Rio Tinto Group will freeze salaries for 2016 as the world’s second-biggest mining company warned that it sees no signs of respite in the commodities rout that’s eroded profits and threatened dividends for producers.
The freeze applies from the chief executive officer downward, Sam Walsh said in an e-mail to staff, a copy of which was obtained by Bloomberg News. London-based Rio will limit travel expenditure and further scrutinize spending on contractors and consultants, Walsh wrote in the Jan 12 e-mail.
Prices of metals to energy have extended losses this year after a rout in 2015 prompted miners to slash spending, seek to sell assets and accelerate efforts to trim debt. The Bloomberg Commodity Index, a measure of returns for 22 raw materials, on Tuesday dropped to the lowest since January 1991. Global growth isn’t proving sufficient to offset weaker expansion in China, the biggest commodities consumer, Walsh said in the e-mail.
“The pressure this is placing on our industry is significant and it is a tough time across the sector,” Walsh wrote. “It is important we recognize that the pressure isn’t going to let up. This situation is not temporary.”
Rio declined 1.8 percent to A$38.85 in Sydney trading, trimming its decline in the past year to 30 percent. The company declined to comment on Walsh’s memo, which was earlier reported by Australian Mining and the Australian Associated Press.
Last month, Rio said capital spending will be about $5 billion in 2016, a reduction from an earlier estimate of less than $6 billion and down from about $8 billion in 2014. Underlying profit fell 43 percent to $2.9 billion in the six months through June on lower prices.
The squeeze on the biggest mining companies has prompted Anglo American Plc toannounce plans to scrap its dividend, cut the number of mines it owns by more than half and reduce staff to 50,000 from 135,000, while Glencore Plc is carrying out a $13 billion debt-reduction plan aimed at bolstering its finances.
Concerns that growth is slowing in China and the prospect of further weakening in the yuan have thrown financial markets into turmoil since the start of the year, prompting investors to shun risk. Official data on China’s fourth-quarter economic growth are due for release next Tuesday.
“Not only is China’s economic growth more modest, it has shifted emphasis from metals-intensive sectors –- like infrastructure and construction –- to consumer spending,” Walsh said. The world’s No. 2 economy likely grew last year at the slowest pace in a quarter of a century.
Rio, which approved development of a $1.9 billion bauxite mine in Australia in November, will continue to evaluate investment in long-term growth while also pursuing cost cuts, Walsh told staff. “This challenging market presents an opportunity to widen the gap between us and our competitors,” he said.