RIO CHIEF WARNS OF JOB CUTS

RIO Tinto will increase its global cost-cutting drive and reduce spending on new projects, as the pace of the slowdown in China continues to surprise the resource industry.

Speaking in London last night, Rio chief executive Tom Albanese said he was now more cautious on Chinese demand for bulk commodities than he was ”a couple of months ago”, with economic growth in the Middle Kingdom now tipped to slip below 8 per cent.

Rio has already cut $US500 million from its cost base this year, including hundreds of Australian jobs, and Mr Albanese indicated his razor gang had more work ahead.

”So far we’ve already hit $US500 million of annualised savings … and are planning further significant reductions in operating, evaluation and sustaining capital spend,” he said.

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”That will involve reductions in employment levels.”

Mr Albanese would not say how many jobs were likely to go, nor which part of the company’s global operations were likely to bear the brunt.

But he was more candid on the company’s capital expenditure forecasts, confirming that plans to spend $US14 billion in 2013 were likely to be scaled back.

”Following the review of capex we are expecting to materially reduce our forecast capex over the next few years,” he said.

”New projects are coming under even greater scrutiny and I would not expect any major new project approvals in the near-term.”

Mr Albanese indicated that plans to expand its coal exports from Mozambique were likely to be deferred, but the company remained committed to existing schedules for developing the Simandou iron ore asset in Guinea.

Mr Albanese said plans to expand the company’s flagship iron ore assets in Western Australia also remained unaffected.

He confirmed that Chinese and Mongolian governments had still not reached a deal for electricity to be imported from China to power Rio’s Oyu Tolgoi mine in southern Mongolia, but said there was now ”real momentum” in the negotiations.

But shareholders are unlikely to share the pain being felt by Rio’s workforce, with Mr Albanese saying he remained committed to the company’s progressive dividend policy, which effectively ensures dividends can never reduce year-on-year.

Peter Ker

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