(Corrects iron ore price in 7th paragraph to $79.80, not $78.80)
* BHP aims to overtake Rio as lowest cost iron ore miner
* Rio iron ore chief says focus is on ridding more cost overruns
* Higher cost producers feeling heat of mega miners
By James Regan
SYDNEY, Oct 9 (Reuters) - Global miner Rio Tinto dismissed arch-rival BHP Billiton's pledge to upstage it as the world's lowest cost iron ore miner.
"You can rest assured, we are not standing still," Rio Tinto iron ore division chief Andrew Harding told reporters on a conference call.
BHP on Monday unveiled plans to cut production costs to less than $20 a tonne from $27.50 for the 2014 financial year in a bid to become the lowest cost miner. That compares with Rio Tinto's cost of $20.40 a tonne in the first half of 2014.
Iron ore prices hit five-year lows this year and projections of further falls has miners scrambling to cut costs.
From Europe to Australia, smaller, less efficient miners are in many case struggling to survive, while a few mega miners, including Rio Tinto and BHP, take a bigger share of the $130 billion seaborne iron ore market.
This year, 125 million tonnes of supply - more than 10 percent of China's imports - will exit the market, 65 million coming from Chinese producers, Harding said.
The spot iron ore price ended September with a loss of almost 12 percent and was sitting just off the month's lows at $79.80 on Wednesday .IO62-CNI=SI.
China is tipped by Australia's Bureau of Resource and Energy Economics to import 875 million tonnes of iron ore this year.
Rio Tinto is on track to lift output 9 percent to 290 million tonnes ahead of a push to 360 million tonnes. That ranks the Anglo-Australian company number two in size behind Vale of Brazil. BHP is a distant third.
An increasing portion of Rio Tinto's tonnage will be mined and transported to ships under a far-reaching automation program pursued by Harding to save on costs. By some estimates, Rio Tinto is as much as five years ahead of BHP in this area.
Harding said 32 projects controlled by smaller companies would move swiftly to fill the supply void if the company backed down from its expansion schedule in Australia.
"The whole reason we are pushing more tonnes into the market is to fill a void," Harding said. "If we don't fill that void, someone else will."
BHP intends to boost its mining capacity by 65 million tonnes to 290 million tonnes a year by June 2017.
Western Australia state leader Colin Barnett said he was concerned of the impact of lower prices on the billions of dollars in state royalties collected annually and urged Rio Tinto and BHP to rethink their strategies and slow the pace of expansion.
"While these companies are pursuing their business strategies, which I tend to think are flawed, it is actually hurting the host state, which provides the iron ore and generates most of the wealth for Rio Tinto and BHP," he said.
Rio Tinto this week rejected a merger approach from Glencore , pitched in part as a way to provide greater diversification in its iron ore-weighted portfolio, representing 92 percent of first-half underlying earnings. (Editing by Ed Davies)