Rio Tinto chips $6bn off its debt mountain

Former boss Tom Albanese, along with other mining titans, went on a spending splurge during the economic boom years (GETTY IMAGES)

The clean-up by Rio Tinto chief executive Sam Walsh of the over-expansion of the mining giant by his predecessor Tom Albanese is bearing fruit, with $6bn (£3.6bn) of debts coming off the balance sheet over the past year and a clear signal of big returns of cash to shareholders in early 2015.

Mr Albanese, along with other mining titans, went on a spending splurge during the economic boom years – only to see demand, and prices, crumble as China’s economy came off the boil. Mr Walsh replaced him 18 months ago and has been slashing costs and focusing on only the most profitable mines.

Figures released yesterday showed that Rio had shed around 2,200 jobs during the first half of the year. Along with cost cutting in areas like exploration, this meant the group spent $3.2bn less than it did two years ago, exceeding targets that had been set for six months from now.

Meanwhile, it boosted shipments of iron ore from its mines by a fifth. Investors now hope that a big share buyback process will start next year, with the company giving its clearest hint yet. “A strong foundation is in place for material increases in cash returns to shareholders…” Rio’s Stock Exchange statement said.

“There’s pretty good scope there for the board to have some fairly good news in early 2015,” added Rio’s chief financial officer, Chris Lynch.

The Albanese-era debt mountain has been slashed to $16.1bn, compared with $22.1bn in June 2013.

Underlying profits rose from $4.22bn a year earlier to $5.11bn in the six months to June, with profit from its mainstay iron ore production up 10 per cent to $4.7bn.

Rio’s long-suffering aluminium business also improved by 26 per cent to $1.1bn even though market prices have fallen 9 per cent. Mr Walsh said he was “unapologetic” about continuing to focus investment on iron ore, despite the near- 30 per cent drop in the price over the last year. Rio says its low-cost Australian mines mean it can beat rivals on price.

Chairman Jan du Plessis this week accepted the chairmanship of the brewer SABMiller, raising governance concerns over the amount of time he can devote to each job. But sources said the board was relaxed about the issue.