Confident Rio Tinto to double capital spending

A NEWLY upbeat Rio Tinto plans to double its capital spending next year, announcing a budget of up to $US3.5 billion ($3.9bn) to pursue growth projects.

Speaking in London at the weekend, Rio chief executive Tom Albanese said that decisive measures taken by the company during the economic downturn, including a $US15bn rights issue, meant it was poised to take advantage of opportunities as the demand for resources inevitably picked up.

"We are now well-positioned for disciplined growth and will balance this with the need to further pay down debt," Mr Albanese told investors at the company's annual seminar.

"We've emerged from the past year a leaner, more flexible business with our options for growth intact. We look to the future with a renewed vigour and confidence."

Following a concerted effort to reduce its costs and repay debt over the past 12 months, Rio now expects to commit at least $5bn to capital expenditure next year, with the potential for that to rise to $6bn should "value-adding" opportunities arise, including possible mergers or acquisitions. Its previous guidance of $2.5bn had been scaled back in response to the global slowdown.

Mr Albanese, who will speak to Australian investors in Sydney today, confirmed key objectives for the company over the coming year, including the formation of its iron ore joint venture with BHP Billiton, which was running to schedule, and turning around its troubled aluminium business.

Strengthening the relationship with China -- tested recently by its decision to scrap a plan to partner with major shareholder, the government-controlled Chinalco, iron ore pricing negotiations as well as the arrest of four Rio executives on suspicion of espionage -- was also a priority.

Mr Albanese did not comment extensively about the matter, citing concern for the welfare of the executives and their families. However, he said that China remained of "critical importance to Rio Tinto", whose outlook very much depended on the country's continued urbanisation and industrialisation.

"I made a personal commitment to assure our relationship with China is restored to a sound footing," Mr Albanese said.

Rio also delivered a promising outlook for mining industry growth, revealing that demand for metals had picked up, led by government stimulus measures. Industrialised output was returning to more usual levels.

"However, for us, the key driver in the mining industry is China," Mr Albanese said.

"Record Chinese metal imports over the summer months offset weakness in other markets. The Chinese stimulus packages have been sustaining the mining sector in 2009 and will continue to do so in 2010."

Mr Albanese said the expected doubling of demand for iron ore, aluminium and copper over the next 15 years would require "a significant supply response".

But he was noticeably more cautious about the prospects for the broader global economy, which was improving but remained volatile.

Although the mining sector as a whole was hit by the global financial crisis and falling resources demand, Rio arguably suffered more than its peers.

After rebuffing BHP's multibillion-dollar takeover bid two years ago, the company struggled to service the significant debt borrowed to finance its Alcan acquisition. Its subsequent plan to partner with Chinalco was supposed to alleviate some of that debt. But when financial markets started to recover earlier this year, Rio instead chose to undertake a rights issue, offload assets and partner its Pilbara iron ore operations with its fellow Australian miner.

Rio has since divested $US7bn of assets and is considering offers for a further $US2bn. Its overall debt has been reduced by 42 per cent to $US22.3bn.

But the company has declined to specify its growth plans, with Rio's iron ore chief Sam Walsh confirming only that the company was considering "a rich array of options".

"We can pick and choose from those options as the time arises," Mr Walsh said. "I wouldn't want to predict where it would come from, either by sector, geography, even source. It may not be a project we choose to do -- we may in fact chase M&A. I think all of these things are open to us."

Rio shares, which have more than doubled in price so far this year, last closed at $63.78.

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