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Dec 11, 2008

Rio Tinto Axes 14,000 job

Rio Tinto, the Anglo-Australian mining giant, said yesterday that it would cut 14,000 jobs in an attempt to reduce its $39 billion (£26.2 billion) debt mountain.

The company, which recently fought off a long-running takeover battle with BHP Billiton, its rival, said that it was introducing the measures “in response to the unprecedented rapidity and severity of the global economic downturn”.

In total, 8,500 contractors and 5,500 full-time staff will lose their jobs. The company’s headquarters in the City will be shut and senior executives will move to another office in the capital. It is the most brutal retrenchment by a mining company since the commodities boom ended, but analysts say that job losses at other groups can be expected in coming months.

Rio will reduce capital expenditure from $9 billion to $4 billion next year by shutting new projects and deferring the expansion of existing ones.

So far this year, the company has reduced its net debt by $3.2 billion, but it hopes to cut borrowings by a further $10 billion by the end of 2009. It took on $40 billion of debt last year to buy Alcan, the Canadian aluminium producer, and must pay back or refinance $8.9 billion by next October. A further $10 billion is due a year later.

The company had planned to divest $10 billion of assets this year to cut its debt but it has struggled to find buyers because of the credit crunch. However, it plans to press on with the sell-off and said that new assets might be included in the sale. This has raised the possibility that Rio may be forced to sell some of its crown jewels.

Tom Albanese, chief executive, said: “Given the difficult economic conditions and the unprecedented rate of deterioration of our markets, our imperative is to maximise cash generation and pay down debt.”

Yesterday, Rio’s share price rose 256p to £15.14– up more than 20 per cent – but is down by 80 per cent from its peak of £71.67 this year. The company is valued at about £15 billion, considerably less than its total debt.

Rio’s assessment of the iron ore market highlights the rapid slowdown in demand for raw materials. Strong demand for iron ore led to a 96 per cent increase in prices earlier in the year but now Rio expects that full-year production in the Pilbara region of Australia will be 170 million to 175 million tonnes, significantly below its capacity of 220 million tonnes. Rio said that it expected production next year to be 200 million tonnes.

Mr Albanese said: “We will minimise our operating and capital costs to appropriately low levels until we see credible and meaningful signs of a recovery in our markets, but will retain our strategic growth options.

“We will expand further the scope of assets we are targeting for divestment. By taking these tough decisions now, we will be well positioned when the recovery comes.” Rio said that it would scrap plans to increase its dividend by 20 per cent next year and instead would hold it steady. The company added that the measures it was taking would make a rights issue unnecessary.

Mr Albanese said that he expected the Chinese economy, one of the main drivers of demand for the company’s ores in recent years, to rebound in the second half of next year.

However, he said that although Rio expected demand for raw materials to rebound in the second half of 2009, the miner would position itself to cope with any economic situation in China.

Mr Albanese told The Times: “The fourth quarter of this year has been far worse than anyone expected in China and we are unlikely to see an improvement in the first quarter of next year. We expect next year to be a tale of two halves: a lot of stimulus is going into the Chinese economy and we expect that to manifest itself in recovery in the second half.

“We are having to ask ourselves: what if the situation is not that good? Our review recognises that most of our metals and minerals are going through an unprecedented decline in pricing and demand.”

Source : TimesOnline
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