Johannesburg - Resources giant Rio Tinto said on Wednesday that it expects the reduction of its global headcount by 14 000 employees to cost $400m in upfront severance
costs.
But the group said it anticipated that the job cuts would translate into $1.2bn in annual operating cost saving.
Of the retrenchments 8 500 would be contractor jobs, representing 56.7% of the 15 000 contractors currently employed by the group, and 5 500 permanent employees, which represent about 5.7% of the group's 97 000-strong workforce globally.
"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," said Rio Tinto chief executive Tom Albanese.
"We have undertaken a thorough review of all our operations and are executing a range of actions," he explained.
While the group did not provide much detail as to where these jobs cuts would be effected, it is evident that job losses would be recorded at operations where there are production cutbacks as well as projects that were being scaled back or cancelled altogether.
Having already announced a 10% reduction in the annualised production run rate from the Pilbara region of Western Australia, the group is also anticipating a 5% reduction in aluminium production as it curtails production at some of the higher-cost smelters.
Rio Tinto has no aluminium smelters in South Africa but does have a 57.7% interest in copper producer Palabora Mining Company (PAM) and it owns titanium oxide producer Richards Bay Minerals in KwaZulu-Natal.
In Africa though, the company's aluminium interests lie in Alucam in Cameroon while bauxite production comes from Awaso in Ghana and Sangaredi in Guinea.
Slashing capex
Further south the company has a majority stake in the Murowa diamond mine in Botswana and in Rossing Uranium in Namibia.
It also has an iron ore project at Simandou in Guinea and a titanium oxide project, QIT Madagascar Minerals, in Madagascar.
But at this stage, the extent to which African operations in general and South African operations in particular may be hurt by the announcement will only become clearer when the group provides more details in the first quarter of next year.
That is when Rio Tinto has promised to provide further detail on its planned reduction in capital expenditure.
Rio Tinto is slashing capital expenditure in 2009 from more than $9bn to $4bn.
"There will be impacts on projects across the board and stakeholder engagements are currently under way. Some projects will be cancelled and others deferred until markets recover," the group said.
Other initiatives that the group has committed to include a reduction in controllable operating costs by $2.5bn per year
in 2010, the freezing of its dividend payments at 2007 levels for the next two years and expanding the scope of its asset sales as well as the reduction of its net debt by $10bn by 2009.
Calyon analyst Robin Bhar said Rio Tinto's job and spending cut
reinforced the negative outlook for the global economy and metal demand.
Bhar told Dow Jones Newswires that uncertainty in the global markets going forward is "huge" and the recently stronger metals markets are unlikely to be sustained.
- I-Net Bridge