Rio Tinto Sets Target For Further Cost Reduction Of $750 Mln In 2015

(RTTNews) - Anglo-Australian mining giant Rio Tinto Plc (RTPPF, RIO.L, RIO, RTNTF) said Thursday that it has set a target for a further cost reduction of $750 million in 2015. The company also said that with iron ore prices continuing to fall, it will continue to slash costs so as to maintain the margin between itself and high-cost producers.

Speaking at the company's annual general meeting in London, Sam Walsh, chief executive officer of Rio Tinto, noted that compared to the 2012 base, the company has reduced its annual operating cash costs and evaluation spend by $4.8 billion.

According to Walsh, Rio Tinto achieved substantial cost reductions across its portfolio, with reductions of around $900 million from its copper business, $800 million each from its aluminum and energy groups, $700 million from iron ore, and $400 million from diamonds and minerals. The company has now set a target for a further $750 million cost reduction for 2015.

Further, Rio Tinto said its capital spend in 2015 will be less than $7 billion. The company noted that it has more than than halved its capital spend since 2012 to just over $8 billion last year.

The company also noted that it has released $2.1 billion of cash from its inventories and receivables. All these factors helped it to generate free cash flow of $14.3 billion in 2014.

Rio Tinto noted that with iron ore prices continuing to fall and now trading at around $50 per tonne delivered into China, it will have to ensure that it maintains the margin between itself and high cost producers.

Walsh said that the company can expect continued bumps before the global iron ore market settles at a new equilibrium. He noted that the the company's Pilbara expansion represented a "clear and consistent strategic response" to the unprecedented long-term growth in China.

"It should be remembered that growth of just one per cent per year is required for China to reach one billion tonnes of crude steel production by 2030," Walsh said.

Meanwhile, Rio Tinto Chairman Jan du Plessis noted that despite the challenging headwinds of 2014, the company delivered underlying earnings of $9.3 billion. He noted that with a sound balance sheet, Rio Tinto has the capacity to weather difficult market conditions, fund future growth and also reward shareholders.

du Plessis said, "Even so, we will continue to tightly manage the business and our balance sheet in the face of the lower commodity prices we've seen so far in 2015."

He added that the future of the mining industry has always been linked to increasing development and prosperity, regardless of short-term dynamics. He noted that across the globe, 70 million people were entering the middle class, while over the next decade 170 million rural Chinese will move to an urban environment.

RIO closed Thursday's trading at $42.45, down $0.14 or 0.33 percent on a volume of 4.57 million shares.