Miner looks to trim before selling aluminium business

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.

Mr Walsh said Rio was in the early stages of discussions with the Northern Territory government on modifying the state agreement for Gove so that bauxite mining could continue once the refinery closed.

‘‘We believe there is an opportunity to grow that bauxite business but we need to sit down and work through those issues,’’ he said. ‘‘The best outcome would be for us to provide the ongoing employment.’’

He confirmed fly-in, fly-out operations could be used for workers who want to stay in the Nhulunbuy region but work at other Rio sites in Queensland or Western Australia.

Rio’s investment focus on iron ore and copper has taken a toll on its $1.4 billion South of Embley bauxite project in Cape York, which Rio said last month was on hold for up to 18 months. Mr Walsh said South of Embley was ‘‘still a good project’’.

‘‘But my focus has been on improving our cost base, reducing our capital, getting the business stabilised and on track, so we have options down the track,’’ he said.

He also pointed to an emerging issue with gas supplies in Queensland and WA. ‘‘We are not looking for any special benefits from the LNG producers. What we are asking [for] is availability and the domestic price will be what the domestic price is.’’