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.
- 1 Gwyneth Paltrow and Chris Martin file for divorce after 10 years of marriage
- 2 Rarest Beanie Baby bought for just £10 at car boot sale could be sold for £62,500 on eBay
- 3 Katie Hopkins and The Sun editor David Dinsmore reported to police for incitement to racial hatred following migrant boat column
- 4 Australian student Tommy Connolly, 23, adopts his pregnant, homeless 17-year-old cousin to give her a chance at 'a better life'
- 5 Nigel Farage wants the BBC to stop making Doctor Who, Strictly Come Dancing, and Top Gear
Oskar Gröning trial: 93-year-old Auschwitz guard admits he was 'morally complicit' in holocaust crimes
Katie Hopkins and The Sun editor David Dinsmore reported to police for incitement to racial hatred following migrant boat column
Australian student Tommy Connolly, 23, adopts his pregnant, homeless 17-year-old cousin to give her a chance at 'a better life'
Giorgio Armani criticises the way some gay men dress saying 'a man has to be a man'
Nigel Farage wants the BBC to stop making Doctor Who, Strictly Come Dancing, and Top Gear
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
Food banks: One million Britons will soon be using them, according to Trussell Trust
Katie Hopkins on LBC: Listen to caller taking The Sun columnist to task over migrant comments
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
Migrant boat disaster: Countries across Europe accused of 'closing their eyes' to thousands of deaths in the Mediterranean
iJobs Money & Business
£12000 - £15000 per annum: Recruitment Genius: An expanding Insurance Brokerag...
£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...
£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...