Johannesburg - Multinational mining and resources group Rio Tinto is implementing radical surgery to excise a quarter of the debt that made it so unpalatable to predator BHP Billiton, and to put itself in a stronger position to cope with weak commodity markets.
The London-listed group has a number of mining operations in southern Africa, including a 50% stake in Richards Bay Minerals, as well as a controlling shareholding in Palabora Copper. It is also developing the Chipudi coking coal operation in Mpumalanga province and expanding the Rossing uranium mine in Nambibia.
The plan is to reduce debt by $10bn from $38.9bn by the end of 2009. This includes cutting the workforce by 14 000, and selling assets hitherto not earmarked for disposal. Rio could also bring in partners at some projects. Spending will be cut by more than half to $4bn.
"We will minimise our operating and capital costs to appropriately low levels until we see credible and meaningful signs of recovery in our markets, but will retain our strategic growth options," Rio CEO Tom Albanese said.
The market applauded the news, sending the shares in London 11% higher to 1 403 pence after a steady fall from 7 000 pence in May.
BHP Billiton, when it walked away from the deal at the end of November, said part of its concerns was the ability in depressed market conditions to realise full value from asset sales to meet European Union requirements. This would also have an impact on its ability to cut down on the large debt within the combined group.
Rio said it had made $3bn from asset sales in the first half of 2008, but this is less than the market had been hoping for. It also raises the question about what price it will receive for further asset sales in a market where a number of companies are going to the wall, others are unable to raise capital and demand for commodities is weak.
Anglo American, which has nowhere near the debt levels of Rio, is releasing the results of its review programme on December 17. There are concerns that it, too, will implement job cuts and a tighter grip on capital expenditure. Its subsidiary Anglo Platinum will also release findings of its review process.
South Africa is in the grip of widescale retrenchments in the mining industry, with trade union Solidarity recently putting the figure at 12 000 from the mining sector alone.
Rio said it has expanded its divestment plans, now incorporating assets it hadn't previously tagged for that scheme.
"The group is in discussions with third parties related to further divestments or investments at asset level, including, but not restricted to, joint ventures, which may lead to additional capital entering the group, or reduced capital expenditure commitments in the future," it said.
Rio will reduce capital expenditure for 2009 to $4bn ? half of which will be sustaining capital - from $9bn. Costs will be reduced by $2.5bn by the end of 2010, coming from cutting the workforce, deferring exploration and consolidating global offices.
Some projects within the group will be cancelled and other postponed until the markets recover, Albanese said, without identifying them or the assets that are part of the divestment programme.
Further details will be given to the market in the first quarter of 2009.
Rio will maintain its dividend payout for 2008 at the previous year's level of $1.36/share, of which $0.58 was paid out as an interim dividend in September. There will be no 20% increase on that payment in 2009.
The majority of Rio's debt - about $30bn by the end of October - was generated by the purchase of aluminium group Alcan and it aims to refinance the Alcan facilities in the term market.
- Miningmx.com
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