Rio Tinto Provides Costs and Productivity Update
Rio Tinto recently reported significant progress being made on costs and productivity in its aluminum business and unveiled further details regarding the recently approved Amrun bauxite project. By the end of 2015, the Aluminum product group will have delivered around $300 million of cash cost improvements, a reduction of $45 million in sustaining capex and cut working capital by around $400 million vs. 2014.
Cash reportedly remains a key focus, and the momentum in operating cost reductions continues through a broad range of initiatives that should remove around $300 million in additional cash costs from the product group in 2016, excluding any impact from currency or oil. Further improvements will also be made in productivity in 2016, with anticipated increases in output from bauxite (up 4% to 45 million tons), alumina (up 3% to 8 million tons) and aluminum (up 10% to 3.6 million tons).
The recently announced Amrun project in Australia is reportedly one of the highest quality mining projects in the world and will be crucial in meeting future demand from China. Amrun will require capital investment of $1.9 billion, with most of the spending scheduled for 2017 and 2018, ahead of expected production in the first half of 2019. The project offers a return in excess of 20%, and over half of its future output is already committed under off-take agreements.
The Aluminum product group’s smelting business continues to improve its cost position through portfolio rationalization, modernization and performance enhancements. The Kitimat aluminum smelter in Canada is now ramping up, with 60% of its pots energized. When Kitimat reaches full production next year, Rio Tinto’s smelting capacity will be firmly positioned in the industry’s first cost quartile.
“We have made significant advances in transforming our Aluminum business, based on the strengths of our exceptional bauxite deposits and world-class aluminum smelting capacity,” said Alf Barrios, Aluminum chief executive. “There are short-term challenges, but aluminum is a metal in increasing demand which will bring the market into balance. Our value-added, low-carbon aluminum has a strong market position, enabling us to capture additional margin and premium throughout the cycle. With the development of Amrun, we are able to grow our high-quality bauxite output into rising market demand.
“We are creating real value as we work through the restructure of the business. We will continue to be relentless on cash generation across the business. Our drive for lower costs, efficient working capital, higher productivity, and improved product margins will help deliver sustainable value and cash returns for Rio Tinto shareholders through the cycle.”
For more information, visit www.riotinto.com.