* To spend $803 million on Argyle diamond expansion
* Expands stake in Ivanhoe Mines to 34.9 percent
* Rio Tinto shares up 0.4 percent, in line with market (Adds details, share price)
MELBOURNE, Sept 14 (Reuters) - Global miner Rio Tinto (RIO.AX)(RIO.L) announced plans to expand its Argyle diamond mine in Western Australia on Tuesday, the latest step in its plan to spend about $13 billion through the end of 2011 to boost growth.
Rio Tinto said it plans to invest $803 million to develop an underground mine under the existing open pit, ramping up production from 2011 to reach 9 million tonnes of diamond-bearing ore a year within two years.
The project, put on hold in 2009 due to the global financial crisis, will expand the life of the world's largest mine for pink diamonds to at least 2019 as the company looks to capture burgeoning demand.
"A significant supply gap is expected to emerge in the medium to long term and the outlook for demand is strong, driven by the growth of emerging markets," Rio Tinto diamonds and minerals chief executive Harry Kenyon-Slaney said in a statement.
Rio Tinto shares rose 0.4 percent to A$75.64, in line with the broader market .
The Argyle investment follows Rio Tinto's approval in August of a $1.6 billion expansion at its Hope Downs iron ore project in Western Australia. [ID:nSGE67T0CE], with the company back on a growth path after slashing a crippling $40 billion debt pile.
The company also picked up another 5.3 percent stake in Canadian miner Ivanhoe Mines (IVN.TO), its partner in the massive Oyu Tolgoi copper and gold project in Mongolia, boosting its shareholding to 34.9 percent through the conversion of a convertible credit facility that matured on Monday. [ID:nN13206484]
Under the agreement the shares were priced at $10 a share, a 47 percent discount to Ivanhoe's IVN.N last trade. (Reporting by Sonali Paul; Editing by Ed Davies)