Two FTSE 100 mining companies are cutting capital expenditure in response to plummeting commodity prices.
Rio Tinto expects to spend about $5 billion (£3.3 billion) in 2016 on its physical assets, $1 billion (£6.6 million) less than previously forecast. In addition, anticipated capital expenditure for 2015 is $500 million less (£329 million) than predicted, a statement from the company read.
Anglo American stated it will reduce its capital expenditure in 2015 and 2016 by an extra $1 billion (£6.6 million), and reduce capital spending in 2017 to $2.5 billion (£1.6 billion).
The FTSE 350 Mining Index reached 10 year lows earlier this week, and commodity prices for copper, aluminium, platinum, iron ore and energy prices also dropped.
“With iron ore prices and oil prices both falling to multi-year lows below $40 it is slowly becoming apparent that what appeared to be a little local difficulty has all the potential to be a perfect storm for the commodities complex,” said Michael Hewson, chief market analyst at CMC Markets UK.
Rio Tinto is seeking operating cost reductions that will remove about $300 million in additional cash costs in 2016. Already this year its Aluminium Product Group smelting business has saved $300 million by selling off some assets, restructuring the business and improving productivity at some sites.
“Our drive for lower costs, efficient working capital, higher productivity and improved product margins will help deliver sustainable value and cash returns,” said Rio Tinto’s aluminium chief executive Alf Barrios.
Rio Tinto’s chief executive Sam Walsh added that “prudent capital allocation and a disciplined approach to the balance sheet” have reinforced the company’s resilience during a period of ongoing volatility. “With all of our investment decisions framed by the need to deliver value for shareholders, we have remained focused on investing in only the best quality projects.”
Anglo American will restructure, reducing the number of assets it holds by 60 per cent and consolidate from six to three businesses, resulting in the loss of 85,000 jobs. It plans to make savings of $3.7 billion (£2.4 billion), by reducing operating costs and indirect costs, and improving productivity.
“While we have continued to deliver our business restructuring and performance objectives across the board, the severity of commodity price deterioration requires bolder action,” said Anglo America’s chief executive Mark Cutifani.