Rio about-face on the mining boom

Company cans new projects, while focusing on cutting costs

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published October 10, 2012 10:46 am AEDT

In a further sign of the end of the mining boom, Rio Tinto Limited (ASX: RIO) has announced that will continue cutting costs, reduce capital expenditure and not proceed with any new projects in the near-term.

Rio Chief Executive, Tom Albanese, has also said he is more cautious on Chinese demand than he was a few months ago, but the company was still pushing ahead with plans to expand its Pilbara iron ore operations. Rio is increasing its production of iron ore up to 353 million tonnes per year by 2015.

That echoes the comments BHP Billiton's (ASX: BHP) chief, Marius Kloppers made back in April this year, when he admitted that commodities prices were falling, while costs were rising, forcing the big Australian to postpone its US$20 billion Olympic Dam expansion and the US$20 billion Outer Harbour project at Port Hedland in Western Australia.

BHP also recently cancelled plans to spend US$5 billion on new rail and port infrastructure to support its coal mines in Queensland – good news for rail company QR National (ASX: QRN), which already carries much of BHP's coal from mine to port, and will retain its dominance of that market.

Fortescue Metals Group Limited (ASX: FMG) has also scaled back its plans to produce 155 million tonnes of iron ore per year, after the iron ore price fell to below US$90 a tonne, which could have resulted in the company breaching its debt covenants. Fortescue now plans to increase production to 115 million tonnes, has sold off some non-core assets, sacked workers and cut its capital expenditure plans from US$6.2 billion to US$4.6 billion in the 2013 financial year.

Rio Tinto has cut US$500 million in costs already this year, including hundreds of jobs, and more cuts are likely. Sales of non-core assets are likely, including its Pacific Aluminium arm, and potentially its diamond operations.

In some rare good news, iron ore miners received a shot in the arm this week, with prices for the commodity climbing 6% to US$110 a tonne, a 27% rise since it hit three-year lows in September.

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Motley Fool writer/analyst Mike King owns shares in BHP. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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