Rio Tinto cuts spending

Rio Tinto aims to cut spending by 20% by 2015, while at the same time reducing its net debt.

This week started with improving Chinese manufacturing figures, as HSBC confirmed a slow but steady return to expansion in the Chinese economy. However, when put into context and compared to the 2010 and 2011 levels of mid-55, there is still some way to go before the Asian powerhouse returns to its previous highs.

Looking around the globe, the US, the UK and the EU are all in recovery, although mainland Europe has some way to go in order to catch up with the other two.

So why has Rio Tinto decided to cut spending now? The speed and conviction of recovery in numerous economic regions is far from convincing, and at some point the US Federal Reserve will reduce its quantitative easing process, leaving equity markets to stand on their own two feet. When this test finally does come there are bound to be a few wobbles, and Rio Tinto shifting cash away from spending and reducing debt should make the company a little more resilient to the buffeting that the markets will give them.

Short term this move might cap returns, but longer term it should help profitability and may enable the firm to reward investors with improved dividends.  

Rio Tinto group

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