Rio Tinto may cut iron ore output as it targets $5bn cash flow boost

Tying in with Chancellor Philip Hammond's quest to boost British productivity, Rio Tinto chief executive Jean-Sébastien Jacques said the mining giant can boost cash flow by $5m over the next five years via a new "productivity drive".

On top of its current $2bn cost-cutting target for the end of next year, Jacques told investors at an seminar in Sydney the company would prioritise "value over volume" and would drive productivity by "focusing on operational excellence to generate superior shareholder returns through the cycle".

For 2017, based on current production forecasts, Rio will generate operating cash flow of around $10bn based on the average prices during the recent quarter.

Jacques told investors he was prepared to cut iron ore output if it would improve cashflow, Bloomberg reported from the event, which would represent a major about-turn on the sector-wide strategy of recent years.

The CEO also predicted the rise in coal prices from China's recent output cut could not last, other outlets noted.

"I can tell you, we have been surprised by what the Chinese government did on the coking coal market," the France-born Londoner said. "Let's be clear, nobody saw it. But you can say for sure that at some stage they are going to increase capacity and coal prices will go down. There's no doubt about it," he said.

Rio, which on Wednesday agreed to sell its assets at Lochaber in Scotland to SIMEC for $410m (£330m) and earlier in the month sacked two directors over a controversial payment connected to assets in Guinea, continues to expect total cash returns to shareholders over the longer term to be in a range of 40-60% of underlying earnings, Jacques assured.

"We have placed our assets at the heart of the business to drive improved performance and ensure our resilience through the cycle.

"We are well on track to meet our target of $2 billion of cash cost savings by the end of next year. We are also taking advantage of any opportunity to generate value from mine through to market.

"Lifting the productivity on our $50 billion asset base creates a low risk and highly attractive return. It will deliver an additional $5 billion of free cash flow over the next five years."