Rio Tinto cutting costs quicker than expected

Australia’s biggest iron ore miner, Rio Tinto (ASX: RIO) today announced its aggressive strategy to cut costs and capital expenditure was well on its way to being fulfilled.

Investors and shareholders gathered in Sydney this morning as management gave a run-down of the company’s progress year-to-date and addressed the long-term goals of the company. After setting an ambitious cost-reduction target of US$5 billion by 2015, the company reported in the 10 months since the announcement, it has stripped US$1.8 billion from operations and puts it on target to meeting its 2013 target of US$2 billion.

It also announced a reduction of US$800 million in exploration and evaluation spend so far this year. The total for the current calendar year will be less than $14 billion, 20% below 2012 levels. The company hopes to achieve the same reductions until 2015, where it plans to spend just US$8 billion on exploration and evaluation.

The group announced its divestments amounted to US$3.3 billion in 2013, of which US$2.3 billion has been settled. Despite the huge expansion plans Rio has underway in the Pilbara, it has lowered its total number of employees by 3,800 because of the divestments which have taken place.

CEO Sam Walsh said the group will be focusing on long-term, low-cost projects yet the company’s growth prospects are exciting. “We are also improving productivity, setting new production records in many of our key businesses and bringing our Oyu Tolgoi and Pilbara 290Mt/a expansion growth projects online within budget and on time. And we are delivering exceptional value from our growth opportunities, by continually optimising and improving our mine planning to generate the best returns.”

Foolish takeaway

Despite predictions by economists and analysts that China’s growth could slow to a grinding halt, shareholders in Fortescue Metals (ASX: FMG), Rio Tinto and BHP Billiton (ASX: BHP) have shrugged off concerns to notch up healthy share price gains.

Mr Walsh was also optimistic about China and said the company will have the products to tap into growth throughout the world. “Over the longer term, I remain optimistic about demand for our products. The outlook for our business is robust and we are strengthening our ability to capitalise on opportunities available to us in the future.”

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.  

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