London, England — MININGREVIEW.COM — 10 December 2008 – The Rio Tinto group – the world’s third-largest mining company – has announced a detailed package of measures in response to the unprecedented rapidity and severity of the global economic downturn, which has caused sharp falls in commodity prices and a significantly weaker outlook.
Making the announcement here, the group revealed that the package would include reduction of net capital expenditure guidance for 2009 from over US$9 billion (R93 billion) to US$4 billion (R41 billion); reduction of capital expenditure to sustaining levels in 2010; commitment to reduce controllable operating costs by at least US$2.5 billion (R26 billion) per annum in2010; and a reduction in global headcount of 14 000 roles (8 500 contractor and 5 500 employee roles).
In its third quarter operations review on 15 October 2008, the Group acknowledged that the economic outlook had deteriorated substantially. Since that time, demand conditions have worsened further, and the group’s priorities have reoriented around conserving cash flow and reducing near term borrowings.
Net debt has reduced by US$3.2 billion since June 30 to US$38.9 billion, and today’s news release said the Group was committed to reducing net debt by another US$10 billion by the end of 2009.
It was expanding the scope of assets targeted for divestment to include significant assets not previously highlighted for sale. It is also working actively on measures to generate cash from joint ventures on its existing assets and projects.
Rio Tinto emphasised that it remained committed to its strategy of finding, developing and operating large, long life, low cost mining assets, which are cash generative at all points of the economic cycle. Rio Tinto’s existing portfolio of world-class, tier one assets continued to deliver strong cash flows in the current environment and provided the group with options in terms of alliances and divestments.
Rio Tinto chief executive Tom Albanese said: “Given the difficult and uncertain economic conditions, and the unprecedented rate of deterioration of our markets, our imperative is to maximise cash generation and pay down debt. We have undertaken a thorough review of all our operations and are executing a range of actions,” he added.
“We will minimise our operating and capital costs to appropriately low levels until we see credible and meaningful signs of a recovery in our markets, but will retain our strategic growth options,” said Albanese. “We will expand further the scope of assets we are targeting for divestment. By taking these tough decisions now we will be well positioned when the recovery comes,” he explained.
“Notwithstanding the current financial turmoil, we continue to enjoy a suite of key assets which operate in the lower half of the cost curve in their industries, and our suite of growth assets remains capable of re-activation as soon as market conditions justify,” Albanese concluded.