Rio Tinto looks to cut costs before selling aluminium business – by Angela Macdonald-Smith and Michael Hobbs (Sydney Morning Herald – December 4, 2013)

http://www.smh.com.au/

Rio Tinto chief executive Sam Walsh has signalled he will take more costs out of the aluminium business before any potential spinoff, after taking what he says was ”one of the hardest decisions of my life” to close the loss-making Gove alumina refinery in Arnhem Land.

Mr Walsh said the focus for Rio’s reintegrated aluminium division, as for energy, diamonds and industrial minerals, was on ”improving the business, reducing the cost, running it for cash, taking advantage of the capital that is already invested”.

The aluminium unit delivered $US450 million of Rio’s $US1.8 billion savings in operating costs in the 10 months to October 2013, with $US1 billion in cuts targeted by the end of 2014.

In August the miner scrapped a plan to spin off the Pacific Aluminium business housing some of its Australian and New Zealand assets after failing to find a buyer, and decided to reintegrate it back into Rio Tinto Alcan. The move sparked speculation Rio may look to offload all of Alcan, but Mr Walsh’s comments show more work is first needed on eliminating costs.

”With PacAl now off the market Rio is focusing on cost reduction and improving liquidity to ensure that if the market does improve any future spinoff will able to stand alone,” Citigroup analyst Clarke Wilkins noted after a Rio investor briefing in Sydney on Tuesday.

The suspension of the Gove refinery, decided by the Rio board last week, will take place gradually over eight months starting in the first quarter of 2014.

The mothballing will take the alumina capacity closed by Rio to 2.6 million tonnes, while 600,000 tonnes of aluminium capacity has also been shed since 2009, Citigroup noted.

Mr Walsh said Gove had been losing $30 million a month. ”That is $360 million in a year and that’s a lot of money,” he said.

He said that whatever options Rio studied to keep the plant operating, including switching its energy source to gas, factors such as the exchange rate and alumina prices made it ”seriously hard” to return the plant to the black. ”We couldn’t see a way of lifting us out of the $30 million loss a month,” he said.

For the rest of this article, click here: http://www.smh.com.au/business/rio-tinto-looks-to-cut-costs-before-selling-aluminium-business-20131203-2yopx.html

Comments are closed.