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Update: Market turmoil may derail Rio's disposals plans

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By John Harrington

Date: Wednesday 15 Oct 2008

LONDON (ShareCast) - The turmoil in global markets has caused miner and bid target Rio Tinto to reconsider the timeline of the first wave of its proposed sale of assets.

The group said the “primary objective continues to be obtaining appropriate value from the assets highlighted for divestment.”

Rio, which had expected to raise $10bn from the first phase of its assets disposal programme by the end of this year, is also reviewing its near-term spending plans.

“The long term outlook for Rio Tinto remains positive despite the upheavals in global markets,” said Tom Albanese, chief executive of Rio Tinto.

“In the third quarter, our business continued to perform extremely well, breaking yet more production records in iron ore, bauxite, hard coking coal and US coal,” Albanese added.

Albanese described a slow-down in the Chinese economy as a “pause for breath”.

The company said there has been a deceleration of growth in the critical Chinese market, with the 2008 growth rate expected to fall below 10% from almost 12% last year.

The slow-down has been attributed to a tightening of credit policies late last year to address inflationary concerns; these policies are now being relaxed.

“Furthermore, we expect third quarter economic data to show an exaggerated slowdown, reflecting the postponement of projects during the Olympics. Looking further out, Chinese GDP will remain largely driven by the domestic economy and we expect industrialisation and urbanisation to continue apace with strengthening demand across a range of Rio Tinto products,” Albanese predicted.

The group’s financial position remains sound, with strong cash flow generation. The company had $9.3bn of bonds outstanding at the end of September, with $200m worth of bonds due to mature within the next year. The group has yet to draw down any money from its $2.3bn bilateral bank facilities.

Although production hit record levels for many metals in the third quarter, mined copper for the quarter declined by 28% year-on-year, following a significant decline in ore grade.

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