Rio Tinto to cut 14,000 jobs in the face of $40bn debt
Rio Tinto is cutting 14,000 jobs and slicing more than $5bn (£3.4bn) out of its capital expenditure plans for next year as plunging commodities prices and a collapsing share price raise rumours of a rights issue.
The measures announced yesterday, which include a commitment to reduce operating costs by $2.5bn and hold capex at sustainable levels in 2010, found favour in the City and sent the Anglo-Australian group's shares up by more than 20 per cent.
Rio is to lose some 8,500 contractors, or half of its temporary workforce, and 5,500, or around 6 per cent, of its permanent staff. It is also looking at previously unconsidered asset sales to help pay down its $40bn-worth of debt. Tom Albanese, the Rio chief executive, said: "By taking these tough decisions now we will be well positioned when the recovery comes."
Rio has been on analyst watch lists since rival BHP Billiton dropped its takeover bid last month, sending its share price down by a whopping 37 per cent in a day. BHP blamed the economic climate and Rio's debts. Not only does the deal now look expensive, in the light of collapsing demand for commodities, but proposed divestments are proving hard to execute.
As Rio's share price tanked, the market has been rife with rumours that it will require a rights issue to fund the $9bn tranche of debt that comes up for re-financing in October. Yesterday's programme aims to allay such fears. Net debt has already been reduced by $3.2bn, from June to October this year, and Rio is committed to cutting another $10bn in 2009. It is also to keep the dividend flat at $1.36.
Mr Albanese said: "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."
Some experts remain cautious. "Rio has allayed fears in the short term," one City analyst said. "But they have given very few details – which mines will be affected, for example."
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