The Iron Ore Company of Canada (IOC) and its largest shareholder Rio Tinto will spend C$300-million to lift the Canadian firm's yearly capacity to 22,8-million tons, the companies announced on Thursday.

The latest investment will increase pellet production at the IOC's Labrador City plant to 13,8-million tons, and forms part of a larger plan to boost concentrate output by 50% by 2011.

In March this year, the IOC said that it would spend C$500-million on the first phase of a capacity expansion.

The project, announced on Thursday, will increase magnetite recovery by installing a new 10-MW ball mill with associated services and equipment in a new building, and improve pellet plant productivity by adding flotation plant capacity, installing an advanced control system for pellet feed grinding, and introducing new pellet screening technology.

The companies have also approved funds for the completion of a feasibility study on the third-phase expansion, to extend annual capacity to 26-million tons and the procurement of long-lead items.

"The decision highlights not only the value of Rio Tinto's global platform of iron-ore production, but also the level of confidence in market conditions over the longer term," said IOC chairperson and Rio Tinto iron-ore CE Sam Walsh.

Rio Tinto Iron Ore is also expanding the capacity of its Pilbara iron-ore operations, in Western Australia, to 220-million tons by 2009, and has said that it plans to increase its total iron-ore output to upwards of 600-million tons a year.

"The iron-ore market remains tight and our substantial reinvestment in our operations in Canada and worldwide demonstrates the confidence we have in that market," Walsh said.

Rio Tinto, which is the operator of the IOC, is fending off a hostile takeover bid from larger rival BHP Billiton.

Rio owns 58,7% and Mitsubishi Corporation (26,18%), and the Labrador Iron Ore Royalty Income Fund (15,1%) owns the balance of the iron-ore miner.

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