Rio cuts (but what?)

But what exactly? The AFR and BS are reporting it’s all about productivity:

Rio said it had boosted the size of the expansion plans to 360 million tonnes from 353 million tonnes previously through de-bottlenecking and productivity improvements with minimal spend.

It has a current production capacity of 237 million tonnes and expects to reach 360 million tonnes by 2015.

Rio said it was targeting a cumulative $US5 billion in cost reductions throughout the business by the end of 2014 from 2012 levels. It will reduce spending on sustaining capital by $US1 billion next year.

Rio also revealed it cost the miner $US24.50 per tonne to produce iron ore in the first half, or $US47 a tonneelivered to China including royalties and other costs.

And prospecting:

The group will also cut spending on exploration and evaluation projects by $US1 billion ($A961.95 million) over the remainder of 2012 and 2013.

But there is also this:

Capital expenditure on approved projects will taper off from their current levels in 2013.

And this:

Rio Tinto’s major Pilbara iron ore expansion plan remains on budget despite the high Australian dollar and other cost pressures after the miner took measures, including a reconfiguration of its mine plans.

Any input from readers is welcome. It’s the pullback on expansion plans you’re having when you’re not pulling back plans…

David Llewellyn-Smith
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  1. Rio is the lowest cost producer in the world right? Perhaps this is a strategy to drive the more marginal producers (FMG, Atlas, even Vale) to the wall?

  2. Failed Baby BoomerMEMBER

    I have a small involvement with the Cape Lambert projects. From my limited vision the consultants/contractors think the projects are fully funded, well advanced on cost track and no drastic cutbacks are forseen.
    Of course, they thought that in the early days of the GFC as well!

    • Mining BoganMEMBER

      A while back I was having dinner with an expansion type. I mentioned my doubt that one of his babies going ahead. He got angry. Even banged his fist on the table. No chance of cancellation he reckoned.

      Two months later it was canned. They’re all just guessing.

  3. Australia’s number one exporter is a major Joint Venture partner with all of the big 3, Rio, BHP and Vale. So those three are not independant, one of the reasons they seam to act together, not a bidding war. New players might change the market.

  4. Quite simply, they will cut labour. They have been rolling out the financial modelling systems for some time to enable them to target these cuts in a (supposedly) precise way based on different price scenarios. Reduce the labour required for output. Yay for them !

    Which is why the Coalition (or anyone) is going to find it very hard to reconcile talk of reducing the size of the public service with their promise to create 1m new (private sector) jobs in the next 5 years.

    Where are the jobs coming from when our major resource companies are entering a phase of driving operational efficiencies ? With the AUD around $1.0 US?