Rio Tinto PLC RIO -0.88% said its iron-ore output rose to a new quarterly record as it nears a decision on whether to invest around US$5 billion in expanding its Australian mines, a move seen as a litmus test of confidence in China's resources demand.

Rio Tinto--the world's second-largest producer of iron ore, behind Brazil's Vale SA (VALE) -- has been ramping up output in the minerals-rich Pilbara region in a bet that China will need vast quantities of iron ore to make steel for its skyscrapers and industries like auto manufacturing.

That bet has looked riskier over the past 18 months as China's economy slowed, with Beijing introducing fresh curbs on property speculation that some analysts expect will crimp construction. Still, recent demand data has proved surprisingly strong. China's iron-ore imports in September were a record 74.6 million metric tons, up 15% on year.

Signs that China's demand remains healthy has helped support iron ore prices at a time when prices of other industrial commodities like coal and nickel remain in the doldrums. Iron-ore prices have rebounded 21% to US$133.60 a ton since hitting a low in late May, although they are 7.8% lower than the start of the year.

Rio Tinto said it produced 68.3 million tons of iron ore in Australia and Canada in the three months through September, as it put the finishing touches to a three-year expansion of its Pilbara mines and infrastructure like rail tracks and deepwater port berths.

It expects to be mining iron ore at an annual rate of 290 million tons by the middle of next year, up 25% on 2012 production volumes. Iron ore accounts for around 80% of earnings, dwarfing contributions from other businesses like copper.

Looming on the horizon for Rio Tinto Chief Executive Sam Walsh is a decision whether to expand the Australian mines further to 360 million tons of annual output capacity by early 2016. It comes as the company grapples with weak prices for the other commodities it mines, like thermal coal, which has been hard hit by a supply glut in Asia as cargoes are redirected from the U.S. where more power plants are using natural gas.

Rio Tinto, which reported a 71% fall in half-year profits in August, has shut mines, sold assets and laid off workers as it puts a greater emphasis on boosting returns for shareholders. It plans to cut annual costs by $5 billion by the end of next year.

Other miners are taking action to shield profits amid a weaker outlook for commodities. BHP Billiton Ltd. (BHP), the world's largest mining company by market value, has also closed mines and sold assets. Several companies have found Australia a particularly tough place to operate as mining costs rise and commodity prices fall--Barrick Gold Corp. (ABX) this month completed the sale of three Australian mines, while Russia's OAO Norilsk Nickel (GMKN.RS) has hired Citigroup Inc. to find a buyer for its Australian assets.

Rio Tinto's quarterly copper production totaled 162,300 tons, up 11% on-quarter and 23% above year-ago levels, according to the stock exchange filing. Output rose as first copper cargoes from the US$6.2 billion Oyu Tolgoi mine in Mongolia were trucked to China in July. Rio Tinto operates and controls Oyu Tolgoi through its majority stake in Turquoise Hill Resources Ltd. (TRQ.T). Turquoise Hill owns 66% of Oyu Tolgoi, with the Mongolian government holding the remaining 34%.

Alumina production was down 13% on-year due to technical setbacks at its Gove refinery in Australia's Northern Territory. However, aluminum production rose 9%, rebounding from a weak quarter the year earlier when output was disrupted by a worker dispute at its Alma smelter in Canada's Quebec province.