Rio Tinto's spending cuts put mining in a deeper hole
The mining industry’s prospects deteriorated further today after Rio Tinto said a lethal cocktail of rising costs and falling prices would force it to cut spending by $7 billion (£4.4 billion) over the next two years and warned of further writedowns on its aluminium business.
But shares soared by 4 per cent as investors welcomed the FTSE 100 mining giant’s move to tackle their concerns about its bottom line, amid a gloomy outlook for the industry.
Rio’s coal and aluminium operations will bear the brunt of the cuts because they have been hit hardest by the combination of depressed commodity prices and rising labour and equipment costs which resulted from an industry-wide dash into new projects in the run-up to a global downturn that has since hammered demand.
In the week after rival Xstrata finally clinched shareholder and European regulator approval for a £56 billion merger with commodities trader Glencore, Rio Tinto chief executive Tom Albanese struck a gloomy note for his company and the industry.
“For me the theme for this year, next year and probably the extended period beyond will be cost control,” he said. Albanese forwent his bonus last year after writing $8.9 billion off his disastrous acquisition of the Alcan aluminium business.
Charles Stanley analyst Tom Gidley-Kitchin said: “The situation in the mining industry has deteriorated in the past year and the prospect of recovery has moved further out. Things are still clouded by huge uncertainty in the US, China and the eurozone. Putting a time on when the situation will improve at this point would be misleading.”
The aluminium price has fallen 14% since the beginning of March, as the industry continued to suffer from huge overcapacity. Meanwhile, the price of thermal coal, used to generate electricity, fell to a three-year low this month as the US boom in shale gas continued to see coal-fired power stations switching to gas and the excess coal exported instead.
Iron ore, an essential in steel-making — which has declined by more than a fifth since its 2012 high — is also suffering as the Chinese construction boom runs out of steam. The metal accounts for about four-fifths of Rio’s profits, although the group said that the revenue blow will be cushioned by an increase in production.
Rio’s cost-cutting continues a trend among mining companies. Archrival BHP Billiton scrapped a planned A$10 billion (£6.5 billion) project in August and has put on hold a $A20 billion expansion of its Olympic Dam mine in South Australia. Rio shares rose 120.0p to 3060.5p.
Easter egg hunt horror as mother finds dead body under deck of house
Missing Malaysia Airlines Flight MH370: Wreckage could be found within a week as search reaches 'very critical juncture', says minister
The new people’s republic of east Ukraine
Loch Ness Monster found on Apple Maps?
Royal Tour 2014: Is the Duchess of Cambridge the only person ever to climb into a fighter jet wearing a dress and high heels?
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
Nigel Farage fatigue? Half of voters ‘immune’ to Ukip’s appeal
'Sinful': Video of British Muslims dancing to Pharrell Williams's hit Happy comes under attack
Nigel Farage: I’m taking on the status quo, and the Establishment’s fighting back
Refugee facing deportation from Sweden saved by fellow passengers refusing to let plane leave
- 1 Easter egg hunt horror as mother finds dead body under deck of house
- 2 'Natural' energy drink banned for containing erectile dysfunction drug
- 3 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 4 Loch Ness Monster found on Apple Maps?
- 5 Kingdom Tower: Construction of 1km high new world’s tallest building to begin next week in Saudi Arabia
iJobs Money & Business
£150.00 per week: QA Apprenticeships: This company has been providing on site ...
£221.25 per week: QA Apprenticeships: This company is a well established Inter...
£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...
£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...