Rio Tinto, one of the world's biggest mining companies and a recent bid target of rival BHP Billiton, yesterday announced plans to cut 14,000 jobs and scale back its spending plans by $5bn as the global slowdown erodes demand for metals and other commodities.
Rio Tinto, one of the world's biggest mining companies and a recent bid target of rival BHP Billiton, yesterday announced plans to cut 14,000 jobs and scale back its spending plans by $5bn as the global slowdown erodes demand for metals and other commodities.
Rio Tinto spokesman Ian Head said there were no details yet on where, when or how the staff cuts would come. However, City mining industry analysts said the retrenchment would likely hit the group's London headquarters, where 8500 of the jobs are contract positions and 5500 are permanent.
The cuts - 12.5% of the company's 112,000-strong workforce - are designed to reduce the $40bn of debt Rio Tinto is saddled with by $10bn by the end of next year.
"Given the difficult and uncertain economic conditions, and the unprecedented rate of deterioration of our markets, our imperative is to maximise cash generation and pay down debt," Rio Tinto chief executive Tom Albanese said.
"We will minimise our operating and capital costs to appropriately low levels until we see credible and meaningful signs of a recovery in our markets, but will retain our strategic growth options."
Rio said it would sharply reduce capital spending next year by more than half to $4bn from the forecast $9bn.
Some projects would be deferred and others cancelled, with details provided at year-end results due in February.
The group also cancelled plans to boost its dividend by at least 20% this year and next.
Albanese has already delayed plans to sell $10bn of assets until the global economy recovers. The 135-year-old company recently fought off a takeover attempt by its bigger rival BHP BIlliton. BHP dropped a merger proposal because of concern over a global recession and shouldering the burden of Rio's huge debts.
Rio took on huge bank debt to fund last year's $38bn acquisition of the Montreal-based aluminium company Alcan, and pledged to raise $15bn, most of it this year, from selling non-core assets, including Alcan's packaging business and Rio's US coal business.
Sliding metals prices and slowing demand have made those assets worth less, and the global financial crisis has made it tougher for potential buyers to get credit.
Other mining companies will likely take similar measures in response to reduced demand, said John Meyer, an analyst at Fairfax IS investment bank in London. The booming demand in recent years led to expansion and job growth for many mining companies that is no longer sustainable, he said.
News of the job cuts pushed up Rio shares in London dealing. They closed 256p higher at 1514p - a gain on the day of 20%. Shares in Rio Tinto reached a high of more than £70 in May but have since fallen steeply as metal prices deflated and economies across the world toppled into recession.
