Mining titan Rio Tinto Plc said Wednesday it has already exceeded its target of cutting $2 billion in operating costs by the end of the year and said it will prioritise paying down debt next year.
Major resources companies such as Rio Tinto are moving to bolster their balance sheets and profits in the face of subdued prices for many commodities, as a decade-long mining boom cools. Rio Tinto already announced plans to more than halve its capital expenditure to less than $8 billion by 2015 from last year's level while its peer BHP Billiton Ltd announced plans to cut its capital spend below $15 billion in the future from $21.7 billion in the last financial year.
In an effort to boost profitability, mining companies are also slashing operating costs by reducing headcount, increasing production capacity at their operations, and revising supply contract agreements among other things. Rio Tinto announced in February plans to cut operating costs by $2 billion through such measures by the end of the year. Chief Executive Officer Sam Walsh told analysts at an investor day presentation that the miner has already surpassed that target and remains on track to achieve $3 billion in operating cost savings next year compared with 2012.
"We are improving productivity and setting new production records and at the same time reducing our spend," said Mr. Walsh. "I'm certain that we are on the way to transforming Rio Tinto to the highest performer in the sector," he added.
In exploration alone, the company already exceeded this year's target of $750 million in cost savings by $50 million while in its energy division, the company has delivered $600 million in savings during the first 10 months of the year and has about 1,500 initiatives to boost productivity across its uranium and coal mines in Australia, Africa and Canada.
The company has also announced or completed $3.3 billion worth of assets sales in an effort to return better value and more cash to shareholders.
The Australian Financial Review also reports Rio Tinto will look to reduce the capital funding burden on existing partners in its $19 billion Simandou iron ore project through the recruitment of additional investors and infrastructure providers.
According to the newspaper, the miner plans to source new investors and infrastructure owners to raise a significant portion of the required capital in equity, with the reaminder to financed in project finance debt.
2014 focus is on lowering debt: Rio
Looking ahead, Chief Financial Officer Chris Lynch said "2014 is going to be very much focused on paying down debt."
The company remains committed to paying a progressive dividend and will use any surplus cash to reduce its net debt, which stood at $22.1 billion as of the end of June, he added. Rio plans to reduce net debt to around $19 billion by the end of the year, he said, adding that he believes the company is taking the necessary steps to preserve its single A credit rating.
Mr Walsh said that company's transformation to generate more value for shareholders is well underway but he noted that the company remains conservative about its targets in hopes of over-delivering rather than under-delivering on its promises.
To this extent, the company is mulling plans to expand its iron ore operations in the Pilbara region of Western Australia to 350 million metric tonnes a year by 2017 rather than 360 million tonnes a year, Rio's head of iron ore Andrew Harding said.
Mr. Walsh also said that the company remains committed to finding a viable transport solution for its Mozambique coal assets but said "we are not looking to increase our focus on non-OECD except with the focus on La Granja," Rio's copper project located in Peru.