Sam Walsh’s departing bombshell
RIO Tinto asks (forces) local business to carry them.
Wednesday 06 April 2016
Central Queensland business servicing Rio Tinto are scrambling to come up with a plan for the future following the company's bombshell announcement this week that their new payment terms are more than 120 days for large contractors and 60 days for smaller ones.
One contractor - who didn't want to be identified - told Shift Miner they had received notification of the new terms this week and were not sure how they could continue.
“These sort of terms make it extremely difficult for a business like ours to survive because we don't have access to vast amounts of borrowed capital, and we have to pay our people weekly,” she said.
“We don’t resent big business, Rio Tinto have been one of our most reliable clients and we realise it is tough for them at the moment, but a move like this just makes you think twice about the future of that relationship.
“The irritating part is that even 60 days isn’t accurate, the reality is the 60 days starts at the end of what they called an accumulation period, which they told me is just the end of the month.
“Why they just wouldn't just say 60 days end of month is beyond me, and just gets you thinking they are not honest about it.
“The other fine print is the day of payment which is either the first or fifteenth of each month which means if everything goes to plan, the work you do this week wouldn't be paid until mid-July for a small contractor and in September for big ones.
“And in my experience payments rarely go to plan.”
In an email advising of the changes (viewed by Shift Miner) Rio Tinto’s outgoing CEO, Sam Walsh said the move was about sustaining the business for the future.
“We are taking the necessary steps to ensure that our business can continue to be a strong and reliable partner to our suppliers, customers, and stakeholders,” he says.
“As part of a range of measures that affect every part of our operations, we are making changes to our corporate payments policy.”
Rio Tinto has two coal mining operations in the Bowen Basin with the Kestrel mine near Emerald and the Hail Creek mine west of Mackay. It also has significant investment in Aluminium related businesses in Gladstone.
The announcement comes nine months after BMA advised local suppliers that it would be moving its terms from 30 to 60 days as it tried to manage cash flows during the current mining downturn.
Contractors supplying labour-based services to mining companies were the hardest hit because they are not able to pass on the payment terms to their suppliers - or in their case, employees. One business owner estimated they would now need up to two million dollars in working capital just to stay afloat.