UPDATE: Rio Tinto Says No Decision On How To Proceed With Pilbara Expansion Plan

Rio Tinto Ltd. (RIO.AU) said Tuesday that it is yet to decide on a multi-billion dollar expansion of its Pilbara iron ore operations in Western Australia amid speculation of a delay caused by the Australian government's proposed tax changes.

"We have made no decision yet on how to progress our vision to increase our investment in Pilbara mining infrastructure to support an annual capacity of 330 million (metric) tons per annum and beyond," a Rio Tinto spokesman told Dow Jones Newswires.

"Any speculation as to what factors affect that decision are just that - speculation," he said.

Shares in Rio Tinto and other miners including BHP Billiton Ltd. (BHP.AU) fell Tuesday on expectations the government's proposed 40% tax on mining profits, unveiled Sunday, will crimp profits and discourage investment and takeovers in the industry. Rio Tinto fell 2.8% to close at A$67.06 while BHP Billiton fell 2.4% to A$38.59.

The West Australian newspaper Tuesday cited Rio Tinto sources confirming the new tax would force the miner to re-examine its Pilbara expansion, which was reinstated in the company's plans last November.

The plan's revival came after Rio Tinto sold assets in the wake of the global financial crisis to repair its balance sheet. It also benefited from a strong rebound in iron ore prices.

Rio Tinto has effectively approved "incremental" upgrades of 5 million tons each to take its Pilbara iron ore production capacity to 230 Mtpa.

But analysts had expected the company to approve some funding for the major expansion - which may cost more than US$10 billion - by mid-year.

The project, which Rio Tinto has proposed in two stages, involves additional infrastructure at the Cape Lambert port and would come on stream in the second half of 2015.

Rio Tinto has also agreed to an iron ore merger with competitor BHP Billiton, which some analysts have speculated may need to be renegotiated to reflect the proposed tax changes.

The Rio Tinto spokesman declined to comment on that speculation.

A BHP Billiton spokeswoman said Monday the miner is assessing the impact of the new tax on the joint venture.

The uncertainty created by the proposed tax changes is already impacting industry investment plans, evidenced by smaller miner Cape Lambert Resources Ltd. (CFE.AU) announcing Tuesday it has cancelled a planned exploration program at its Cape Lambert South iron ore project in Western Australia.

"The company will now shift its exploration activities to its projects outside of Australia," Cape Lambert said in a statement.

Cape Lambert shares fell 2.5 cents to 42 cents.

-By Stephen Bell, contributing to Dow Jones Newswires; 61-8-9244-4243; [e-mail]

(Rebecca Thurlow in Sydney contributed to this article)