Rio will have the option to participate in the Western Australia iron ore project by paying its share of invested capital. (Reporting by Denny Thomas; Editing by Balazs Koranyi)

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