Rio Tinto announces positive results, sees 10% increase in earnings

A series of cost cutting measures and efficiency procedures over the last 12 months have paid off as Rio Tinto announces a jump in earnings to US$10.2 billion.

The figure is will above analysts’ expectations which predicted the miner would earn just under US$9.7 billion for 2013.

This is a spectacular comeback for the miner, and generated a US$3.67 billion annual net profit for 2013, despite the general downturn across the industry.

Much of this is due to the heavy cost cutting it carried out across the board, which Rio Tinto CEO Sam Walsh forecast following his appointment last year.

Just over a year ago Walsh promised an “unrelenting focus on pursuing value for shareholders”, including tightening up project protocols and overall capital expenditure, after the miner posted its first ever full year loss in 2012, down US$3 billion.

“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,” Walsh said at the time.

“Demonstrating this commitment, we will deliver our capital reduction and cost savings targets and improve performance across our business,” Walsh stated.

“It’s all about shareholder value.”

He set a cost cutting target of $5 billion by the end of 2014, and aimed to reduce capital expenditure on both approved and sustaining projects to approximately $13 billion in 2013.

Also making Walsh’s hit list was decreasing exploration activities and minimising evaluation spending to the tune of $750 million (pre-tax) in 2013 compared with 2012.

Since Walsh’s announcement it took the knife to every aspect of its business.

Cutting 3800 jobs across its operations from June 2012 through to December 2013, and as a recently as two months ago flagging an additional 20% cut in spending.

Further cuts are coming with capital spending to be reduced from $11 billion in 2014 to $8 billion in 2015.

“I have set a clear direction for the business to reignite our passion for delivering greater value for shareholders, CEO Sam Walsh said at the time.

 “Our results so far show we are taking decisive action, making tough decisions and advancing at pace.”

Walsh also confirmed an aggressive approach to selling the company’s non-core assets, with proceeds of these to date reaching US$2.3 billion.

These include the recent sale of a stake in Constellium for US$315 million and the sale of Northparkes for final cash proceeds of US$820 million.

And the most recent results have supported Walsh’s decisions.

The company saw an operating cash improvement of US$2.3 billion, exceeding Walsh’s own targets.

A dramatic slashing of exploration and expenditure, which may harm the miner in the long run, delivered savings of US$1 billion, US$250 million more than Rio Tinto’s $750 million targeted.

This was part of its wider reduction of capital expenditure, slashing spending by 26% year on year, from US$17.5 billion in 2012 to US$12.9 billion in 2013.

Its cash flows were up more than a fifth to US$20.1 billion, which was supported in part by record production volumes for iron ore, bauxite, and thermal coal, as well as a recovering copper price.

Rio’s iron ore operations were also strengthened by the completion of the Pilbara phase one infrastructure expansion, and approved another $400 million in spending to further increase capacity, with expectations of reaching nameplate capacity before the first half of the year.

It used its increased cash flows to slash its debt down to US$18.1 billion as of 31 December 2013, US$4 billion down on the half year.

However, it wasn’t all rosy for the miner, after a predicted landslip of the pit wall at Bingham Canyon reined in its potential earnings for the year.


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