Rio to Slash Investment by Half, Cut Debt, Morgan Stanley Says

Dec. 8 (Bloomberg) -- Rio Tinto Group, the world’s third- largest mining company, will probably slash investment spending by half next year to reduce its debt, Morgan Stanley said. Rio will cut spending to $4.5 billion next year, from the company’s current guidance of $9 billion, and to $5.3 billion in 2010, analysts including Craig Campbell wrote today in a report. The bank had previously forecast capital spending of $8.7 billion next year and $7.8 billion in 2010. London-based Rio will spend $1.1 billion less on Australian iron-ore projects next year than the company previously forecast and $900 million less in 2010, Campbell wrote. The Yarwun alumina expansion in Australia will be cut by $700 million next year and $800 million in 2010. Canadian and Brazilian iron-ore expansions will be slashed, as will spending on commodities including aluminum, coal, diamonds and molybdenum, Campbell wrote. “We think it is prudent for Rio Tinto to reduce its capital spending and thereby provide a cushion to cash flow if commodity prices deteriorate further,” he wrote. Rio is reassessing expenditure to cut costs and conserve cash after demand for metals plunged and prices slid. The company is also evaluating projects after BHP Billiton Ltd. scrapped a hostile bid on Nov. 25 because of turmoil in global financial markets and Rio’s $42.1 billion of debt. Rio paid $38.1 billion to buy Canadian aluminum maker Alcan Inc. last year. The company may cut thousands of jobs and postpone billions of pounds of “big projects,” including the Simandou iron-ore mine in Guinea and other ore and aluminum projects in Canada and Africa, the Daily Mail reported Dec. 6 without citing anyone. The debts are “manageable” considering savings and undrawn debt facilities of $6.8 billion, Campbell wrote. Rio isn’t in danger of breaching its debt covenants as the ratio of debt to earnings before interest, tax, depreciation and amortization will remain less than a 4.5-to-1 limit, Campbell wrote.