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TMCNet:  After loose spending in the past, Rio Tinto's cost cutting is now on track, says Nils Pratley

[December 03, 2013]

After loose spending in the past, Rio Tinto's cost cutting is now on track, says Nils Pratley

(Guardian (UK) Via Acquire Media NewsEdge) Big miners, who were too loose with their spending in the boom years, are now preaching a gospel of restraint, capital-discipline and cost-cutting. But when your sins against shareholders are as grave as Rio Tinto's you are obliged to be doubly repentant.


Chief executive Sam Walsh, promoted after Tom Albanese did one duff deal too many, is making a reasonable fist of the task. Capital expenditure will fall 20% to $14bn (pounds 8,5bn) this year and continue to fall at the same rate to $8bn in 2015. Of course, the sums are still huge. But there is no point slamming on the brakes entirely when iron ore can be dug out of the Australian desert for $25 a tonne, shipped for China for another $20 and sold to steel-makers for $135. You've got to chase those prices. And if, as Walsh says, production can be ramped up more cheaply than thought, shareholders should approve. Iron ore represents about 80% of Rio's profits, making the company the most unbalanced of the big miners (the massive Oyu Tolgoi copper mine in Mongolia is a sideshow in valuation terms). But at least this time around, the board appears to accept the duty to protect investors.

(c) 2013 Guardian Newspapers Limited.

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