Rio Tinto to halve capital spending by 2015 in fragile market
Plans to cut capital spending 20 pct a year to $8 bln in 2015
* Looks to cut net debt to mid-teens range from $22 bln
* Rio Tinto CEO rules out acquisitions
* No new investment planned in aluminium, energy, diamonds
* Confident on resolving Oyu Tolgoi issues
By Sonali Paul
MELBOURNE, Dec 3 (Reuters) - Rio Tinto plans to halve capital spending to $8 billion by 2015 from last year's level to cut debt, in the latest move by a major miner to slash outlays as commodities prices remain fragile.
The cuts are sharper than some investors had expected and deeper than those made by Rio Tinto's major rivals. They show the Anglo-Australian firm is going all out to boost flagging shareholder returns and protect its credit rating amid a slower growth outlook for China, its biggest customer.
Just last week Rio Tinto said it would delay the expansion of its iron ore operations in Australia to 2017 but save $3 billion in the process. The company is also in the midst of selling a clutch of coal, copper and other non-core assets.
The world's second-biggest iron ore miner said on Tuesday it will cut capital spending to $11 billion in 2014 from just under $14 billion this year, and sees capital spending at $8 billion in 2015, which would be less than half what it was in 2012.
The cuts are more than that of its bigger iron ore rival Vale of Brazil, which unveiled on Monday a 9 percent capital spending reduction to $14.8 billion for 2014.
"The focus on cutting debt is a clear positive," said Michael D. Bush, head of fixed income credit research at National Australia Bank. "It should make a material improvement in credit metrics and there has to be if they were to preserve their rating," he said, adding he did not expect the ratings agencies to upgrade Rio Tinto after Tuesday's developments.
Rio Tinto executives told an investor seminar in Sydney the firm has stripped out $2.6 billion in costs so far this year, including nearly halving exploration spending to around $850 million.
The spending cuts and asset sales, including proceeds from the sale of its Northparkes copper mine stake completed last weekend and the Clermont coal mine, would help it cut debt and allow it to increase its dividend, they said.
Rio Tinto aims to cut net debt to the "mid-teens" next year from $22 billion, as reported at the half year in 2013, Rio Tinto Chief Financial Officer Chris Lynch said.
"I would hope that translates into higher payouts to shareholders over time," said Rohan Walsh, investment manager at Karara Capital, which owns Rio Tinto shares, referring to the planned spending cuts. "Any meaningful capital management is probably at least 18 months out."
Rio Tinto's Australian shares ended down 0.6 percent on Tuesday, more or less in line with the broader Australian stock market. They have lagged, being nearly flat for the year, compared to the 13 percent gain for the overall market.
Prices of iron ore , which made up more than 80 percent to Rio Tinto's first-half earnings, have rallied since hitting mid-year lows but they are still down around 14 percent from 2013 highs and off nearly 30 percent compared to all-time highs hit in early 2011.
And analysts are mostly bearish on iron ore prices as more supply comes through to the market while Chinese demand may be curbed by reforms aimed at making the economy less investment-driven and more reliant on consumption.
Goldman Sachs has said it expects iron ore to average $108 a tonne next year from a forecast $129 this year, and slipping further to average $80 in 2015.
Rio Tinto, though, said it saw steel demand growing strongly in China this year and steady growth going forward.
POSITIVE ON OYU TOLGOI
Chief Executive Sam Walsh, in the top job for nearly a year now, warned of more market volatility despite signs of a modest recovery in global growth.
"From where I stand, we continue to see market fragility and volatility," Walsh said.
On copper, Rio Tinto's new copper chief Jean-Sebastien Jacques outlined a focus on its four biggest copper assets - Escondida, Oyu Tolgoi, Kennecott and Grasberg - and emphasised transforming them all into low-cost operations.
Jacques set out several conditions for Rio Tinto to go ahead with a $5 billion underground mine at Oyu Tolgoi in Mongolia, following months of wrangling with the government and said the company expected to submit a feasibility study to authorities by early in the second quarter of 2014.
"We are confident that we'll find the right solution. But I'm not going to lie to anybody -- there are still some meaningful shareholder issues that need to be sorted out," he said.
Company executives ruled out any new investments in the near term in aluminium, energy, which includes thermal coal and uranium, and diamonds, and Walsh effectively ruled out making any acquisitions in the near term.
"We're not considering any acquisitions," he said. "Right now the focus is on strengthening the business, strengthening the balance sheet."
* Looks to cut net debt to mid-teens range from $22 bln
* Rio Tinto CEO rules out acquisitions
* No new investment planned in aluminium, energy, diamonds
* Confident on resolving Oyu Tolgoi issues
By Sonali Paul
MELBOURNE, Dec 3 (Reuters) - Rio Tinto plans to halve capital spending to $8 billion by 2015 from last year's level to cut debt, in the latest move by a major miner to slash outlays as commodities prices remain fragile.
The cuts are sharper than some investors had expected and deeper than those made by Rio Tinto's major rivals. They show the Anglo-Australian firm is going all out to boost flagging shareholder returns and protect its credit rating amid a slower growth outlook for China, its biggest customer.
Just last week Rio Tinto said it would delay the expansion of its iron ore operations in Australia to 2017 but save $3 billion in the process. The company is also in the midst of selling a clutch of coal, copper and other non-core assets.
The world's second-biggest iron ore miner said on Tuesday it will cut capital spending to $11 billion in 2014 from just under $14 billion this year, and sees capital spending at $8 billion in 2015, which would be less than half what it was in 2012.
The cuts are more than that of its bigger iron ore rival Vale of Brazil, which unveiled on Monday a 9 percent capital spending reduction to $14.8 billion for 2014.
"The focus on cutting debt is a clear positive," said Michael D. Bush, head of fixed income credit research at National Australia Bank. "It should make a material improvement in credit metrics and there has to be if they were to preserve their rating," he said, adding he did not expect the ratings agencies to upgrade Rio Tinto after Tuesday's developments.
Rio Tinto executives told an investor seminar in Sydney the firm has stripped out $2.6 billion in costs so far this year, including nearly halving exploration spending to around $850 million.
The spending cuts and asset sales, including proceeds from the sale of its Northparkes copper mine stake completed last weekend and the Clermont coal mine, would help it cut debt and allow it to increase its dividend, they said.
Rio Tinto aims to cut net debt to the "mid-teens" next year from $22 billion, as reported at the half year in 2013, Rio Tinto Chief Financial Officer Chris Lynch said.
"I would hope that translates into higher payouts to shareholders over time," said Rohan Walsh, investment manager at Karara Capital, which owns Rio Tinto shares, referring to the planned spending cuts. "Any meaningful capital management is probably at least 18 months out."
Rio Tinto's Australian shares ended down 0.6 percent on Tuesday, more or less in line with the broader Australian stock market. They have lagged, being nearly flat for the year, compared to the 13 percent gain for the overall market.
Prices of iron ore , which made up more than 80 percent to Rio Tinto's first-half earnings, have rallied since hitting mid-year lows but they are still down around 14 percent from 2013 highs and off nearly 30 percent compared to all-time highs hit in early 2011.
And analysts are mostly bearish on iron ore prices as more supply comes through to the market while Chinese demand may be curbed by reforms aimed at making the economy less investment-driven and more reliant on consumption.
Goldman Sachs has said it expects iron ore to average $108 a tonne next year from a forecast $129 this year, and slipping further to average $80 in 2015.
Rio Tinto, though, said it saw steel demand growing strongly in China this year and steady growth going forward.
POSITIVE ON OYU TOLGOI
Chief Executive Sam Walsh, in the top job for nearly a year now, warned of more market volatility despite signs of a modest recovery in global growth.
"From where I stand, we continue to see market fragility and volatility," Walsh said.
On copper, Rio Tinto's new copper chief Jean-Sebastien Jacques outlined a focus on its four biggest copper assets - Escondida, Oyu Tolgoi, Kennecott and Grasberg - and emphasised transforming them all into low-cost operations.
Jacques set out several conditions for Rio Tinto to go ahead with a $5 billion underground mine at Oyu Tolgoi in Mongolia, following months of wrangling with the government and said the company expected to submit a feasibility study to authorities by early in the second quarter of 2014.
"We are confident that we'll find the right solution. But I'm not going to lie to anybody -- there are still some meaningful shareholder issues that need to be sorted out," he said.
Company executives ruled out any new investments in the near term in aluminium, energy, which includes thermal coal and uranium, and diamonds, and Walsh effectively ruled out making any acquisitions in the near term.
"We're not considering any acquisitions," he said. "Right now the focus is on strengthening the business, strengthening the balance sheet."
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