By Rhiannon Hoyle
SYDNEY--Rio Tinto PLC (RIO) said it was cutting costs quicker
than expected and committed to lowering capital expenditure by
around 40% over the next two years as the mining company works to
protect its profits from subdued prices of many commodities.
The world's second-largest iron-ore miner said it had cut
operating cash costs by US$1.8 billion in the first 10 months of
the year, putting it on track to meet targeted savings of US$2
billion in 2013. The company hopes to strip more than US$5 billion
of costs from the business by the end of next year.
London-based Rio Tinto said it had cut spending on exploration
and evaluation projects by US$800 million in the January-October
period, exceeding its full-year target of US$750 million.
"We have cut costs and are set to exceed our commitments made in
February," Rio Tinto Chief Executive Sam Walsh said ahead of an
investor day briefing in Sydney. Mr. Walsh succeeded Tom Albanese
as chief executive in January after the company booked roughly
US$14 billion in impairment charges, mainly against its aluminum
and Mozambique coal assets.
He said total capital expenditure was forecast to fall to US$11
billion in 2014, and then to US$8 billion in 2015. The group is
expected to spend about US$14 billion this calendar year.
Rio Tinto plans to invest around US$2 billion to increase its
annual iron-ore output in Australia by about 25% to 360 million
metric tons over the next few years, less than half the originally
estimated amount as it focuses on expanding existing mining
operations.
Despite adding 1,800 new jobs to support the expansion of its
iron-ore operations in Australia's Pilbara mining region, Rio Tinto
said its headcount had shrunk by 3,800 since June last year.
Net profit fell to US$1.72 billion for the six months to June 30
from US$5.88 billion a year earlier. The decline included a US$1.85
billion paper loss due to the effect of exchange-rate movements on
the value of the company's debt, and the company said weaker prices
for almost all its commodities caused an on-year earnings drop of
US$1.28 billion.
Mr. Walsh said the outlook for commodity markets was still
clouded by economic uncertainty.
"From where I stand, we continue to see market fragility and
volatility," he said. "The impacts of decisions like quantitative
easing and austerity programmes are still washing through markets
around the world.
But he said it was a mixed story "because, despite this
uncertainty, we are also seeing modest economic recovery."
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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