Rio Tinto defers new iron ore mine but sticks to expansion target

MELBOURNE, Nov 28 (Reuters) - Rio Tinto (Xetra: 855018 - news) has decided to defer plans to build a $1 billion iron ore mine in Australia, but the world's No. 2 iron ore producer said it still expects to reach its expansion target of 350 million tonnes a year by 2017.

The move to hold off an investment decision on its proposed new Silvergrass mine until the third quarter of 2015 at the earliest follows a near 50 percent slide in iron ore prices this year as Rio, BHP Billiton (NYSE: BBL - news) and Fortescue Metals Group have flooded the market with new supply.

Rio is focusing on cutting capital spending and operating costs to preserve cash so it can meet shareholders' demands for higher returns following a spending binge on disastrous acquisitions and huge mine expansions over the last seven years.

"Looking out over the next five years, we expect to generate strong free cash flow and we remain committed to materially increase cash returns to shareholders in a sustainable way," said Chief Executive Sam Walsh.

"I look forward to announcing this at our annual results in February next year," he said in a statement ahead of an investor briefing.

Walsh is looking to set Rio Tinto apart from its arch rival BHP, which has been more cautious about the timing of returning cash to shareholders amid a slump in iron ore, coal and oil prices, and is looking to satisfy shareholders to help fend off rebuffed suitor Glencore Plc (Xetra: A1JAGV - news) .

(Reporting by Sonali Paul; editing by Gunna Dickson)