LONDON--Mining titan Rio Tinto PLC (RIO) said Wednesday it has
already exceeded its target of cutting $2 billion in operating
costs by the end of the year and said it will prioritize paying
down debt next year.
Major resources companies such as Rio Tinto are moving to
bolster their balance sheets and profits in the face of subdued
prices for many commodities, as a decade-long mining boom cools.
Rio Tinto already announced plans to more than halve its capital
expenditure to less than $8 billion by 2015 from last year's level
while its peer BHP Billiton Ltd (BHP) announced plans to cut its
capital spend below $15 billion in the future from $21.7 billion in
the last financial year.
In an effort to boost profitability, mining companies are also
slashing operating costs by reducing headcount, increasing
production capacity at its operations, and revising supply contract
agreements among other things. Rio Tinto announced in February
plans to cut operating costs by $2 billion through such measures by
the end of the year. Chief Executive Officer Sam Walsh told
analysts at an investor day presentation that the miner has already
surpassed that target and remains on track to achieve $3 billion in
operating cost savings next year compared with 2012.
"We are improving productivity and setting new production
records and at the same time reducing our spend," said Mr. Walsh.
"I'm certain that we are on the way to transforming Rio Tinto to
the highest performer in the sector," he added.
In exploration alone, the company already exceeded this year's
target of $750 million in cost savings by $50 million while in its
energy division, the company has delivered $600 million in savings
during the first 10 months of the year and has about 1,500
initiatives to boost productivity across its uranium and coal mines
in Australia, Africa and Canada.
The company has also announced or completed $3.3 billion worth
of assets sales in an effort to return better value and more cash
to shareholders.
Looking ahead, Chief Financial Officer Chris Lynch said "2014 is
going to be very much focused on paying down debt." The company
remains committed to paying a progressive dividend and will use any
surplus cash to reduce its net debt, which stood at $22.1 billion
as of the end of June, he added. Rio plans to reduce net debt to
around $19 billion by the end of the year, he said, adding that he
believes the company is taking the necessary steps to preserve its
single A credit rating.
Mr. Walsh said that company's transformation to generate more
value for shareholders is well underway but he noted that the
company remains conservative about its targets in hopes of
over-delivering rather than under-delivering on its promises.
To this extent, the company is mulling plans to expand its iron
ore operations in the Pilbara region of Western Australia to 350
million metric tons a year by 2017 rather than 360 million tons a
year, Rio's head of iron ore Andrew Harding said.
Mr. Walsh also said that the company remains committed to
finding a viable transport solution for its Mozambique coal assets
but said "we are not looking to increase our focus on non-OECD
[i.e. countries that are not part of the Organisation for Economic
Co-Operation and Development] except with the focus on La Granja,"
Rio's copper project located in Peru.
Write to Alex MacDonald at alex.macdonald@wsj.com
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