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Rio on Course to Cut $2 Billion of Costs in 2013, Walsh Says

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May 14 (Bloomberg) -- Rio Tinto Group, the world’s second-biggest mining company, is on course to cut $2 billion in costs this year across its mining and corporate offices, joining BHP Billiton Ltd. and Vale SA in trimming spending.

“I can tell you we are on track to save $2 billion in 2013,” Sam Walsh, chief executive officer of the London-based company, said today in speech notes for a conference in Barcelona. Rio’s coal unit in Australia alone has cut spending on goods and services by $370 million this year, Walsh said in presentation slides.

Since Walsh, 63, took over in January, Rio has announced plans to sell assets and reduce $5 billion of total costs as lower commodity prices cut revenue. Walsh said the company was looking to make further assets sales beyond those announced after BHP’s new CEO Andrew Mackenzie today said he’s targeting an 18 percent cut in capital spending in fiscal 2014.

Rio is seeking savings of $750 million on mineral exploration spending this year, Walsh said, adding that the company had the option of expanding its Australian iron ore operations “at a much lower capital intensity” than by developing new mines.

Rio dropped 1.1 percent to close at 2,967.50 pence in London. BHP advanced 0.4 percent to 1,920 pence.

Asset Disposals

“We are targeting significant cash proceeds from divestments this year, and are looking at further disposals of potential non-core assets, in addition to those we’ve already announced,” Walsh said, adding the company had generated almost $14 billion selling assets over the past five years.

Rio and BHP are leading a global asset sell off, and may sell businesses or stakes in mines for as much as $35 billion, Deutsche Bank AG said in March. Rio has announced a potential sale of its Pacific Aluminum unit and diamonds business, and is seeking to sell its Canadian iron ore operations, a person close to the matter said in March.

Rio has “multiple pathways” to achieve an expansion at its iron ore operation in Australia to produce 360 million metric tons annually, from 290 million tons, Walsh said.

“Depending on the market, we could choose to develop new mines to quickly deliver tons,” he said. “Or we could conserve cash and fill some capacity with incremental tonnes from existing mines at much lower capital intensity.”

The spending plan, currently estimated to cost $5 billion, has drawn criticism from shareholders including Evy Hambro, who manages BlackRock Inc.’s $10 billion World Mining Fund.

Rio’s board is due to consider the expansion during the fourth quarter. Walsh said today Rio’s capital spending will drop to about $13 billion this year from $17 billion last year.

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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