By Ben Sharples and Rebecca Keenan – Jul 6, 2010

Chief executive of Rio Tinto Group’s iron ore unit Sam Walsh. Photographer: Ron D’Raine/Bloomberg

Xstrata Plc, the biggest exporter of power-station coal, resumed work on a A$6 billion ($5 billion) mine and Rio Tinto Group revived a study for an iron ore expansion after Australia reduced a planned resource profits tax.

Initial work and exploration totaling A$186 million will restart at three coal projects in Queensland state, Zug, Switzerland-based Xstrata said today in a statement. Rio is reopening studies for expansion of its iron ore operations in the Pilbara region, Sam Walsh, chief executive of its iron ore unit, told reporters today in Perth.

Prime Minister Julia Gillard last week agreed to cut the tax to 30 percent from 40 percent, a week after ousting Kevin Rudd as the nation’s leader to defuse a row with mining companies that damped the government’s election prospects. A development decision for the A$6 billion Wandoan project is expected in the second half of 2011, Xstrata said.

“Today’s decision effectively lifts the suspension on expenditure announced by Xstrata last month and allows the next stage of planning for this internationally significant Wandoan project to proceed,” Xstrata Coal Chief Executive Peter Freyberg said in the statement.

Shares in London-based Rio fell 0.2 percent to A$65.10 at the 4:10 p.m. Sydney time close on the Australian stock exchange.

Capital Spending

Rio’s capital spending this year may be between $5 billion and $6 billion, the company said in March. An expansion of Rio’s iron ore mines in Western Australia’s Pilbara region will boost capacity to 330 million tons by 2015 from 220 million tons. Final approval is due in the second half this year, Citigroup Inc.’s Clarke Wilkins said in a report in May. The broker last year estimated the expansion may cost A$12 billion.

“With the certainty we’ve now got with the minerals resource rent tax, we are now configuring those numbers and impact back into our projects,” Walsh said. “There is still an amount of work to be done in relation to tying up the valued engineering work.” He didn’t give a time for when the project may be approved.

Gillard’s compromise means the minerals tax will now only apply to coal and iron ore mines and affect 320 companies instead of the 2,500 under Rudd’s proposal. Projects also will be entitled to a 25 percent extraction allowance that reduces taxable profits.

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

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