Rio Tinto places RBM rutile, zircon, processing on care and maintenance

By Siobhan Lismore-Scott
Published: Friday, 22 February 2013

Rio Tinto posts $3bn loss in 2012 as the company's chloride slag is brought offline; Sam Walsh pledges “unrelenting focus”

Anglo-Australian miner Rio Tinto’s Fer et Titane (RTFT) division is placing its South African Richard Bay Minerals (RBM) zircon and rutile processing operations on care and maintenance, and taking its Quebec chloride slag production facility offline.

The move comes “in response to weak demand and to reduce operating costs,” the company outlined.

The announcement, made in a blink-and-you’ll-miss-it paragraph of the company’s 47-page 2012 annual report, forms part of new CEO Sam Walsh’s $5bn cost-cutting exercise, outlined during a webcast.

“The market for both titanium dioxide (TiO2) and zircon started the year strongly, with prices high, demand robust and the outlook positive,” the company explained.

“From July major players announced downgraded sales expectations as demand weakened. Inventory levels throughout titanium dioxide and zircon supply chains increased and remain very high,” it continued.

Price levels for TiO2 and feedstock minerals have certainly waned over the last 12 months. Many producing companies have submitted bearish results in this sector, including paint producers such as DuPont.

The announcement follows on from news that RTFT halted its TiO2 feedstock expansion programme (TiO4), made at African Mining conference Indaba, in February.

Rio Tinto purchased BHP Billiton’s portion of RBM for $1.7bn, late last year, bringing its stake up to 74%, and invested $135m in a new tailings treatment plant. It is also investigating the Zulti South deposit to continue operations at RBM when current resources are exhausted, which comprises the wholly owned Quebec Iron & Titanium (QIT) in Quebec, Canada, and the interest in RBM in KwaZulu-Natal, South Africa.

$3bn loss

The annual results which post Rio Tinto’s biggest ever loss, at $3bn, but highlighted earnings of $9bn follow on from the company’s operations review.

Walsh said during the results presentation that under his leadership, the company “would have an unrelenting focus on pursuing greater value for shareholders”.

The statement will surely strike a chord with the shareholders given that Walsh replaces Tom Albanese, who stepped down in January 2013 following a series of poor decisions made by the company, which eventually cost it a $14bn writedown.

In the latest round, Walsh outlined that the company would “invest (...) capital only in assets that, after prudent assessment, offer attractive returns that are well above our cost of capital”.

“I intend to strengthen the existing management systems, bringing greater rigour to internal challenge and debate, greater clarity and accountability to decision making, and clearer line of sight to the critical business issues that exist across the organisation,” he added.

“I’m asking every employee to run the business as if they own it,” he emphasised.

Commenting on the $3bn loss and the writedowns, chairman Jan du Plessis said that “these writedowns are deeply disappointing. In particular the substantial impairment of our Mozambique coal business is unacceptable. There clearly is a need for greater discipline, in particular in the way we manage capital in Rio Tinto.”

Cost cutting

Walsh underlined his commitment to bringing value to shareholders and outlined how the company intended to reduce costs.

“We will unlock productivity improvements and aggressively reduce our costs,” he affirmed

CFO Guy Elliott echoed this sentiment, saying that across the whole group, the company is targeting a $5bn cumulative reduction in operating cash costs by the end of 2014.

The largest saving will be in energy (34%) across the group, followed by aluminium (30%), copper (17%), central (9%) and finally diamonds and minerals (2%).

Outlook

Walsh said that the company expected “the positive momentum in the fourth quarter of last year to be sustained into 2013 with Chinese GDP growth returning to above 8% in 2013.”

“We expect market uncertainty and price volatility to persist as long as the structural issues in Europe and the US are unresolved,” he added.

In 2013, the company expects production to be 1.7m tonnes for titanium dioxide (TiO2) feedstocks, up 100,000 tonnes on 2012 levels. Output from the borates arm is expected to reach 0.5m tonnes of boric oxide equivalent, upÊ 40,000 tonnes from 2012 levels.

The company produced 11% more TiO2 feedstock in 2012 year on year, at a rate of 1.6m tonnes. Borates output was at 463,000 tonnes in 2012, compared to 504,000 tonnes in 2011, a decrease of 8%. Salt production was up 3%, at 6.8m tonnes.

Prices, financials

Rio Tinto reported that prices declined from 2011 highs across nearly all of its commodities, except in its industrial minerals, which posted higher prices.

Despite this, it posted an EBITDA* of $215m for the Rio Tinto Minerals division across the year, compared to $239m the previous year and earnings of $140m, compared to $144m the previous year.

Dampier Salt posted an EBITDA of $23m, flat year-on-year, but posted a loss of $4m over 2012. Last year the company posted a $1m loss.

For its RTFT division, the company posted an $774m EBITDA, up from $345m in 2011. It posted earnings of $397m, up from $151m the previous year.

“The group benefited from higher prices for titanium dioxide feedstocks and borates and the increase in ownership of Richards Bay Minerals,” the company said.

The company posted earnings of $9.3bn. Capital expenditure was at $17.4bn, up 42% year-on-year.

Diamonds

Rio Tinto Minerals posted an EBITDA of $103m for its diamonds division, down from $180m last year. Net earnings - the company posted a $43m loss - in 2011 it recorded earnings of $10m. Revenue was at $741m, up from $727m.

Capex was at $680m, up from $445m, operating assets at $1.3bn, up from $1.17bn.

Diamond production production was up 12%, 13.12m carats, up from 11.7m in 2011.

* Earnings before interest, taxes, depreciation, and amortisation