Rio Targets $5 Billion Free Cash Flow Boost in Savings Drive

  • Second-biggest miner cuts 2016 capital expenditure forecast
  • Producer flags option for replacement Australia iron ore mine

Rio Tinto Group wants to generate $5 billion of additional free cash flow over the next five years as mining companies remain cautious about a recovery and continue to streamline their operations.

The world’s second-biggest miner said Thursday it cut its capital spending target this year to less than $3.5 billion from an earlier target of $4 billion, while the efforts to boost free cash flow will be in addition to plans to cut cash costs by $2 billion across 2016 and 2017.

“We are well on track to meet our target of $2 billion of cash cost savings by the end of next year,” Chief Executive Officer Jean-Sebastien Jacques, who took up his post in July, said in a statement ahead of a presentation to investors in Sydney. “We are also taking advantage of any opportunity to generate value from mine through to market.”

While the outlook for commodities has improved as prices of iron ore to coking coal have soared since Rio in August reported its worst profit in more than a decade, the top producers have expressed caution over the likelihood that the gains can be sustained. Prices of the two steelmaking ingredients are likely to moderate without any supply disruptions, BHP Billiton Ltd. CEO Andrew Mackenzie said last week.

Rio will commit $2.2 billion in sustaining capital expenditure for iron ore operations in Australia and $1 billion for spending on replacement mine projects over the next three years. A potential $2.2 billion development of the 40 million tons-a-year Koodaideri mine could begin in 2019 and deliver first ore from 2021, the producer said.

Complications in completing a $518 million program to install autonomous trains are being addressed and the system will be fully implemented by the end of 2018, Rio said. In April, Rio cut its forecast for 2017 shipments to between 330 million and 340 million tons from earlier guidance of 350 million tons amid difficulties with the project.

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