The head of Rio Tinto's global aluminum business says it will complete the modernization of its Kitimat smelter in British Columbia but will pull back on capital spending around the world.
Rio Tinto plans to cut capital spending by at least 20 per cent in each of the next two years. For 2014, spending would fall to US$11 billion from $14 billion this year. By 2015, it will be reduced to $8 billion.
Rio Tinto, which bought Canadian aluminum operation Alcan in 2007 for $38 billion, is shutting its money-losing Gove alumina refinery in Australia’s Northern Territory and pulling back on aluminum investment around the world.
It aims to save $1 billion a year on costs in its aluminum operations, CEO Sam Walsh said during a company investor meeting in Sydney, Australia.
Rio Tinto Alcan CEO Jacynthe Cote said the Kitimat project was going ahead, with an expected completion at the end of 2014, because it will reduce the cost of producing aluminum.
So far this year, Rio Tinto has cut $450 million of costs from its aluminum group, including closing its smelter in Shawinigan, Que.
It has sold $3.3 billion of non-core assets in the past year and cut 3,800 jobs. It also plans big cuts in its coal operations.
Cutting costs, but carrying debt
"We have cut costs and are set to exceed our commitments made in February. Operating costs are down $1.8 billion year to date compared to the same period last year and exploration and evaluation costs are more than $800 million lower,” Walsh told investors.
Rio Tinto is carrying $22 billion in debt after an acquisition binge when commodity prices were high.
However, Rio Tinto plans to continue investment in the iron ore division, which accounted for 91 per cent of company income last year.
Walsh told investors Chinese demand will increase by 7.5 per cent this year to 700 million tonnes. He was optimistic about long-term growth.
“China’s urbanization will continue and the development of other economies as they continue to grow at pace, such as India, Vietnam, Indonesia, the Philippines, the Middle East, the former Soviet Union, South America and Africa will also contribute to ongoing demand,” Walsh said in his outlook.