Rio aims to mend ties with China, doubles capex

LONDON – Mining group Rio Tinto sees mending relations with China, its biggest customer and shareholder, as a top priority after a year of tensions.

‘I made a personal commitment to ensure that our relationship with China is restored to a sound footing and I was most recently in the country a few days ago,’ Chief Executive Tom Albanese told an investors briefing.Rio Tinto Plc/Ltd, the world’s third-biggest mining group by market value, also said on Friday it had doubled its planned capital spending for next year to at least US$5 billion after it cut debt and detected signs of economic recovery.The company’s relationship with China was fractured this year by the failure of a US$19,5 billion deal with state-owned metals firm Chinalco, Rio’s biggest shareholder, and the continued detention of Australian Rio executive Stern Hu on suspicion of corporate espionage.There was good scope for agreeing joint ventures with Chinalco and other Chinese partners in emerging countries due to China’s expertise in infrastructure, Albanese said.In addition to joint ventures, Rio was looking at possible takeovers now its balance sheet had been strengthened and the world economy was improving.’We’re constantly scanning the market for opportunities to undertake small or medium sized bolt-on acquisitions and we’ll continue to do that,’ Chief Financial Officer Guy Elliott said.’We’ll also continue to look for innovative opportunities to enter new joint ventures with various parties including the Chinese.’Rio shares in London, which have outperformed the UK mining index by about 25 per cent this year, shed 3,3 per cent to close at 2,693 pence after metals prices fell. The mining index was down 4,6 per cent on the day.CAPEX BOOST Capital spending in 2010 was due to be cut to US$2,5 billion, just enough to sustain current mines, but Rio told the briefing this figure had been revised to between US$5 billion and US$6 billion.’We will continue our programme of cost reduction and debt repayments, but our renewed strength enables us to focus on disciplined capital expenditure on premier growth options,’ Albanese said.Capex this year is expected to be around US$5 billion.’We believe that the increased Capex guidance puts the company on track to deliver production growth in the medium term which was earlier put on hold to preserve cash,’ Liberum Capital said in a note.Albanese said the boost in planned capex was made possible after the firm strengthened its balance sheet by raising funds in a US$15,2 billion rights issue and by cutting costs.The group said it was on track to achieve operating cost savings of US$2,5 billion next year.Rio has cut its net debt by 42 per cent so far this year to US$22,3 billion by the end of September.The group, the world’s second-biggest iron ore producer, also said it was pushing forward with long-term plans to expand operations in the Pilbara region in Western Australia to 330 million tons per year, up 10 million from its previous plan.Last month, Rio increased its forecast output of iron ore this year to between 210 million tons and 215 million from 200 million. Rio on October 14 struck a positive note for a global recovery in minerals markets, raising its 2009 iron ore and copper production targets amid early signs of a turnaround.- Nampa-Reuters