Rio Tinto looks to significantly cut costs with productivity push

Rio Tinto plans to continue to reshape its asset portfolio as part of a long-term strategy to deliver an additional $5 billion in cash flow from a new ‘productivity drive’.

Presenting at an investor seminar in Sydney, chief executive Jean-Sébastien Jacques said by focusing on ‘operational excellence’ across its $50 billion portfolio Rio Tinto expects to generate the additional cash flow by the end of 2021. This is in addition to the previously announced $2 billion cash cost reduction target across 2016 and 2017, he added.

“We have placed our assets at the heart of the business to drive improved performance and ensure our resilience through the cycle. We are well on track to meet our target of $2 billion of cash cost savings by the end of next year,” Jacques said.

“We are also taking advantage of any opportunity to generate value from mine through to market. Lifting the productivity on our $50 billion asset base creates a low risk and highly attractive return. It will deliver an additional $5 billion of free cash flow over the next five years.”

In an example of this strategy, Rio Tinto yesterday agreed to sell its assets at Lochaber in Scotland to Simec for $410 million. The agreement involves the sale of Alcan Aluminium UK, which includes an operating smelter and hydroelectric facilities at Kinlochleven and Lochaber.

“We are continuing to reshape our portfolio. Following our announcement yesterday that we will sell our Lochaber smelter in Scotland for US$410 million, the total of agreed divestments in 2016 now stands at $1.3 billion,” Jacques said.

According to the presentation, Rio Tinto’s capital expenditure in 2016 is now expected to be less than $3.5 billion, down from the previous forecast of $4 billion. The company has maintained guidance of around $5 billion in 2017 and around $5.5 billion in 2018.

Outside of Rio Tinto’s commitment to lifting productivity, it has several near-term projects that will deliver business growth, including the Silvergrass iron ore project in Western Australia, the Amrun bauxite project in Queensland and the Oyu Tolgoi copper-gold project in Mongolia.

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