MARKETS

Rio beats cost-saving target

RIO Tinto CEO Sam Walsh says the company has already achieved its 2013 target of $US2 billion ($A...

Kristie Batten
Rio beats cost-saving target

Speaking at the company’s London investor day, Walsh updated the figure of $1.8 billion of cost savings achieved to the end of October, which was revealed at the Sydney event last week.

“In fact, at the end of November, we’ve now exceeded our targets for 2013,” he said.

“We have taken more than $2 billion out of our operating costs, and reduced our exploration and evaluation spend by over $800 million.

“At the same time, we’ve set new production records as we've realised productivity gains across our portfolio.”

Rio chief financial officer Chris Lynch said the savings were the result of more than 1500 separate initiatives.

“The copper group has reduced service and support costs by more than $50 million in the first 10 months of the year, primarily through reducing headcount and right-sizing the business following divestments,” he said.

“In aluminium, they’ve been able to increase truck utilisation at the Weipa bauxite mine through using condition-based maintenance and reducing turnaround times.

“Initiatives such as these have allowed them to achieve a 47% increase in labour productivity since 2011.

“At the same time, they’ve been able to strip out costs in their procurement spend with a reduction of 14% in materials and services costs since 2012.”

The company has removed 4000 roles globally since June 2012, after taking into account 1800 new roles to support the iron ore expansion.

“And this doesn't include a further 3000 roles that have gone with divested assets,” Lynch said.

“So the business is now being run much more tightly, with a real focus on cash generation, and I think you can see that we’re making good progress.

“But it’s a journey and we have more to deliver in future years.”

Rio will aim for a $3 billion reduction over 2012’s figure next year.

Energy CEO Harry Kenyon-Slaney commented on the tank failures over the past week at the Rossing uranium mine in Namibia and Ranger mine in Australia.

“The containment systems worked as designed, no material left the sites and there was no impact on the environment,” he said.

“We continue to work with key stakeholders and regulators.

“But it is too early to fully understand what the implications of these incidents will be.”

Meanwhile, Diamonds and Minerals boss Alan Davies said the progress at the massive Simandou iron ore project in Guinea was encouraging.

The project, which could reportedly cost as much as $20 billion to develop, has been delayed by the need to establish an investment framework with the Guinean government, a partner in the project.

Davies said he expected the investment framework to progress to ratification early next year with constructive discussions underway.

“Earlier this year, the government of Guinea decided not to take up its 51% share of the infrastructure company,” Davies said.

“This has created a gap in the funding of the project which now needs to be closed.”

Davies said the focus of Rio’s investment would be the mine, which would provide a stable revenue stream for the infrastructure.

“The infrastructure development and ownership model will be underpinned by a haulage contact from the mine,” he said.

“Over a short period of time, we plan to mobilise new investors and infrastructure owners to raise a significant portion of the required capital in equity, with the remainder to be funded by project finance debt.

“As these additional investors are brought in, it will reduce the capital funding requirements by the existing Simandou partners.”

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