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Rio Tinto to cut capital spending in half by 2015

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December 3
9:42 AM 2013

In a statement released today, Rio Tinto Group chief executive officer Sam Walsh revealed plans of the company to halve its capital spending to around USD8 billion by 2015. Bloomberg noted that the discount was less than half of the company's outlay last year. The second-biggest mining company in the world has been scrambling to conserve cash just like another other mineral producer as world prices had fallen, the report said.

Walsh said in the statement, "Our capex is reducing, and will come down further. From where I stand, we continue to see market fragility and volatility. Over the longer term, I remain optimistic about demand for our products. China's urbanization will continue and the development of other economies as they continue to grow at pace, such as India, Vietnam, Indonesia, the Philippines, the Middle East, the former Soviet Union, South America and Africa, will also contribute to ongoing demand."

At an investor briefing in Sydney, Chief Financial Officer Chris Lynch said today, "This will result in a very strong balance sheet which will allow the board to make decisions around returns to shareholders and other allocations of capital."

Bloomberg highlighted Rio's efforts, along with other large mining companies in reigning in spending as a wane in a decade-long metal price boom was seen in the market. The biggest iron ore producer in the world Vale SA was seen to have slashed its investment budget to USD14.8 billion, the lowest since 2010. The news agency also noted that the company's spending reduction was the third time that the company has done.

Melbourne-based markets strategist Evan Lucas at IG Ltd told Bloomberg over the phone about Rio's recent move, "It's quite a substantial drop and it does suggest that right now Sam Walsh is concentrated very, very hard on affordability."

At the trading close in Sydney today, Rio's shares fell 0.6% to AUD65.49 per share. Shares of the biggest mining company in the world, BHP Billiton Ltd, dropped a significant 1.2%.

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