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Rio Tinto targets US$5bn in cost cuts

Nicholas Grove  |  29 Nov 2012Text size  Decrease  Increase  |  

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Nicholas Grove is a Morningstar journalist.

 

Rio Tinto (RIO) on Thursday said it is targeting cumulative cost savings of more than US$5 billion by the end of 2014.

At an investor seminar in Sydney, the global mining giant said its planned spending on exploration and evaluation projects will be reduced by US$1 billion over the remainder of 2012 and 2013.

It also said capital expenditure on approved and sustaining projects will taper off from current levels in 2013.

"We are taking further tough action to roll back the unsustainable cost increases of the past few years and are maintaining a relentless focus on improving productivity," Rio Tinto chief executive Tom Albanese said.

"We are investing in the highest-returning opportunities, delivering major projects on time and are taking advantage of the inbuilt flexibility in our phased investment programmes.

"We have the ability to respond to changing market conditions and I am confident we have the right strategy to maximise shareholder value in the long term."

In a statement, Rio Tinto said while the short-term global macro outlook remains volatile, with major uncertainties around future US and European growth, the company "is guardedly optimistic" on China's prospects.

With a number of recent macro indicators suggesting early signs of an economic pickup, Rio Tinto said it expects a slight rise in Chinese GDP growth to above 8 per cent next year.

City Index chief market analyst Peter Esho said this outlook stands in contrast to those of many other economic forecasters, who continue to pull back their numbers to the low 7 per cent range.

"It's unclear who is right, but Rio puts forward a good convincing argument for optimism," he said.

"Rio is a business that not only has huge production upside over the next few years, but is very well-placed in the long term as these forecasts materialise.

"A good clean balance sheet, world class assets, the best geography in the world given Chinese consumption growth - what more could investors want?"

Rio said it will benefit from three major sources of production growth in 2013, including: expansion of iron ore production capacity at its Pilbara operations; first commercial production from the Oyu Tolgoi copper-gold mine in Mongolia; and the ongoing ramp up of the Yarwun 2 alumina refinery in Queensland.