Rio Hacks At Costs, Projects, Staff

It wasn’t surprising, more a case of about time.

Rio Tinto has got the axe out and is chopping into employee numbers and debt, plus assets, if there are buyers. 14,000 jobs will go; permanent and contracting staff around the world in one of the deepest cuts so far in the slump.

Capital spending will more than halve next year to $4 billion as the company pulls its horns in around the world.

Iron production will drop 10% at least, or 20 million tones.

The company said it will not cut its dividend but keep it at 2007 levels, or $US1.36, of which 68 US cents was paid as an interim dividend in September.

The company told the market late yesterday of its intentions and the shares jumped 12.1% in the most positive surge since BHP Billiton pulled its bid.

The shares jumped $4.05 to close at $37.40, even though the cuts weren’t announced until well after 5 pm and after trading finished.

It was yet another example of advanced knowledge about the moves by a major Australian company.

Rio says it is going to cut its $38.9 billion debt by a further $10 billion by the end of 2009, as it increases assets sales, cuts jobs and reduces spending.

That’s of course if there are buyers. The company revealed six weeks ago that it was slowing planned asset sales from Alcan because of the volatile financial markets.

The group, which has been has been at the centre of analyst downgrades related to its debt position since BHP ended its bid, said the measures would help it respond to the global economic downturn.

"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," chief executive Tom Albanese said in a statement.

"We have undertaken a thorough review of all our operations and are executing a range of actions."

These include reducing its global worker headcount by 14,000, for annual operating cost savings of $1.2 billion.There will be a $US400 million cost to the redundancies.

It will consolidate its offices around the world, including its London HQ.

"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," Mr Albanese said.

"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."

Rio Tinto said its current program of divestments, mostly related to its acquisition of US aluminium producer Alcan, will be expanded to other assets where it thinks value can be realised.

During the first half of fiscal 2008, it sold about $3 billion worth of assets.

Rio Tinto will cut capital expenditure earmarked for fiscal 2009 by $4 billion, from $9 billion in fiscal 2008.

Some projects will be cancelled and others deferred until market recover. Details of the projects affected will be announced in the first quarter of 2009.

“It has already sent signals that projects in iron ore and aluminium in Queensland might be impacted by cancelling contracts for worker accommodation.

 

Rio said in its statement:

"Rio Tinto 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.