Rio to slash capital spending to $11 bln in 2014

MELBOURNE Mon Dec 2, 2013 5:38pm EST

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MELBOURNE Dec 3 (Reuters) - Rio Tinto aims to cut capital spending by a fifth in each of the next two years as it focuses on paying down debt and boosting returns to shareholders, the global miner said on Tuesday.

Rio also forecast a resurgence in steel demand in China, its biggest customer for iron ore, estimating demand growth at 7.5 percent this year.

Rio said it was on track to meet its $2 billion cost-cutting target for 2013, and has already beaten its target for cutting exploration spending.

The world's no.2 iron ore miner plans to cut capital spending to $11 billion in 2014 from just under $14 billion this year, and sees capital spending at $8 billion in 2015.

Steel demand growth in China is set to more than triple this year "with further steady growth ahead," Rio said in slides prepared for an investor seminar in Sydney.

"In China, the decisions from the government's Third Plenary Session last month reflect an ambitious yet pragmatic approach to continued reform and confirmed our expectation of gradual change, which reduces the likelihood of a sudden downturn," Chief Executive Sam Walsh said in a statement.

However, he also sounded a note of caution about the global outlook despite signs of modest economic recovery.

"From where I stand, we continue to see market fragility and volatility," Walsh said.

Iron ore is Rio Tinto's biggest business, accounting for 80 percent of its earnings in the first half of this year, and is expected to remain so for several years to come even as it seeks to expand in copper.

Rio last week unveiled plans to increase its iron ore mining capacity by about a fifth to more than 350 million tonnes a year by 2017, two years later than previously targeted but for $3 billion less than expected.

It said on Tuesday it would defer an investment decision until the third quarter of 2014 at the earliest on whether to build a new mine, Silvergrass, that would increase capacity to 360 million tonnes a year.

A decision on building another new mine, Koodaideri, which could add around 30 million tonnes a year or iron ore capacity, will be deferred at least 2016, Rio said.

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