Rio Tinto Limited (RIO) said it planned to reduce net debt by US$10 billion ($15.26 billion) by the end of 2009. The miner also announced it would maintain its dividend at 2007 levels.

Chief executive Tom Albanese said given the difficult and uncertain economic conditions, and the unprecedented rate of deterioration of markets, Rio's imperative was to maximise cash generation and pay down debt.

"We have undertaken a thorough review of all our operations and are executing a range of actions," he said.

"We will minimise our operating and capital costs to appropriately low levels until we see credible and meaningful signs of a recovery in our markets, but will retain our strategic growth options."

Rio said that it its third quarter operations review on 15 October 2008, the group acknowledged that the economic outlook had substantially deteriorated, that demand conditions had weakened sharply, and that capital expenditure would be reviewed.

"Since that time, demand conditions have worsened further, and as a result the group's priorities have reoriented around conserving cashflow and reducing near term borrowings," the company said.

Rio said its net debt had reduced by US$3.2 billion in the period from 30 June 2008 to 31 October 2008 to $38.9 billion and the company was committed to reducing further net debt by US$10 billion by the end of 2009.

Rio said it had reduced its net capital expenditure guidance for 2009 from over US$9 billion to US$4 billion.

"Capital expenditure to be reduced to sustaining levels in 2010, absent an improvement in expected commodity market conditions," the company said.

Mr Albanese said the company would expand further the scope of assets targeted for divestment.

"By taking these tough decisions now we will be well positioned when the recovery comes," he said.

"Notwithstanding the current financial turmoil, we continue to enjoy a suite of key assets which operate in the lower half of the cost curve in their industries, and our suite of growth assets remains capable of re-activation as soon as market conditions justify."

The company said it planned to reduce controllable operating costs by at least US$2.5 billion per annum in 2010 and reduce its global headcount by 14,000. 

Shaw Stockbroking senior analyst Ted Leschke said the initiatives would provide short-term comfort to market, however it was not a quick fix solution to Rio's high debt position.

"Rio's ability to reduce debt further through operating cashflows, assets divestments and joint venturing out projects is all highly dependent on the immediate outlook for commodities which remains uncertain," he said.

Rio shares have fallen more than 40% since BHP withdrew its takeover offer for the company on 25 November and are 75% off its high this year. Overnight, the stock rallied more than 20% in London and New York and opened 10% higher on the ASX as a result of the news.

Mr Leschke anticipated Rio's share price would continue to recover in the short term. He noted that although the management had no current plan for an equity issue, a capital rising next year could not be ruled out.

In light of current market conditions, Rio said it had determined that the level of the total dividend payment for 2008 would be maintained at the level of the total 2007 dividend.

"Accordingly, the total dividend for 2008 will be US136c, of which US68c was paid as the interim dividend in September 2008," the company said.

Rio noted that fall in the oil price had been beneficial, with a US$1 drop in the price of a barrel of oil improving the group’s annualised underlying earnings by US$11 million.

The company said the impact of a decline relative to the US dollar of the currencies of the countries in which the group primarily operated, particularly the Australian and Canadian dollars and the South African rand, had reduced the group’s operating costs.

"The effect of currency declines has offset approximately one half of the impact of the fall in quoted metal prices on earnings since July 1, 2008," the company said.

In November 2008, Rio Tinto revised its estimate of iron ore shipments in 2008 from the Pilbara region of Western Australia to between 170 million tonnes and 175 million tonnes for 2008, while reducing the annualised production run rate by approximately 10%.

The capacity of the Pilbara operations at the end of 2008 was expected to be 220 million tonnes per annum.

"Depending on customer delivery requests and underlying demand conditions, the group anticipates that global iron ore production and shipments for 2009 will be around 200 million tonnes," the company said.

In 2009, Rio Tinto's share of aluminium production was estimated to be approximately 200,000 tonnes, or 5% less than existing capacity of 4.2 million tonnes, due to the curtailment of production at some higher cost smelters.

Rio Tinto's share of mined copper production was anticipated to be approximately 830,000 tonnes in 2009.

Rio said it intended to pursue refinancing of Alcan facilities in the term market, and would take advantage of credit market conditions as and when they improve.

"In addition to these sources, the group has available committed financing of $4.2 billion under Alcan Facility C (unused at 31 October 2008) and $2.3 billion unused committed bilateral banking facilities," the company said.

"Reducing debt levels and managing debt maturities are a key priority of Rio Tinto's Board and management."

At 1008 AEDT, Rio Tinto was up $3.99 or 10% to $41.39.