Dec 11 2008
More debt driven gold
Rio Tinto is set to slash 14000 jobs yet their dividend payout is going to remain solid. From
the outside this may look like it’s just a company looking after their shareholders before their employees but when you think about it…. Another smoke and mirrors event has occurred.
14000 jobs? think about that. In the mining industry people have been paid pretty well for the last few years so lets equate this to a 112 million dollar saving in wages for (more than likely) productive people for the next 12 months. However to get rid of these people they are going to have to pay 14000 (are you feeling this number) people to do NOTHING for a few months. Thus degrading the shareholders equity.
All of this is occurring because Rio Tinto has taken on to much debt. It is that simple.
In 2006 Rio was sitting pretty making a net profit of 9 billion dollars with a seemingly miniscule 2.5 billion in long term debt. Shareholder equity had been growing nicely increasing 10 billion in the last 10 years. Remember boys and girls the name of the game is building equity!
They thought the profit train (based on mining boom) would go on forever so they decided to grow at an unnatural rate. Exposing their shareholders to a now $43.8 billion dollar long term debt. Pitting that figure against their equity of 28 billion makes no sense to me whatsoever.
Before sacking 14000 people, the management of this company should sack themselves for one of the stupidest decisions I have seen in a while. Of course this management group will hide behind the old ‘we didn’t know the market was going to crumble’ but a basic conservative outlook would have protected shareholders from idiotic decisions.
Sorry RIO holders, you have been crushed by the idiots in charge. I suggest you out them.
Just vote against the ridiculous pay increases at the AGM…..then they can ignore you and carry on allocating themselves bonuses, stock options and golden handshakes.
Hell, don’t tell me you wouldn’t do the same thing if you could?
Must be the governments fault surely, you can’t blame the well paid executives!
that is Rio for you.
If they are not pulling down rain forests at an incredible rate or killing off small native tribes by poisoning their rivers they are attaching their own work force…takes the heat off what the big knobs are earning
Rio are just looking after the shareholders as you say. Cutting costs in a downturn is the best way to do this.
Lucky we don’t work for Rio hey Shirvy.
Rob B, you are missing the point. They were screwed pre downturn. The markets blindness just overlooked it in the boom times. The debt providers were always eventually going to need their cash back, for which Rio didn’t have enough assets to pay back.
The name of the game is actually free cash flow for which RIO has NONE.
3,000 Rio jobs just from Australia! Time to sell the house in Weipa & Gladstone I guess. These towns are going to turn into Ghost Towns, the only reason there as big as they are is thanks to aluminium.
Free cash flow pays off debt and when commodity prices drop, so does their ability to repay debt. RIO buying Alcan was a big mistake but at the time when they crunched their numbers using their forecast projections it would have made sense. Its crystal ball stuff. It could have gone the other way.
BHP have done no better – it cost them $500mil for the failed bid, they wrote down nickel investments by $1.2 bil plus a heap of even bigger mistakes such as Magna Copper and failed iron ore processing plants in WA.
Companies like this pay their execs huge bonuses – it doesnt matter where they deserve it or not. They want the best people and if they dont pay their execs bonuses, then they will leave and who would fill their place. They may get smaller, but dont count on them either falling on their own swords, or not receiving a bonus.
MBL just sacked loads of workers last week…but Rio’s effort dwarfs MBL by a country mile.
SJ, this was your funniest post ever! I cannot stop laughing at your simplistic, almost child-like take on big business.
The rest of you are just as idiotic.
Farteeeen, you surprise me with you newly found intellect. You appear to have some degree of intellience & understanding of the finance sector.
Woodless, your wife says hello.
Everyone, good news it looks like we’ve finally gotten rid of that rodent The Skunk!
Please explain it to us then IASM, we desperately need your guidance. And I don’t want you to just copy and paste whatever swahili that was that Marteen gave us either.
PS. Thank god the skunk is gone.
Marteen, did you have a xmas lunch yesterday, Please don’t drink type/ramble………..
IASM, speaking of BIG business when are you ‘plucking’ up the courage to open the first franchise of your shops……..have you got a name for them yet? And knobalina don’t say KFC, Red Rooster, Brodies or any other well established franchise.
Why don’t you just get lost Tigress!
Gee that sent you reeling Tiger. Will you be able to come back from the barrage that dipstick has thrown at you?
I ignored the comment as I assumed one of his kids typed after he left his PC unattended……