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Rio Tinto, the mining giant that owns Montreal’s Alcan, provided more evidence that the era of massive spending on huge projects and acquisitions is over by pledging to shave billions of dollars off its capital spending budget.
The new era will see the Anglo-Australian miner focus on shareholder returns in an attempt to repair some of the damage triggered by years of overspending during the boom years, in the mistaken belief that strong global growth would propel commodity prices ever higher.
Rio CEO Sam Walsh on Tuesday said the company, the world’s second largest miner, after BHP Billiton, would cut capital spending by at least 20 per cent in each of the next two years. That means spending would fall to $11-billion (U.S.) in 2014 from $14-billion this year, and to $8-billion in 2015.
Speaking at investor conference in Sydney, Mr. Walsh said “We lost our way…We are taking decisive action. Don’t get me wrong, we have more to do.”
In a statement, Mr. Walsh said “market fragility and volatility” is one of the reasons behind the reduced spending.
Mr. Walsh is an Australian who ran Rio’s iron ore division, the company’s biggest profit generator, until January, when he replaced Tom Albanese as CEO in January. Mr. Albanese oversaw a spending spree that included the $38-billion purchase of Alcan, one of the world’s biggest aluminum makers, in 2007, right at the peak of the commodities and market. Alcan’s value was written down by $11-billion in January, though that was just one of several blows taken by Rio’s global aluminum portfolio, where total write downs have reached $28-billion.
Rio’s aluminum and coal operations will take the biggest spending cuts as the company focuses on iron ore and copper.
Rio is shutting its money-losing Gove alumina refinery in Australia’s Northern Territory. The move came shortly after Rio called off plans to spin off its Pacific Aluminum business because attempts to find a buyer came up short.
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