Rio cutbacks claim $3bn expansion

RIO Tinto has begun its massive program of slashing capital spending and workers by shelving the $US2.15 billion ($3.1 billion) Corumba iron ore expansion in Brazil due to the "severe market downturn". In its most striking move since revealing plans to cut 2009 capital spending by $US5 billion, the group yesterday said the expansion was on hold until global financial conditions improved. The news came amid intense speculation about possible asset sales by Rio this year, with Hong Kong's South China Morning Post newspaper reporting the miner was seeking interest in listed Australian subsidiary Coal & Allied and that China Shenhua Energy planned to bid. After BHP Billiton dropped its $135 billion bid for Rio in November and the target's shares slumped, Rio said it would reduce its $US39 billion debt by a quarter this year through asset sales, reducing capital spending and slicing 14,000 workers and contractors from its books. Speculation that Rio will sell its 75.7 per cent stake in Coal & Allied, valued at $5.25 billion by the market, has been rife in recent weeks with Xstrata and Vale also touted as potential buyers. A Rio spokesman would not comment on the report or the miner's plans for Coal & Allied. It is understood Rio has not been actively recruiting buyers for Coal & Allied as it has been for other assets such as its US coal business and its Alcan packaging business. Rio has said it is likely to release details of its plans to slash spending and workers when it announces its full-year profit in February. However, it is clear that the miner is already moving, with a series of low-key revelations not deemed significant enough to warrant a formal announcements. The shelving of the Corumba expansion was revealed to the Australian market yesterday by mining contractor Ausenco, which said it had received a notice of termination of its services. A Rio iron ore spokesman confirmed the company had told staff and stakeholders last week that the project, designed to boost production from 2 million tonnes a year to 13 million tonnes, would be postponed due to the severe market downturn. "Rio retains the option of resuming the expansion when credible signs of market recovery are seen," he said. The spokesman said there would be job cuts involving both contractors and permanent staff but he would not reveal the extent of the losses. About 2500 people were to have been employed in the expansion of the ambitious Corumba project, which had been intended to feed growing iron ore demand in South America and the Middle East. Corumba's expansion cancellation is likely to play a big part in the $US5 billion capital reduction, with the $US2.15 billion outlay starting last August and production due to start late next year. The spokesman would not say how much Rio had planned to spend this year on the expansion or how much had already been spent. Rio is due to report fourth-quarter production on Thursday, the same day it plans to tell more than 600 workers at its Northparkes copper mine in NSW whether they still have jobs. In a release last month that only went to regional media, Rio said it was reviewing a $US160 million expansion and would reveal on January 15 whether it would cancel the project. Rio had said the date was not one on which a host of projects would be cancelled. Despite cutting iron ore production rates by 10 per cent, the only staff cut revealed so far was the termination of 50 contractors at the Kestrel coking coal mine in Queensland. Rio has also announced the cancellation of a big Saudi Arabian aluminium project, but capital spending on that was a long way down the track. More job losses are expected at Rio's Pilbara iron ore mines in Western Australia and at Queensland aluminium operations, with Rio saying the 14,000 jobs would be cut across the board. Deutsche Bank analyst Peter O'Connor downgraded Rio to hold from buy, saying its growth was constrained by debt and assets were hard to sell. source：www.theaustralian.news.com.au