Rio Tinto to drastically reduce spend over next two years

3rd Dec 2013 09:33

- Capex to be reduced 20 per cent YOY- Headcount reduced by 3,800 since June 2012- Production to reach more than 350m tonnes in 2017Mining behemoth Rio Tinto on Tuesday held an investor conference in Australia, at which it revealed the 'tough decision' to cut its capital expenditure (capex) over the next two years. Its total capex for the 2013 full year is now expected to be below $14bn, down more than 20% on the prior year, while is expected to reduce by a similar amount in 2014 to $11bn, and to $8bn the following year.The company said the reduction was part of its plan to "reignite [its] passion for delivering greater value for shareholders". In the 10 months to October, the group delivered a $1.8bn improvement in operating cash costs and revealed it was on track to deliver its $2bn target for the full year. Over the 10-month period, Rio reduced its exploration and evaluation spend by $800m, above its $750m target. $3.3bn of divestments of non-core assets were announced or completed in 2013, while to-date proceeds of $2.3bn have been received in divestments of non-core businesses. The group has reduced its headcount by 3,800 since the mid-point last year, while a further 3,000 roles have been cut through the divestment of assets. Rio Tinto Chief Executive Sam Walsh said: "I have set a clear direction for the business to reignite our passion for delivering greater value for shareholders. Our results so far show we are taking decisive action, making tough decisions and advancing at pace. "We have cut costs and are set to exceed our commitments made in February [...] We are also improving productivity, setting new production records in many of our key businesses and bringing our Oyu Tolgoi and Pilbara 290m tonnes per annum (mt/a) expansion growth projects online within budget and on time. And we are delivering exceptional value from our growth opportunities, by continually optimising and improving our mine planning to generate the best returns." He added: "While there is always more to do I am confident we are well on the way to transforming Rio Tinto into the highest performer in our sector." However, Walsh did admit he continued to see evidence of "market fragility and volatility", and said the effects of decisions like quantitative easing and austerity programmes were "still washing through markets around the world"."But it is a mixed story because, despite this uncertainty, we are also seeing modest economic recovery," he said. In the longer term, he remained optimistic about demand for the company's products and predicted the growth of other economies would contribute to this. "Therefore, the outlook for our business is robust and we are strengthening our ability to capitalise on opportunities available to us in the future," he finished. In terms of production, West Australian iron ore growth is expected to climb from 290mt/a to at least 330mt/a in 2015, at a capital cost of $120-$130 per tonne with an overall capex saving of more than $3bn. Rio predicts production will reach more than 350mt in 2017. NR