INTERNATIONAL COAL NEWS

Rio executive changes point to more cost cutting

RIO Tinto's coal operations are expected to come under more scrutiny and cost cutting with its co...

Lou Caruana

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During his time as COO of coal operations since 2013, Salisbury was instrumental in driving a cultural change that delivered a step change in safety performance and more than $US1.0 billion in cost and productivity improvements.

Salisbury is also a member of the Rio Tinto Executive Committee and has more hands on experience in Rio’s coal operations in New South Wales and Queensland than Jacques, who had forged his reputation over the last three as years a manager Rio Tinto’s four key Tier 1 copper assets, according to Deutsche Bank.

Jacques is also in a different mold to Walsh, whose focus was on ramping iron ore production to achieve economies of scale, and is also expected to rely on Salisbury to pursue further cost cutting in the company.

Salisbury’s successful guidance of Rio Tinto’s expansion plans for its Mt Thorley Warkworth open cut operations in New South Wales through a difficult approvals process and his management of the Kestrel south expansion in Queensland also gives him the credibility in the company to argue for it to pursue new optimization projects.

In his role as COO Salisbury had accountability for strategy, project development, operations and logistics for Rio Tinto’s coal mines in NSW, Queensland and South Africa.

Earlier this month Salisbury and Jacques ensured that Rio Tinto completed the sale of its 40% interest in the Bengalla Coal Joint Venture in NSW to New Hope Corporation Limited for $616.7 million, meaning that it has announced or completed $4.7 billion of divestments since January 2013.

Rio Tinto currently holds 100% interest in the Mount Pleasant project. On 27 January Rio Tinto announced it had reached a binding agreement for the sale of Mount Pleasant to MACH Energy Australia for $224 million plus royalties. The sale is expected to close in the second half of 2016.

Salisbury and Jacques have been a formidable team over the last year. All Rio Tinto’s Copper & Coal operations free cash flow positive, contributing over $1 billion in free cash flows to the group in 2015.

Net cash generated from operating activities was $1.8 billion in 2015.

The Copper & Coal group’s underlying earnings of $274 million, 67% lower than 2014, were heavily impacted by lower prices.

These were partly offset by the delivery of further cash cost savings, favourable exchange rates and energy costs.

Pre-tax cost reductions delivered in 2015 were $214 million bringing total pre-tax cost savings delivered by Copper & Coal since 2012 to $1,934 million.

Rio Tinto Coal Australia reported lower revenues for 2015 at $2.7 billion compared with $3.5 billion in the prior year but still managed to double net earnings to $48 million with the help of strong performances from its Kestrel longwall mine.

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