Slimmer Rio Leads The Way

As the miner cuts 14,000 jobs, its rivals will be preparing similar cost-cutting moves.

Rio Tinto's plans to cut 14,000 jobs and slash spending look dramatic, but similar moves can be expected from rivals like BHP Billiton and Anglo American, as miners are forced to adjust to the reality of a looming global recession.

Rio Tinto's "very realistic" plans to cut production or commodities like iron ore are likely to be followed by competitors such as BHP Billiton, said Damien Hackett, an analyst at Canaccord Adams. "Companies may of course handle the news differently. While some will announce a reduction in levels, others will lower production. You can't keep producing iron ore if there is no one to buy it."

He added that at a meeting with analysts within the past week, BHP had indicated that it would be following Rio's path of relying on its own permanent staff to save costs. "At the meeting, we were discussing cost reduction and they said that contractor jobs were going to be targeted."

Rio Tinto's (nyse: RTP - news - people ) rivals are unlikely to restructure quite as dramatically: Rio has a $39.0 billion debt mountain to contend with, built up through the acquisition of Canada's Alcan in July 2007. The company had planned to sell many of the Alcan assets even at the time of that takeover, and despite the current inhospitable economic environment, it will have to follow through.

"Others will cut costs but not in the same way as Rio," said Michael Rawlinson, head of mining research at Liberum Capital. Anglo American (nasdaq: AAUF - news - people ) will announce its plan for cost cutting on Dec. 17, while Xstrata will do the same at the beginning of the year, he added.

Rio announced Wednesday that it was axing thousands of workers and selling assets in order to tackle its hefty debt burden. (See "Rio Scrapes For Cash.") The dramatic downturn in the global economy since the collapse of Lehman Brothers in September and subsequent slide in commodity prices has forced the mining sector to adjust quickly. Several have already warned of the need to scale back production, but Rio's announcement on Wednesday is the first fundamental change to take place so far.

Investors seem to be welcoming the news as a sign that, starting with Rio, miners are finally accepting and adjusting to reality: Rio's shares soared by 11.6% on Wednesday morning in London, following its announcement, while BHP Billiton (nyse: BHP - news - people ) rose by 3.1%, to 11.93 pounds ($17.644).

Last month BHP Billiton announced it was walking away from its takeover bid for Rio, claiming it would have struggled to get good value for the assets it would have had to sell to satisfy competition regulators in Australia and Europe. (See "BHP Bails On Rio Tinto.")