Rio Tinto Group (RIO), the world’s second-biggest mining company, will cut capital spending to about $8 billion in 2015, less than half its outlay last year, as mineral producers conserve cash after prices fell.
“Our capex is reducing, and will come down further,” Sam Walsh, chief executive officer of London-based Rio, said today in a statement. “From where I stand, we continue to see market fragility and volatility.”
Rio’s cutback underlines efforts by the world’s largest mining companies to rein in spending as a decade-long boom in metal prices wanes. Vale SA (VALE5), the biggest iron ore producer, yesterday slashed its investment budget for a third straight year to $14.8 billion, the lowest since 2010.
“It’s quite a substantial drop and it does suggest that right now Sam Walsh is concentrated very, very hard on affordability,” Evan Lucas, a Melbourne-based markets strategist at IG Ltd., said by phone.
Rio fell 0.6 percent to A$65.49 at the close in Sydney. BHP Billiton Ltd., the world’s biggest mining company, declined 1.2 percent.
“Over the longer term, I remain optimistic about demand for our products,” Walsh said according to the statement. “China’s urbanization will continue and the development of other economies as they continue to grow at pace, such as India, Vietnam, Indonesia, the Philippines, the Middle East, the former Soviet Union, South America and Africa, will also contribute to ongoing demand.”
The cut in spending on new projects and expansions will help Rio strengthen its balance sheet and cut net debt that rose to about $22 billion at June 30, Chief Financial Officer Chris Lynch said today during an investor briefing in Sydney. Reducing debt will be a priority for next year, he said.
“This will result in a very strong balance sheet which will allow the board to make decisions around returns to shareholders and other allocations of capital,” Lynch said. Rio is targeting a net debt reduction to the “mid-teen billions,” he said.
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