Cost cutting at Rio Tinto after $3billion loss
Rio Tinto has reported a $3bln loss - its first ever full-year loss. But its new chief is promising to cut costs and put it back on track.PT1M1S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-2egkd 620 349 February 15, 2013
Mining magnate Gina Rinehart's wish for Rio Tinto to swiftly approve further joint ventures with her mining company appears unlikely to be granted any time soon, judging by comments from Rio's new chief executive Sam Walsh on his first public outing since taking charge.
Mr Walsh indicated that an expansion of Rio's highly successful iron ore joint-venture with Ms Rinehart's Hancock Prospecting was not on his immediate agenda, despite Ms Rinehart suggesting upon his appointment that three new mines in the Hope Downs precinct were "convenient for early development" and should be committed to in a "timely manner".
The two companies have jointly developed three mines at Hope Downs in the Pilbara, but Mr Walsh said more work to prove up deposits would be needed before any new mines could be commissioned there.
"Going forward we have works underway in terms of development, the drilling work and other work before you can make any decisions ... we are not at 'order of magnitude' or 'pre-feasibility study' yet with those projects," he said.
Rio is going through a cost-cutting phase and is looking to drive down capital spending in the years ahead, and Mr Walsh said Ms Rinehart also had plenty to occupy her at the moment.
"Gina is also working on her own project, the Roy Hill project, and clearly there needs to be a balance for her in terms of what we do physically bring forward because she will need to finance everything that goes on, so for us it's a balance, and with her it's a balance."
Speaking from a suite on the banks of London's Thames River overnight, Mr Walsh showed no sign of acting upon Ms Rinehart's other suggestion: that he should relocate Rio's headquarters from London to Perth.
Steadying the ship
For now Mr Walsh - who encouraged those at the briefing to "call me Sam" - appears intent on steadying the ship at Rio and "turning around" the under-performing divisions within its ranks.
"The strategy is unchanged ... but under my leadership there will be changes in the way we implement the strategy and that relates to the focus of the organisation, the discipline, how people take accountability and the fact I want people to act like business owners," he said.
He said the coal, aluminium and uranium divisions would wear the brunt of the $5 billion worth of costs and divestments that will be stripped out of the business over the next two years, but he warned that no part of the business was immune.
Despite the threat of further divestments, Mr Walsh indicated he would persist with two struggling African projects: the Simandou iron ore project in Guinea and the Mozambique coal project that cost former chief executive Tom Albanese his job last month.
Mr Walsh said the cost-cutting drive would be helped by the fact the mining sector was already a cheaper place to do business than it was at the peak of the boom several years ago.
"We are quite fortunate that some of the heat has come out of mining ... if you see the prices for our commodities go down the costs for input material also go down as there are less people investing in projects, and those areas - purely through supply and demand - come down," he said.
There appears to be little prospect of Mr Walsh adding a new commodity to Rio's books any time soon, despite Rio's energy sector being dominated by poorly performing uranium and coal businesses, and lacking exposure to the unconventional oil and gas boom that rivals like BHP Billiton have invested into.
"There are no acquisitions that I'm working on. One can never say never, I've learned that in business, but there's nothing on my radar screen, my focus will be on delivery of value to shareholders," he said.
But Mr Walsh went out of his way to highlight that tensions continue to flare between his company and the Mongolian government over the development of Rio's key growth project: the Oyu Tolgoi copper and gold mine.
The Mongolian Government has repeatedly expressed a desire to take a bigger stake in the project, and the government is also reportedly concerned about the rising cost of development at the mine.
Mr Walsh said he was concerned about "recent political signals in Mongolia" that threatened to undermine the long-standing investment agreement that underpins development of Oyu Tolgoi.
The Rio Tinto subsidiary that is developing Oyu Tolgoi - Turquoise Hill Resources - went further overnight, suggesting that tensions with government would need to be overcome before first commercial production took place at the mine.
"A number of substantive issues have recently been raised by the Government of Mongolia relating to implementation of the Investment Agreement, the companion Shareholders' Agreement and project finance ... subject to the resolution of these issues, first commercial production at Oyu Tolgoi is scheduled to commence by the end of June 2013," the company said in a statement.
A presidential election will be held in Mongolia in coming months, and given Oyu Tolgoi is the nation's biggest and most economically important project, the mine is likely to remain a prime target of the political debate.
Despite rising in early trading on the London Stock Exchange, Rio's London listed stock closed marginally lower on the day.
Rio's London shares have recovered virtually all the ground lost during last year's iron ore slump to be back at the same prices they were fetching this time last year.