Rio Tinto will cut its capital spending almost in half and shelve projects as it tries to bring down costs and win back the confidence of its shareholders.
The company plans to cut its capital expenditure to $US8 billion by 2015, below the $14 million it spent this year and well below last year’s $17.6 billion peak.
“Capital allocation is an important issue for us to focus on… $17.6 billion is a lot of money, we need to get the capital down to more normal levels,” chief executive Sam Walsh said on Tuesday.
Mr Walsh said the reduced spending plans meant some projects would not go ahead, especially those relating to Rio’s struggling coal, aluminium and industrial minerals businesses.
Instead, Rio plans to focus even more on iron ore, which accounted for about 90 per cent of its earnings last year.
“We are now focused on what are the best projects and its only the best projects that are getting through,” he said.
“The capital will be more focused on iron ore and the copper business.”
Among the projects to be shelved will be the company’s proposed South Of Embley bauxite project at Cape York.
“So South of Embley…we’re not doing it for now,” Mr Walsh said.
He said the company was working to win back the confidence of investors, who have seen the price of their Rio shares fall from more than $87 in early 2011 to less than $66.
“We lost our way in relation to regain… I’ve got to regain shareholder confidence.”
He said while the reduced spending plans would impact on jobs, staff at existing mines were unlikely to be affected.
“We operate in 40 countries, is that capital going to have an impact on people associated with current projects? Well yeah…clearly it will,” he said.
“Will it impact on existing operations? I doubt that it will.
“We deliberately focus our businesses on being low cost, long life, expandable assets and as long as you are in that position you are safe.”
Mr Walsh also said Rio’s decision to close its loss-making Gove alumina plant, announced late last week was “one of the hardest decisions I’ve made in my life”.
“You are impacting on a range of the community people, businesses, the territory,” he said.
“But the business has been losing $30 million a month and if that continues over a year that’s $360 million, that is a lot of money.”
Mr Walsh said Rio was looking at the possibility of flying Gove workers from nearby Nhulumbuy to the company’s operations in Western Australia and Queensland.
“Those are serious options that we are in discussions on, that would enable people to retain their housing and fly in/fly out,” he said.
“It is a viable option for people who want to stay in Nhulunbuy, enjoy that lifestyle and have the employment.”
Rio Tinto finished Tuesday down 36 cents at 65.49.
