Rio Tinto In Cost-Cutting Mode

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Rio Tinto In Cost-Cutting Mode

By Zacks Investment Research on December 18, 2008 | More Posts By Zacks Investment Research | Author's Website

Rio Tinto, Plc (RTP) announced a series of initiatives aimed at reducing debt and strengthening the balance sheet.

The company announced a headcount reduction totaling over 14,000, a commitment to cut FY09 CAPEX by over $5 billion, a plan to reduce $2.5 billion in annual operating costs by FY10, and a goal to divest of certain, significant assets. Rio Tinto set a $10 billion target for net debt reduction in FY09, which is integral to addressing the $8.9 billion credit facility maturing in late FY09 and to lowering the net debt (as of October 31) of $38.9 billion.

Despite these actions, we expect a continued challenging macroeconomic backdrop for commodity prices. We rate shares of RTP a Hold. We have valued RTP using P/E valuation metrics and forward earnings estimates. Our target price is $105.00.

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