Rio Tinto has announced an aggressive cost cutting regime after posting its first ever full year loss, announcing yesterday almost $3 billion in losses.
The hit has prompting the mining giant’s new CEO Sam Walsh to take drastic cost cutting measures across the business.
“To do this we need to run the business as owners not managers and my immediate priority is to build more focus, discipline and accountability throughout the organisation.
“Demonstrating this commitment, we will deliver our capital reduction and cost savings targets and improve performance across our business,” Walsh stated.
The company has flagged they will improve shareholder value by selling weak assets like its aluminium and diamond businesses and more carefully allocate capital.
Walsh has set a cost cutting target of $5 billion to be reached by the end of 2014; he also aims to reduce capital expenditure on both approved and sustaining projects to approximately $13 billion in 2013.
Also making Walsh’s hit list is decreasing exploration activities and minimising evaluation spending to the tune of $750 million (pre-tax) in 2013 compared with 2012.
While Walsh confirmed an aggressive approach to selling the company's non-core assets, company chairman Jan du Plessis stressed a more conservative stance on spending was required, the Australian reported.
"Their clearly is a need for greater discipline," du Plessis told London investors.
"In particular," he stressed, "in the way we allocate capital".
Sharp falls in commodity prices has also seen Rio’s half year profit take a hit, down by almost a half, its worst since 2009, Reuters reported.
Rio reported $9.3 billion in underlying earnings; a $5.3 billion drop in comparison to 2011 results.
Adding to this is $14.4 billion in impairments, primarily relating to the company’s aluminium business acquired in 2007 through the purchase of Alcan and Mozambique coal assets bought in 2011.
Walsh was appointed chief executive last month following the Tom Albanese’s shock exit last month, which has reported to be a result of Rio’s struggling aluminium arm.
"We must get the balance right between risk and reward in assessing new investments," Walsh told the Australian.
"We rigorously evaluate these opportunities against all competing uses for cash, including returning it to shareholders.
"Let me assure you I will not be pursuing growth for growth's sake."
Despite the company’s waning results the decision was made to boost full-year dividends to US94.5c, up 3 per cent from last year.
The miner’s Pilbara iron ore expansion is expected to be operational by the beginning of 2015; while the Mongolian based Oyu Tolgoi copper-gold mine’s first commercial production is scheduled for June 2013.
It was recently reported the resources giant Rio Tinto paid no mining tax in 2012, Walsh defended this saying the company was ''paying our way''.
He added that the Minerals Resource Rent Tax was intended to tax super profits, not normal profits, and the MRRT was ''operating as it was physically designed''.
Walsh stated that Rio was the highest tax payer in Australia in 2011, paying roughly $7 billion.