Rio Tinto approves $667 mln iron ore investment

SYDNEY (Reuters) - Global miner Rio Tinto (RIO.AX) (RIO.L) has approved a $667 million (341.4 million pounds) investment in its Pilbara mining region in Australia, under a previously announced plan to boost iron ore output there to 320 million tonnes a year by 2012.

The company is defending a hostile $175 billion takeover bid from BHP Billiton (BHP.AX) (BLT.L), which believes the two groups could speed up iron ore production growth by putting their operations together.

Rio said on Wednesday its share of the investment in the overall project was $492 million. Its partners, Japanese trading company Mitsui (8031.T) and Nippon Steel (5401.T), are funding the remainder.

"The cost, given an expansion of this size, is not out of line, given the massive undertaking it will require to bring about such an increase in production and comes as no surprise," DJ Carmichael & Co mining analyst James Wilson said.

"The infrastructure work required will be huge," he said.

Rio said most of the $667 million approved would be used to fund early infrastructure work, including work at its Cape Lambert port, and buying heavy equipment and construction camp materials amid competition from all miners racing to meet heavy demand for industrial commodities, especially from China.

"This ensures we will continue to lead the industry in completing projects in a timely, efficient manner," said Rio Tinto's iron ore chief executive, Sam Walsh.

Rio said $149 million would be used to study a new iron ore mine near its Tom Price operations in Western Australia, aiming to start production in late 2010.

Rio has spent or committed more than $8.5 billion since 2003 on expanding its Pilbara iron ore operations.