But reducing spending further to what Rio optimistically calls “sustaining levels” – with capex of just $2.5bn – would be risky. Maintenance capex tends to be the minimum auditors allow to avoid big depreciation charges, leaving asset owners badly positioned for an upturn.
Scaling back iron ore – the engine of Rio's earnings, accounting for almost half of operating income – is a drastic step. During its takeover defence Rio outlined a plan to more than triple iron ore production. Rio's valuation reflects its muted growth options. At less than three times forward earnings, the stock trades at about half the sector average. Chairman Paul Skinner should expect a rough ride next month when he gives more details on project deferrals at the group's annual results. His refusal to engage with counterparts at BHP when a merger was in the offing, but buying Alcan with debt at the top of the commodity market, looks more questionable than ever.