Rio Tinto to cut 14,000 jobs, slash spending

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By Sonali Paul and James Regan

MELBOURNE (Reuters) - Global miner Rio Tinto, saddled with nearly $40 billion in net debt, said it would cut 13 percent of its workforce, slash capital spending and boost asset sales as it battles a collapse in commodity markets.

Rio has been under pressure to detail plans to cut borrowings since its share price slumped after larger rival BHP Billiton scrapped a $66 billion takeover bid for the company last month.

"What they've done has more than allayed fears in the market that they were going to come and have an equity issue," said Tim Schroeders, portfolio manager at Pengana Capital in Melbourne.

"Drastic times call for drastic measures. They've addressed all parts of the equation. They've definitely gone into survival mode, which is appropriate given the market circumstances," Schroeders said.

Rio's London shares jumped more than 10 percent as trading started. Its Australian shares closed up 12 percent at A$37.40, as investors anticipated its announcement, said UBS analyst Glyn Lawcock.

The group's shares had slumped 54 percent in the past month, more than five times the drop in the broader market.

Rio said it would reduce its global headcount by 14,000, including nearly 6 percent of its own employees and more than half its contractors, and increase the range of assets it was looking to sell, but said it was too early to be specific.

"Given the difficult and uncertain economic conditions, and the unprecedented rate of deterioration of our markets, our imperative is to maximize cash generation and pay down debt," Rio Tinto Chief Executive Tom Albanese said.

"We will minimize our operating and capital costs to appropriately low levels until we see credible and meaningful signs of a recovery in our markets, but will retain our strategic growth options."

Rio took on huge bank debt to fund last year's $38 billion acquisition of Alcan, and pledged to raise $15 billion, most of it this year, from selling non-core assets, including Alcan's packaging business and Rio's U.S. coal business.

Sliding metals prices and slowing demand have made those assets worth less, and the global financial crisis has made it tougher for potential buyers to get credit.

Albanese said the measures announced meant Rio Tinto would not need to sell new shares to help pay down debt. It would also hold its dividend steady.

But analysts said the measures Rio Tinto plans should be enough for it to meet the $10 billion in debt reduction it has targeted.

"Even if there's some slippage in asset sales, the other measures -- staff reductions, cost cutting at operations, and the dividend will more than likely very much see them make that payment in October next year," said Pengana's Schroeders.

Asked whether it was a mistake for Rio Tinto not to have entered talks with BHP on its takeover offer, which Rio Tinto rejected outright, Albanese said: "I don't think it would have changed the outcome."

To date, Rio has raised just $3 billion from disposals.

(Additional reporting by Denny Thomas in SYDNEY)

(Writing by Lincoln Feast; Editing by Jean Yoon)

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