Mining giant Rio Tinto has doubled the period it will take to pay its suppliers, continuing its ongoing efforts to slash costs amid a prolonged slump in commodities prices.
Rio will now take 90 days to make payments to suppliers, up from 45 days earlier, helping the world’s second largest iron ore miner to free up cash flow.
“This initiative is designed to free up cash and reduce working capital so that we can preserve and maintain jobs and suppliers in tough global environment for commodities,” a Rio Tinto spokesman said.
The miner in February had said it would embark on a further round of measures to free up cash and reduce working capital, he added.
Rio’s outgoing chief executive Sam Walsh told suppliers, in a letter sent on March 31, that the global economic environment continued to present significant challenges to the mining industry, prompting the change in terms.
The 90-day period will apply to supply contracts greater than $US3 million ($A4 million). For suppliers with contracts below $US3 million, the payment period will be increased to a 60 days.
The changes would be effective immediately, the letter said.
The move has, however, dealt a blow to already struggling suppliers, who have faced dwindling revenue and volumes as mining companies continue to slash expenditure amid falling prices.
“We are working with banks to use our strong credit rating to establish an optional supply chain financing program to support suppliers,” the Rio spokesman said.
The program, currently being piloted with suppliers in Rio Tinto’s aluminium business, is likely to be expanded more broadly from mid-2016, the company said.
Rio in February reported an $US866 million ($A1.22 billion) annual loss amid a collapse in iron ore, copper and aluminium prices.
The company announced it would slash returns to shareholders after ending its generous dividend policy and outlined further cuts in capital expenditure and operating costs.
Rio, which has been hunting for savings in the face of a continuing slump in prices, earlier this year put a freeze on salaries for all employees, limited travel expenditure, and flagged further scrutiny over consultancy and contractor spending.
Rio Tinto holds its annual general meeting in London on Thursday.