Rio Tinto Alcan will complete the modernization of its Kitimat smelter in British Columbia but won’t add significant new growth projects “for the foreseeable future,” CEO Jacynthe Cote said Tuesday.
Cote told an investor seminar in Australia that the revamped Kitimat smelter will be completed by the end of 2014. The transformation will reduce the cost of producing aluminum, but the company needs to continue cutting costs because of low aluminum prices.
“We have come a long way on our transformation journey. … But we still have more to do to ensure that Rio Tinto’s aluminum business delivers greater value to shareholders,” she said in a webcast seminar.
Cote said other projects already underway will be completed and highlighted the AP60 pilot project in Quebec that produces 40 per cent more aluminum per cell than earlier technology.
“But you shouldn’t expect any significant investment in new alumina or aluminum growth projects for the foreseeable future, given the challenging market conditions,” she said.
The Anglo-Australian mining company said it will dramatically cut capital spending over the next two years to reduce costs and pare its US$22-billion debt. It plans to spend US$8 billion on capital projects in 2015, less than half the nearly US$17 billion spent in 2012.
A company spokesman said that rather than seeing projects cancelled, capital spending across Rio Tinto will be tapering off.
“There’s no Canada specific impact,” spokesman Illtud Harri said from London. “It’s a general trend across the mining industry after a time of higher capex and higher forecast on growth is changing to more a focus on productivity, cost reduction and cash conservation due to being a different economic environment.”
Harri said Rio Tinto has no plans to sell the Alcan operations, after abandoning plans to sell the Pacific aluminum assets.
Des Kilalea of RBC Capital Markets said Rio Tinto was making strong progress on cutting costs while also pursuing a “very attractive” strategy to grow its iron ore operations as it ramps up to 350 million tonnes of annual production by 2017.
With the sale of its Pacific aluminum assets now off the table, Rio believes it is improving its aluminium business faster than competitors following the cost savings that closures and other divestments have delivered.
“This positions Rio Tinto Alcan as well as possible, however, the industry continues to face challenges,” the analyst wrote in a report.
Aluminium, along with energy, diamonds and minerals are likely to struggle for additional capital in the current environment.
The aluminum group has reduced more than US$450 million of costs in the first 10 months of the year by curtailing production and cutting jobs, Cote said. That accounts for one quarter of the US$1.8 billion of operating costs trimmed by Rio Tinto.
Smelter costs are expected to be cut by 14 per cent this year through various procurement initiatives and a reduction in contractors.
Head office and support costs have been cut by 28 per cent since 2011, mainly from a one-third reduction in the number of employees. About 2,400 workers have left the company, including more than 1,700 this year. Across Rio Tinto, 4,000 jobs have been cut since June 2012, plus 3,000 from divested assets.
Since 2009, Rio Tinto Alcan has closed or curtailed more than 600,000 tonnes of aluminum capacity, including 100,000 tonnes from this fall’s closure of its smelter in Shawinigan, Que. It has also generated more than US$4.4 billion from selling 13 non-core businesses since Alcan was purchased by Rio Tinto for US$38.1 billion four years ago.
Rio Tinto (NYSE:RIO) chief executive Sam Walsh said the goal is to transform the iron ore, copper, aluminum, coal and diamond producer into the highest performing miner.
“We have a clear strategy and we’re taking the necessary steps to ensure our business is well-placed for long-term success,” he said.