Here is how Rio Tinto intends to cut costs by $1 billion
The world’s second largest mining company is making deeper cost cuts and slashing spending after a massive fall in half year profit revealed last week.
Mining giant Rio Tinto (LON, NYSE:RIO) shook the market last week after announcing it was targeting savings of $1bn in 2015, an increase of $250 million on its previous goal, because of the tough market conditions.
To achieve such goal, the miner is watching every single expense, including those related to safety equipment.
In an interview with Australian Financial Review (subs. required), the miner’s iron ore boss, Andrew Harding, revealed that Rio has began placing safety glasses and gloves in vending machines that require a staff access card to withdraw them.
“There is no restriction on them – it’s safety equipment,” Harding was quoted as saying. “But instead of someone going ‘this is unlimited, what the hell’ kind of thinking, it reminds people that it’s an important item, contributing to cost reductions.”
The plan has reduced safety equipment use between 15% and 20% at some iron ore operations, Harding noted, while almost halving usage of some items at others. “That saves Rio millions of dollars each year,” the executive said.
The Melbourne-based company is also cutting overtime and pushing out truck equipment component life.
In the first six months of the year, Rio reported last week underlying earnings of $2.9bn, down from $5.1bn over the same period in 2014. This was driven by a 50% in underlying earnings from iron ore the company’s most important division by far.
Source: Rio Tinto.
To give an idea of just how reliant it has become on the fortunes of the steel making material, Rio calculated that every 10% movement in iron ore price has a $1 billion impact on Rio’s underlying earnings. The same ratio for copper is only $183 million.
Rio Tinto is also betting on lower energy prices and a further weakening of the Australian and Canadian dollars to help it reduce capital expenditure to $5.5bn this year and $6bn in 2016. Previous guidance was for spending of about $7bn in both years.
Still, the figures represent less than half what Rio was spending as recently as 2012 as it looked to meet a seemingly insatiable demand from China by bringing new projects on stream.
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7 Comments
Gord Currie
Smart move Rio Tinto now all you got to do is Cut back on Contractors like Bantrel who piss away all kinds of money on what they call safety. I worked on your Kitimat BC Alcan Project from Oct. 2013 till Sept 2014
and the waste of money on Safety shutdowns and firing of Top Quality Men that knew what they were doing long before Bantrel and HP Construction were even Companies was done under safety just so name request buddies could be hired cost the project a lot of money. Their also was a lot of poorly timed construction schedules that drove costs up.
pedro juan somewhat
personal protective equipment is wasted in that glasses get lost as do gloves and earplugs. so i think it is a fair call to try and improve the attitude to the gear. as long as workers accessibility to safety gear is not compromised and this will be down to the dilligence of the safety advisers to ensure workers have personal protective equipment.
frank hershey
I think having safety equipment vending machines that employees can access with a card is a good idea. As long as they are seeing a cost savings and not tracking individuals using the vending machine. It should be there for the right reasons.
Ray
This is regressive and the serious savings are not in personal safety equipment, these companies have no idea. Sounds like desperate measures, it took us 20 years to implement safety equipment this will be now undone.
Matt
The safety thing is so overblown in big projects that I cannot believe. I watched a pickup truck of safety inspectors back into a drillers truck at 3km/hour underground. It broke tail light lens and they had to shut down the whole tunnel for 24 hours while they compiled a report so that this dastardly accident did not happen again. Way overboard.
Hernan
One implementation could be change the time end use limit for several parts in trucks ,belts,drill rig and many others for a Vibration control and replace the parts only when its could be fail not for hours spent
Murdock Brake
Excellent idea, for all the right reasons.
Another idea….
I am in the wheel manufacturing/Sales and one of the biggest expense is wheel/rim/tires costs on equipment.
A good maintenance programme will save Hundreds of thousands of dollars.
Any reputable supplier will be more than willing to set up tracking programme to those who require, if not already in use.