PERTH (miningweekly.com) – Mining major Rio Tinto on Thursday revealed that it was expecting further cost improvements of some $750-million to be realised during 2015, as the commodity markets remained volatile.

The latest operating cost improvements were in addition to the $2.3-billion reported in 2014.

“With lower commodity prices and uncertain global economic trends, the operating environment remains tough,” Rio CEO Sam Walsh said on Thursday.

“However, in these conditions Rio’s qualities and competitive advantages deliver superior value. Our combination of world-class assets, disciplined capital allocation, balance sheet strength, operating and commercial excellence, and a culture of safety and integrity gives me confidence in our ability to continue to generate returns for our shareholders,” Walsh added.

Rio has also decreased its 2015 capital expenditure (capex) expectations from the previously reported $8-billion to less than $7-billion, compared with the $11-billion spent last year.

Capex was expected to remain at around $7-billion for the 2016 and 2017 financial years.

Meanwhile, Walsh reported a 9% decline in underlying earnings for the full-year ended December, with earnings reaching $9.3-billion, compared with the $10.2-billion reported last year.

Consolidated sales revenue for the year reached $47.7-billion, with Walsh noting that a $5.4-billion decline in pricing was partially offset by a gain of $3-billion from higher volumes.

“Our continued financial and operating discipline enabled us to offset much of the impact of lower commodity prices in 2014. By increasing volumes and reducing costs, we achieved underlying earnings of $9.3-billion and we were able to maintain our earnings before interest, tax, depreciation and amortisation margin at 39%,” Walsh said.

He pointed out that free cash flow was assisted by a further reduction in capex and a successful programme to release working capital.

“As a consequence, we have reduced net debt by $5.6-billion, to A$12.5-billion.”

The higher volumes were driven by production records at Rio’s iron-ore operations, in the Pilbara, as well as its Hunter Valley thermal coal mines, assisted by strong operational performances in bauxite, copper and aluminium.

Full-year iron-ore production reached 295.4-million tonnes, a 11% increase on the 2013 production figure, with Rio’s share of production amounting to 233.6-million tonnes.

Gross sales revenue from iron-ore sales reached $23.2-billion, down by 10% on the $25.9-billion achieved in 2013 as the iron-ore price declined. Rio pointed out that some 25% of the Pilbara sales in 2014 were priced with reference to the prior quarter’s average index, lagged by one month, while the remainder of stock was priced either on the current quarter average, current month average or on the spot market.

Copper production reached 603 100 t during the full year, generating sales revenue of $6.28-billion, while bauxite production reached 41.8-million tonnes, contributing to revenues of $12.1-billion tonnes from the aluminium division.

Thermal coal production achieved a record 21.8-million tonnes in the full year, while hard coking coal production reached 7.4-million tonnes and semi-soft coking coal some 3.2-million tonnes, each contributing to a revenue of $4.3-billion for Rio’s energy division.

CAPITAL RETURNS

Walsh meanwhile told shareholders that Rio would continue on its trend of capital returns, with the miner announcing a proposed $2-billion share buy-back.

Rio on Thursday launched a A$500-million off-market buy-back tender as part of this process, with the company inviting eligible shareholders to tender their shares at discounts of between 8% and 14% to the market price.

For Australian tax purposes, the buy-back price would comprise a cash component of A$9.44 and a fully franked dividend component equal to the difference between the buy-back price and A$9.44.