Business World

Global miner Rio Tinto, saddled with nearly $40 billion in net debt, said it would cut 13 percent of its workforce, slash capital spending and sell more assets as it battles a collapse in commodity prices.

Rio, which mines a range of metals and minerals from aluminum and copper to gold and diamonds, has been under pressure to detail plans to cut borrowings since its share price slumped after larger rival BHP Billiton scrapped a $66 billion takeover bid for the company last month.

“What they’ve done has more than allayed fears in the market that they were going to come and have an equity issue,” said Tim Schroeders, portfolio manager at Pengana Capital in Melbourne.

“Drastic times call for drastic measures. They’ve addressed all parts of the equation. They’ve definitely gone into survival mode, which is appropriate given the market circumstances,” Schroeders said.

Rio’s London shares jumped 11.3 percent to 1,400 pence by 9:15 a.m., outperforming a 4.2 percent increase in the UK mining index. Its Australian shares closed up 12 percent as investors had anticipated its announcement, said UBS analyst Glyn Lawcock.

The group’s shares had dropped 54 percent in the past month, more than five times the drop in the broader market.

Rio said it would reduce its global headcount by 14,000, including nearly 6 percent of its own employees and more than half its contractors, and increase the range of assets it was looking to sell, but said it was too early to be specific cheap car insurance.

“Given the difficult and uncertain economic conditions, and the unprecedented rate of deterioration of our markets, our imperative is to maximize cash generation and pay down debt,” Rio Tinto Chief Executive Tom Albanese said.

“We will minimize our operating and capital costs to appropriately low levels until we see credible and meaningful signs of a recovery in our markets, but will retain our strategic growth options.”

SLASHES 2009 CAPEX

Rio said it would slash capital spending next year by more than half to $4 billion from the previously forecast $9 billion.

Some projects would be deferred and others canceled, with details provided at year-end results due in February.

The group also canceled plans to boost its dividend by at least 20 percent this year and next.

In August, as Rio was fighting off the hostile BHP bid, it raised its interim dividend by 31 percent, but on Wednesday it said the total 2008 dividend would remain flat at 136 cents.

Rio took on huge bank debt to fund last year’s $38 billion acquisition of Alcan, and pledged to raise $15 billion, most of it this year, from selling non-core assets, including Alcan’s packaging business and Rio’s U.S. coal business. 

Read more