Rio Tinto got a new chairman on Monday in board member Simon Thompson, a compromise candidate after shareholders rejected former Xstrata boss, Mick Davis.
News of Mr Thompson’s appointment came as the company updated investors an end of financial year strategy meeting in Sydney which revealed more cost cutting, and limited growth options, unlike BHP Billiton which is doing both with its focus in copper and oil.
Rio said it would deliver an extra $US1.5 billion a year of cash from 2021 through a productivity programme intended to sweat its assets harder with the greater use of automation and technology.
Rio shares rose 1.2% to $72.05 as Chinese iron ore futures continued rising.
Rio also said it would continue to sell unwanted assets from its portfolio.
Rio is currently running sales processes for its Pacific Aluminium business and remaining coal assets in Australia.
“We returned to shareholders 40 cents in every dollar of cash generated by the business in the first half of 2017,” said CEO Jean-Sébastien Jacques.
“Looking ahead, the $5bn productivity programme will help drive value over the next five years.”
Rio also used the update to flag concerns about a slowdown in China over the next six months, although the start month surveys of Chinese manufacturing produced mixed outcomes but maintained growth trajectories.
China is the world’s biggest consumer of commodities, but whereas all the ‘expert’s had forecast falling commodity prices, especially iron ore for the closing months of 2017, they reverse is happening and iron ore has returned back to above $US70a tonne in recent days, despite caps imposed on production by Chinese governments to cut pollution levels in the north and northeast of the country.
Rio said capital expenditure would be less than $4.5bn this year, down from an earlier forecast for $5bn. Shares in Rio rose as much as 2 per cent in Sydney trading on Monday.
Rio cut its capital expenditure guidance for the 2017 financial year (it ends on December 31) to less than $US4.5 billion from $US5 billion previously. Capital expenditure would rise to around $US5.5 billion in the 2018 financial year and hold at $US6 billion in each of 2019 and 2020.
Rio Tinto chief executive J-S Jacques said “All the evidence shows that our value-over-volume strategy is working: delivering superior cash returns for our shareholders, including $8.2 billion announced in 2017. We returned to shareholders 40 cents in every dollar of cash generated by the business in the first half.
“Looking ahead, the $5 billion productivity programme will help drive value over the next five years. With our top-tier assets producing quality low-cost products in high demand, a strong growth pipeline and the best balance sheet in the industry, we have a strong platform for future growth. Our Group target of $1.5 billion of annual additional free cash flow from 2021 will ensure we can continue to lead the pack in delivering superior cash returns to our shareholders.”
Rio Tinto also provided an update on how it plans to keep growing its business, including significant brownfield, high-return growth, replacement and productivity improvement opportunities. Options under consideration include the Koodaideri project in the Pilbara, brownfield Aluminium options in Canada, the Resolution copper project in the US and the Jadar lithium project in Serbia.
These projects will build on recent investments in high-quality growth projects – Silvergrass (iron ore in Western Australia), Amrun (bauxite in Queensland) and Oyu Tolgoi (copper and gold in Mongolia) – that will deliver internal rates of return of more than 20 per cent.
Industry fundamentals remain sound, supported by a healthy global economic outlook. While Rio Tinto remains optimistic about China in the medium to long term, there could be a slowdown over the next six months, with a weakening in construction, infrastructure and automotive demand growth during that period.
