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Rio Tinto to meet $2bn cost target – CEO

Sam Walsh

Sam Walsh

Photo by Bloomberg

3rd December 2013

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

  

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PERTH (miningweekly.com) – Rio Tinto boss Sam Walsh said on Tuesday that the diversified mining group was on track to meet its $2-billion cost-cutting target this year, telling an investor seminar in Sydney, Australia, that the company had delivered a $1.8-billion improvement in operating cash costs in the ten months to October.

Exploration spend had also decreased by $800-million during the ten months, exceeding the 2013 target of $750-million, while total capital expenditure (capex) for the year was forecast to be under $14-billion, which is 20% less than the 2012 spend.

For 2014, total capex was expected to be about $11-billion, while Rio would only spend $8-billion in 2015.

“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,” Walsh said on Tuesday.

“We have cut costs and are set to exceed our commitments made in February. Operating costs are down $1.8-billion year-to-date, compared with the same period last year, and exploration and evaluation costs are more than $800-million lower.”

The diversified miner also cut back on staff during the year, with a headcount reduction of 3 800 across the group since June 2012, after taking into account 1 800 new roles to support the iron-ore expansions.

Another 3 000 positions have left the business follwing the sale of noncore assets by Rio Tinto.

“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. A company respected for delivering value and immensely proud to contribute to the economies around the world wherever we operate,” Walsh said.

He noted that the mining giant was also improving productivity, setting new production records in several of its key businesses and bringing its Mongolia-based Oyu Tolgoi and Western Australian Pilbara 290-million-tonne-a-year expansion growth projects on line 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.”

Furthermore, Rio announced that it had undertaken some $3.3-billion in divestments of noncore assets during 2013. To date, proceeds of $2.3-billion have been received in divestments of noncore businesses, including the recent sale of a stake in aluminium fabricator Constellium for $315-million. The sale of the Northparkes copper and gold mine, in New South Wales, closed on December 1 for final cash proceeds of $820-million, with Walsh adding that the sale of the Clermont coal mine, in Queensland, was making good progress and was on track to close in early 2014.

He noted that Rio had recently also introduced a breakthrough low capex pathway to optimise West Australian iron-ore growth from a production rate of 290-million tonnes a year to at least 330-million tonnes a year in 2015, at a capital cost of between $120/t and $130/t, with an overall capex saving of more than $3-billion. Production would reach more than 350-million tonnes in 2017.

The company’s aluminium business was also continuing its transformation by reducing operating costs by more than $450-million to the end of October 2013, compared to 2012, and optimising its portfolio through the sale, suspension or curtailment of noncore assets.

Walsh said that Rio’s focus was also on shaping a tier-one copper portfolio, by delivering $1.8-billion of divestments, and focusing on four long-life and low-cost operating assets and a phased approach to developing two world-class greenfield projects.

“From where I stand, we continue to see market fragility and volatility. The impacts of decisions like quantitative easing and austerity programmes are still washing through markets around the world. But it is a mixed story because, despite this uncertainty, we are also seeing modest economic recovery.

“In China, the decisions from the government’s Third Plenary Session last month reflect an ambitious yet pragmatic approach to continued reform and confirmed our expectation of gradual change, which reduces the likelihood of a sudden downturn.”

Walsh noted that over the longer term, the miner remained optimistic about demand for its products, with China’s urbanisation continuing, and other economies - such as India, Vietnam, Indonesia, the Philippines, the Middle East, the former Soviet Union, South America and Africa - growing at pace, which would also contribute to ongoing demand for its products.

“Therefore, the outlook for our business is robust and we are strengthening our ability to capitalise on opportunities available to us in the future.”

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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