Rio Tinto Slashes Costs as Iron-Ore, Coal Output Hit Records – by David Stringer and Jesse Riseborough (Bloomberg News – January 16, 2014)

Rio Tinto Group (RIO), the world’s second-largest mining company, beat its 2013 cost-cutting targets as fourth-quarter iron ore production advanced to a record on increased Chinese demand.

Output climbed 7 percent to 55.5 million metric tons last quarter from 52 million tons a year earlier, London-based Rio said today in a statement, in-line with the 55.7 million-ton median estimate of five analysts surveyed by Bloomberg.

Rio cut cash costs by more than $2 billion and halved exploration spending across its suite of commodities to $948 million last year, beating the targets set by Chief Executive Officer Sam Walsh after he replaced Tom Albanese in February following failed aluminum and coal deals. The cuts came even as production of iron ore, thermal coal and bauxite rose to records, Walsh said.

“What Rio is trying to articulate is that it’s delivering on its promises, it has a very solid business and it’s leveraged to the iron ore price,” said Peter Esho, chief market analyst at Invast Financial Services Pty. in Sydney.

About 4,000 jobs have been cut since June 2012, contractor agreements are being renegotiated to lower labor costs and replacement parts for some equipment are being sought from cheaper suppliers in emerging markets rather than original manufacturers, Chief Financial Officer Chris Lynch said last month in a meeting with investors. Rio had 71,000 employees globally in 2012.

China Demand

China, the world’s biggest buyer of raw materials, increased iron-ore imports 10 percent last year, peaking at a monthly record in November as demand held up amid slowing economic growth. Walsh that month approved a 25 percent expansion of iron-ore operations in Western Australia that Liberum Capital Ltd. estimated would cost $2 billion.

Rio advanced 2.1 percent to A$65.58 in Sydney, leaving it little changed over the past year. The price of iron ore for delivery to the Chinese port of Tianjin increased 2.1 percent in the fourth quarter from a year earlier, averaging $134.85 a dry ton.

The price fell to a six-month low on Jan. 14, dropping below $130 a ton for the first time since August on expectations Chinese demand will slow before the Lunar New Year holiday and as Goldman Sachs Group Inc. forecast further declines. Walsh said in an interview last month he expects prices to drop this year.

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