Big Mining in Big Trouble
By James West
Thursday, December 11, 2008
Major mining companies’ takeover party of the last few years is starting to yield a globalized hangover of epic scope. Many of the world’s top producers of primary materials have found that the belle of the ball they danced with and wed in better times has turned into a debt anchor chained to their balance sheets.
Rio Tinto Chart
Rio Tinto (NYSE:RTP) announced yesterday that it would shed 14,000 jobs worldwide in an effort to reduce its debt load by US$10 billion by the end of next year. If successful, the company will still owe $28.9 billion. The bulk of this liability stems from Rio’s acquisition in 2007 of Canadian aluminum giant Alcan. The company secured a $40 billion credit facility to finance the acquisition.
According to Tom Albanese, CEO, “We will minimize our operating and capital costs to appropriately low levels until we see credible and meaningful signs of a recovery in our markets, but will retain our strategic growth options. We will expand further the scope of assets we are targeting for divestment. By taking these tough decisions now we will be well positioned when the recovery comes.
“Notwithstanding the current financial turmoil, we continue to enjoy a suite of key assets which operate in the lower half of the cost curve in their industries, and our suite of growth assets remains capable of re-activation as soon as market conditions justify.””
Rio is in a better position than Canadian poly-metallic miner Teck Corp. (NYSE:TCK).
Teck had the misfortune to acquire The Fording Canadian Coal Trust