By Rebecca Bream in London
Rio Tinto on Wednesday revealed a range of measures, from drastic job cuts to asset sales, in an attempt to raise cash, pay debts and regain market confidence.
The mining group pledged to reduce its net debt of $38.9bn (€29.9bn) by $10bn by the end of 2009 by slashing $5bn from its capital expenditure budget, cutting 13 per cent of its workforce and putting mines up for sale.
Tom Albanese, chief executive, said Rio was confident it could service its debt, most of which was taken on to pay for last year’s takeover of Alcan, the Canadian aluminum producer.
“With these actions we will not need to consider a rights issue,” said Mr. Albanese. He added that Rio was “comfortably within” the only covenant on its bank debt – that Rio’s net debt must be below 4.5 times the value of its earnings before interest, tax, depreciation and amortization.
Rather than spend $9bn on building new mines and expansion next year, Rio will limit capital expenditure to $4bn. It would not say which projects would be deferred, but said it would give more details at its annual results in February.
Rio aims to save another $2.5bn a year via measures including axing 14,000 jobs. About 8,500 will come from contractors no longer needed to build new mines, but about 5,500 will be lost from Rio’s payroll, including a number at the London headquarters.
The group said it would hold its 2008 dividend at the 2007 level of $1.36 and suggest other assets to be sold. “There is a range of businesses we hadn’t flagged as part of our disposal list that could be sold or joint-ventured to bring in additional cash and move us faster to that $10bn objective,” said Mr. Albanese.
Rio is already selling non-core assets such as Alcan’s packaging and engineered products arms and its own US coal business, but this is the first time it has raised the possibility of selling mines from its core divisions.
The group raised $3bn through the sale of non-core assets at the start of this year, but the disposal programme stalled as economic conditions deteriorated.
Rio’s shares have more than halved in the past two months as the global, and in particular Chinese, slowdown has depressed metals prices. Investors were further shaken last month when BHP Billiton dropped its hostile $62bn bid for Rio, citing worries about the size of its debt burden. Rio’s London-listed shares rose 20 per cent to £15.14 on Wednesday.
Source from: The Financial Times Limited
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