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Rio Tinto job cuts sign of the times, say ana -

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Rio Tinto job cuts sign of the times, say analysts

The World Today - Thursday, 11 December , 2008 12:14:00

ELEANOR HALL: Well, hopes that the mining boom would help keep Australia out of recession have been
dashed by the world's second largest mining company announcing that it will cut 14,000 jobs around
the globe.

Rio Tinto says it has been forced to slash its workforce in order to dramatically decrease it debt.

The company won't yet reveal where the cuts will be made but one analyst says many jobs will go in
Rio's Australian division which at the moment employs 17,000 people.

Brigid Glanville has our report.

BRIGID GLANVILLE: Rio Tinto has a global workforce of 112,000 people - with mines all over the
world.

The global economic crisis and massive drop in commodity prices means Rio Tinto's debt has
increased to $US39-billion.

It now needs to slash 14,000 jobs some of which will be in Australia.

Glyn Lawcock is the head of mining research at UBS.

GLYN LAWCOCK: They have talked about 8,500 contractors; I believe it is, and 5,500 employees.
Contractors represent about 40 per cent of their contractor work force; some of them are involved
in projects, some of them are involved in day to day operations.

It's likely to be reasonably well spread across their operations. I think given their asset base
though is still largely Australian outside of Alcan. One would have to suspect that a good
percentage of them will be in Australia.

BRIGID GLANVILLE: Do you think Rio Tinto is going to have to close many more operations in
Australia?

GLYN LAWCOCK: At this stage we don't expect closures. I think at this stage we would still expect
their Australian operations would journey(phonetic) towards the bottom of the cost curve. They
would be the last ones that you would close. They would close more because the customer doesn't
require the volume.

But at this stage, they are not seeing any yet signs of a demand slowdown for coal but that could
be inevitable with the continued cutbacks in steel production.

In iron ore most of the reduction in work force will be associated with growth plans, not the
existing operations day to day at this stage, I would have thought.

BRIGID GLANVILLE: In 2008 Rio Tinto said it wanted to make $10-billion in asset sales. I think it
has managed around $3-billion. They want to increase the amount of asset sales. Are they going to
be able to do this given the economic times?

GLYN LAWCOCK: That is always the tough one. Some of the assets they were looking to sell were
probably slightly tougher assets because they weren't tier one, top-of-the-line assets. They have
now also made it clear that they would selling, also assets that they would consider core.

Whereas those other ones were non-core and probably had more limited buyers. Some of the other ones
that they may consider selling or joint-venturing may attract buyers with cash.

BRIGID GLANVILLE: It was only two weeks ago that BHP Billiton pulled out of its bid to buy Rio
Tinto because it had too much debt. At the time the chairman of Rio Tinto, Paul Skinner, said the
company was on track to meet its debt repayments.

The latest job cuts and further asset sales will now guarantee that; but Glyn Lawcock says such
massive job cuts shows how tough things are for the mining sector.

GLYN LAWCOCK: I mean, I think we have to maybe take a quote from Tom Albanese last night where he
said this is an unprecedented event and I would have to agree with him. You know, the demand,
destruction and the sudden ferocity which it occurred, surprised everybody. You know, suppliers,
customers, governments alike; they have to do what they have to do to survive right now in the
short term.

As Rio said last night, it is about cash conservation. They will survive because they are at the
bottom of the cost curve which is very important to recognise - but, you know, these are
unprecedented times. You need to make the harsh decisions and right now Rio is giving up short-term
growth optionality for cash conservation.

BRIGID GLANVILLE: Do you think we will see many more job cuts in the mining industry?

GLYN LAWCOCK: If the economic environment remains as it is, I think further job cuts are
inevitable.

BRIGID GLANVILLE: It now seems more certain than ever that the mining boom is well and truly over.
Investors have been selling out of mining companies for months.

Rio's Tinto's share price has fallen 40 per cent in the last two weeks; but this morning increased
five per cent just after the stock market opened.

Mark Niutta from Asandas Investment House.

MARK NIUTTA: I think at the moment we are not going to see this boom come back tomorrow so to
speak, and the other thing is the number of smaller companies that are going to get hit who don't
have a lot of cash in the tin. So your smaller resource companies with, you know, all employing one
or two geologists and administration staff etc - they are not going to raise money in this type of
market.

So I think there are more redundancies and probably smaller companies going under as well.

BRIGID GLANVILLE: Rio Tinto will announce where the job cuts will be early next year.

ELEANOR HALL: Brigid Glanville reporting.