Rio Tinto drops plan to push out supplier payments

MELBOURNE (Reuters) - Rio Tinto has dropped a plan to stretch out the amount of time its suppliers must wait for payment, after widespread pushback from mining services firms and a request from the country’s resources minister.

A Rio Tinto logo is displayed on the front of a wall panel during a news conference in Sydney November 29, 2012. REUTERS/Tim Wimborne

The miner had written to customers this month, informing them it planned to extend its payment terms to 90 days from 45 days, doubling the time its already cash-strapped suppliers would have had to wait for payment.

“We recently announced changes to the terms of some of our supplier segments to help maintain jobs in a difficult global environment for commodities,” a Rio spokesman told Reuters.

“We value our partnerships with our suppliers and their feedback, so we have taken the decision to maintain our payment terms for those suppliers with contracts in place, as they were at March 30.”

Miners and traders have been reviewing contract terms in the most recent effort to wring out final savings after a brutal four-year commodities rout that has only this year started showing signs of bottoming.

After requests by Australian companies to the prime minister, Australian Resources Minister Josh Frydenberg requested Rio reconsider its decision.

“While in the Pilbara this week, a number of Australian companies raised with the prime minister and me Rio Tinto’s decision to change its payment terms from 45 to 90 days for existing and future suppliers,” Frydenberg told Reuters. The Pilbara is a mineral-rich area in the country’s west.

“This clearly puts cash flow pressure on smaller suppliers and their business operations. I spoke to senior management at Rio Tinto and conveyed the government’s concerns and asked that they re-examine their decision, taking these considerations into account.”

Ratings agency Fitch had this week cited Rio’s plan as an example of cost-cutting steps by miners that would keep revenues and margins at mining services companies under pressure.

Australia’s Orica Ltd, the world’s largest supplier of mine explosives, took a A$1.692 billion ($1.29 billion)impairment charge for the 2015 financial year, underlining the tough outlook facing the mining sector.

Rio Tinto’s terms were to have applied to all contracts valued at $3 million or more, with suppliers for contracts valued below that amount receiving payment in 60 days, Fitch said.

Rival mining giant BHP Billiton moved to 60-day supplier payment terms about 18 months ago.

Reporting by Melanie Burton; Editing by Joseph Radford