MercoPress. South Atlantic News Agency

Rio Tinto slashing drastically jobs and capital spending

The world's third-largest mining firm Rio Tinto is eliminating 14.000 jobs and cutting investment drastically as part of plans to reduce debt by 10 billion USD by the end of next year.

Rio Tinto, which is listed in the UK and Australia, currently employs 97.000 people worldwide. It said it was responding to "the unprecedented rapidity and severity of the global economic downturn". In the past few months, Rio Tinto has been fending off a takeover approach from rival BHP Billiton, which finally abandoned its offer in November. Rio Tinto said that closing one of its London offices would not necessarily lead to job cuts. Less than 2% of its workforce is based in the UK. It said that the job cuts would comprise 8.500 contractors and 5.500 employees. As a global miner, Rio Tinto is very sensitive to commodities prices and exchange rates. It benefited from soaring metals prices in the first half of the year, but has since suffered as they have fallen back. Rio Tinto is expected to cut spending to 4.5 billion USD next year, from the company's current guidance of 9 billion, and to 5.3 billion in 2010. The huge corporation had forecasted capital spending of 8.7 billion next year and 7.8 billion in 2010. The cuts mean Rio Tinto will spend 1.1 billion less on Australian iron-ore projects next year than the company previously forecast and 900 million less in 2010. Canadian and Brazilian iron-ore expansions will be slashed, as will spending on commodities including aluminium, coal, diamonds and molybdenum. Following the plunge in demand for metals and sliding prices Rio Tinto needs to cut its 42.1 billion USD debt. The company paid 38.1 billion to buy Canadian aluminium maker Alcan Inc. last year. However there is some concern that cutting back on spending on exploration will hit growth prospects. "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" according to Craig Campbell from JP Morgan. The debts are "manageable" considering savings and un-drawn debt facilities of 6.8 billion, added Campbell. Rio Tinto 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, he underlined.