Rio Tinto CEO focuses on cost cuts as mining giant posts first full-year loss
MELBOURNE — Rio Tinto’s new CEO highlighted his intention to slash costs, spend capital more carefully and focus on shareholder value after the world’s third-biggest miner reported a $3bn loss, its first full-year loss on record.
CEO Sam Walsh was anointed in January when his predecessor was sacked for misjudged aluminium and coal acquisitions that led to $14.4bn in write-downs and left the company in the red.
"We can do better and I will improve this great company further," Mr Walsh told reporters, saying he would take a more aggressive approach to selling assets that no longer fitted with the company’s goals.
Rio reported a 47% plunge in half-year underlying profit, its worst since 2009 due to sharp falls in commodity prices, although the result was slightly better than expected.
Underlying profit fell to $4.149bn for July-December 2012 from $7.768bn a year earlier, based on Reuters calculations. Analysts on average had forecast a half-year underlying profit of $3.93bn.
Ahead of his first outing as CEO, investors said the biggest challenges facing Mr Walsh were to decide what to do with the group’s Pacific Aluminium and diamonds businesses, both stuck on the auction block for more than a year, and how to drive growth outside its powerhouse iron-ore business, which generates nearly all of Rio’s profit.
Mr Walsh led the iron-ore unit for nine years, slashing costs, securing stakes in high quality deposits and automating operations with driverless trucks and trains run from a hi-tech centre 1,500km away from the mines.
Cost-cutting is high on his agenda and Mr Walsh said the company would remove more than $5bn in costs by the end of 2014. Investors are eager to hear how exactly it plans to meet that goal.
"Throughout 2013 and 2014 we will seek to enhance margins at our existing businesses by unlocking substantial productivity improvements, aggressively reducing costs and better managing our sustaining capital," Mr Walsh said in a statement.
Under pressure from investors concerned that big miners wasted cash during the boom times and should have rewarded shareholders more generously, Rio raised its final dividend to 94.5c per share, well above forecasts around 87.5c.
"The market will like the lift in the dividend," UBS analyst Glyn Lawcock said.
Rio Tinto, like bigger rival BHP Billiton, has a progressive dividend policy that calls for it to steadily increase dividends in good times and bad, a policy analysts say should be scrapped.
The iron-ore business, which Mr Walsh led until January, made up nearly all of Rio Tinto’s second-half underlying earnings, with higher volumes partly offsetting a drop in prices, cushioning losses in aluminium operations.
For the full year, Rio reported a $2.99bn loss, reflecting write-downs on its Alcan takeover in 2007 and a coal acquisition in Mozambique, where transport challenges have slowed development and coal output estimates have been cut.
Rio’s shares touched a one-year high in Australia of A$72.30 ahead of the result. The stock has climbed nearly 30% over the past six months, outperforming the broader market as metals demand in China has picked up.
Iron-ore prices have nearly doubled from a trough near $87 a tonne last September to the current price around $155.
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