Rio Tinto Group will cut jobs and delay decisions on building projects as the third-biggest mining company expects slower growth in China, its largest customer.
“We’re more cautious for the outlook for our business for the next few quarters than we would have been a couple of months ago,” Chief Executive Officer Tom Albanese said. “I would not expect any major new project approvals in the near-term.”
Rio (RIO), already cutting $500 million in service and support costs this year, joins mining companies including BHP Billiton Ltd. (BHP), the world’s biggest, in curbing spending plans as metal demand wanes. Expansions of rail and port facilities for coal operations in Mozambique may be delayed, while work on the Simandou iron ore project in Guinea costing more than $10 billion and an expansion in Australia’s Pilbara will continue, Albanese said.
Unlike BHP, which shelved an estimated $68 billion in projects including a port and copper mine expansion, Rio doesn’t have “big-ticket item projects,” Glyn Lawcock, Sydney-based head of resources research for UBS AG, said by phone. “They don’t have an Olympic Dam or an outer harbor. They will probably go slower on Mozambique coal.”
The company, still set to spend $13.7 billion this year on approved projects, rose as much as 0.5 percent to A$56 and traded at A$55.85 as of 3:41 p.m. in Sydney, giving it a value of A$91.2 billion.
Rio will shed jobs as it cuts back, Albanese told a media briefing yesterday, declining to elaborate. London-based Rio employs 67,930 people, according to data compiled by Bloomberg.
“There’s some good news coming,” he said, including euro- area measures, and Chinese and U.S. stimulus. “The question is when will all this flow through ultimately to our markets. We don’t expect the impact of the stimulus measures on the Chinese economy until after some of the leadership changes.”
Iron ore prices may fall to less than $100 a dry metric ton next year from an average $130 a ton in 2012, a Chinese government adviser said yesterday. Prices are forecast to average $135 a ton next year, according to estimates from eight analysts compiled by Bloomberg. Iron ore has rebounded 35 percent since falling to a three-year low of $86.70 on Sept. 5 after China announced spending plans for new roads and subways.
The Chinese Communist Party will hold its 18th congress and a once-a-decade handover to a new generation of leaders on Nov. 8. The switch may trigger an increase in stimulus measures to counter slowing economic growth, according to Mizuho Securities Asia Ltd. and Australian & New Zealand Banking Group Ltd.
Rio, which last year got 44 percent of sales from iron ore, posted a 22 percent drop in first-half net income after prices for the material fell, along with copper and aluminum. Copper demand in China will contract in 2012 for the first time since 2008, metals consultant Simon Hunt Strategic Services said. At the same time, benchmark prices for coal have also declined.
“In this environment we will be seeing a deferral of large capital programs,” Albanese said of the Mozambique coal development. “We will assess the timing and the right options for infrastructure development over the next couple of years.”
Rio bought Riversdale Mining Ltd. for A$3.4 billion last year and said then it may add 25 million tons of coal to its annual output from mines in Mozambique. An expansion of existing rail and port capacity may cost about $5 billion, UBS’s Lawcock said.
The company will also probably no longer go ahead with an expansion of its AP60 aluminum plant in Quebec, which would have taken capacity to 460,000 metric tons from 60,000 tons, Lawcock said, estimating the price tag for the expansion at $3 billion to $5 billion.
Rio in April pulled back from joining an A$9 billion port expansion in Australia’s Queensland state because of increased costs and weaker coal prices. An Australian thermal coal mine project may also be stalled on rising costs, Bank of America Merrill Lynch said in May after a meeting with Albanese.
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