Rio Tinto outlines strategy to generate $5 billion of additional free cash flow

Rio Tinto outlines strategy to generate $5 billion of additional free cash flow over the next five years and the company has unveiled a productivity drive to achieve the same.

Rio Tinto chief executive J-S Jacques underlined the strategy in a presentation at an investor seminar in Sydney with a strong focus on safety, cash generation, a world-class portfolio, commitment to capital discipline and the delivery of superior shareholder returns.

The company said they plan to raise productivity across its $50 billion portfolio of assets by focusing on operational excellence and expect to generate a total $5 billion of further free cash flow by the end of 2021.

Commenting on the new strategy, J-S Jacques said “Our strategy plays to our strengths: world-class assets, a strong balance sheet along with commercial and operating excellence. A relentless focus on generating cash, together with capital discipline - prioritising value over volume - means that investors can expect us to deliver superior shareholder returns whilst continuing to invest through the cycle. We have the right team and performance culture in place to deliver this strategy.”

“We are continuing to reshape our portfolio. Following our announcement yesterday that we will sell our Lochaber smelter in Scotland for $410 million, the total of agreed divestments in 2016 now stands at $1.3 billion,” he added.

The company also talked about their plan to invest in growing their business in all segments which include the Amrun Bauxite project in Queensland.  The Amrun Bauxite Project at Cape York is developing fast and US$1.9 billion has already been invested in the project to build a mine and port to expand production from one of the world’s premier bauxite deposits. As a long term goal, exploration remains a priority for Rio Tinto, with a commitment to continue with their exploration programme.

The company also reiterated their committed towards maintaining a balance between investment and cash returns to shareholders.

Rio Tinto Aluminium holds the position of the highest margin aluminium business globally. The company said that the Aluminium product group is on track to deliver cost savings of $300 million for the segment in 2016.

The company is continuing with initiatives to further reduce costs and increase productivity in the aluminium segment. Such initiative includes more than 250 initiatives in Bauxite and more than 500 initiatives in Alumina refining and Aluminium smelting businesses.

For the year 2017, Rio Tinto’s expected share of production for bauxite has increased to 48 to 50 million tonnes. For alumina and aluminium the share stands at 8.0 to 8.2 million tonnes and 3.7 million tonnes respectively.

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