Rio Tinto Slashes Capital Spending

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Thursday, December 5th, 2013
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Mining giant Rio Tinto has announced that it will continue to implement heavy reductions in capital expenditures despite strong hopes of economic recovery.

Addressing an investor seminar in Sydney, the miner said that it expects total capital expenditure in 2013 to see a year-on-year decline of over 20 per cent to fall below $14 billion, with commensurate reductions slated to continue over the next two years.

As a result of the compounding effects of the spending cuts, Rio Tinto sees total capital expenditure falling to below half 2012 levels by 2015.

“Total capital expenditure is forecast to be reduced to US$11 billion in 2014, and to around US$8 billion in 2015, reflecting a 20 per cent reduction year-on-year,” the company said.

Rio Tinto also announced that it had cut spending on exploration and evaluation by US$800 million in the 10 months to October, already well ahead of the annual target for 2013 of US$750 million.

The spending cuts come just as Brazil’s Vale, one of Rio Tinto’s chief competitors and the world’s biggest iron ore producer, cut its investment budget for the third consecutive year, bringing it to its lowest levels since 2010 at $14.8 billion.

Sam Walsh

Sam Walsh

Rio Tinto chief executive Sam Walsh said the company remains ambivalent about the outlook for the global economy in the short term.

“We continue to see market fragility and volatility,” he said. “The impact of decisions like quantitative easing and austerity programs are still washing through markets around the world.”

The company nonetheless believes the outlook for its business remains “robust,” and discerns a strong ray of hope in the swath of positive reforms recently unveiled in its key export market of China.

“In China, the decisions from the government’s Third Plenary Session last month reflect an ambitious yet pragmatic approach to continued reform and confirmed our expectation of gradual change which reduces the likelihood of a sudden downturn,” Walsh said.

Rio Tinto is now pinning its long-term prospects on the Middle Kingdom’s mass urbanisation, as well as expectations of growing demand from other emerging economies.

“Over the longer term I remain optimistic about demand for our products,” said Walsh.  “China’s urbanisation will continue and the development of other economies as they continue to grow at pace, such as India, Vietnam, Indonesia, the Philippines, the Middle East, the former Soviet Union, South America and Africa, will also contribute to ongoing demand for our products.”

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