Thursday, December 11, 2008

Rio Tinto announces it will sack 14 000 workers globally

Lisbeth Latham

Rio Tinto, one of the world’s largest mining companies announced on December 10 that it would shed 14, 000 jobs from its global workforce as part of an effort to reduce its $38.9 billion debt by $10 Billion by the end of 2009. This move reflects the impact of the global economic downturn on the mining industry, which faces not only declining demand but also falling commodity prices. As a consequence miners who in the last year have looked to expand their production capacity are now lowering output.

Under the plan 5,500 of Rio Tinto's of 97, 000 core workers will be sacked along 8, 500 of the comapny's 15, 000 contractors. Rio’s projected future savings also includes a rapid acceleration in the outsourcing and off-shoring of the company’s IT and procurement during 2009 it likely that there will be more shifts in the structure of its workforce. Rio Tinto expects to make an annual saving from the current round of job cuts of $1.2 billion annually. Their total payout to redundant workers is estimated at $400 million.

In addition to the job cuts Rio Tinto is other cost cutting mechanisms. These include:

  • Reductions in operating costs by $1.3 billion per annum in addition to the savings made from shedding job;
  • A reduction its capital expenditure in 2009 from $9 billion to $4 billion resulting in the company cancelling or delaying projects;
  • Holding the dividend payment at the 2007 level of 136 US cents and stopping the 20% increase in 2008 or 2009;
  • Selling off some of the companies assets

A significant factor in the difficulties facing has been the rapid decline in the Chinese economy. Australian Reserve Bank Governor Glenn Stevens on December 9 said “China’s economy has slowed much more quickly than anyone had forecast. Our own estimates suggest that Chinese industrial production probably declined over the four months to October”. While Stevens, acknowledged that some of the weakness could be attributable to the Olympics, “more than that seems to have been occurring. I am not sure that many economic forecasters have fully appreciated this yet. There is every chance that the rate of growth of China’s GDP is currently noticeably below the 8 per cent pace that is embodied in various forecasts for 2009”.

During November, China’s imports and exports had fallen from the previous months figures 17.9 and 2.2 percent respectively, compared with analysts estimates of growth of 12 and 15 percent. In October, China’s imports had grown 15.6% while exports had grown 19.2% over the previous 12 months.

On December 10, The Times reported that Rio Tinto’s senior management is predicting that the Chinese government will be able to stimulate its economy sufficiently next year to allow the demand for raw materials to rebound in the second half of last year. Stevens, also argued that as a consequence of the Chinese government, who had been previously attempting to cool the Chinese economy, have begun to implement expansionary policies, “so there is a good chance that China’s economy will be looking stronger in a year’s time than it does today”. Whether any improvement in the Chinese will sufficiently boost the commodities market to boost Rio Tinto’s financial situation remains to be seen.

Not all of Rio Tinto’s problems are a consequence of the global economic downturn. While all mining companies will be looking to reduce production which may include not just reducing the output at individual mines, but the closure and mothballing of entire mines – particularly those with poor grade quality, which were only viable while commodity prices were at their highest. However a substantial component of Rio Tinto’s debts are the consequence of its attempts to re-position itself within the commodities market through its acquisition in late 2007 of Canadian Aluminum producer ALCAN for $38 billion while the market was at its highest. It is the ensuring high debt levels, some of which are due for repayment by late 2009, that have forced the current round of job shedding.

It is unclear how these job losses will be spread across the company’s global work force, ABC News reported on December 11, that the specifics of the cuts are expected in the New Year. The Construction, Forestry, Mining and Energy Union, which covers workers at Rio Tinto's hugely profitable Coal and Iron Ore mines, has indicated that it will fight job losses in Australia. CFMEU Mining Division President Tony Maher, telling the Sydney Morning Herald, "There's no justification of cutting back the workforce, it shows the folly of taking on tens of billions of debt”.


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