Rio Tinto, the Anglo-Australian mining giant, today announced that it will cut 14,000 jobs in an attempt to reduce its $39 billion (£26.2 billion) debt mountain.

The company, which recently fought off a long-running takeover battle with rival BHP Billiton, said it was introducing the measures "in response to the unprecedented rapidity and severity of the global economic downturn."

In total, 8,500 contractors and 5,500 full-time staff will lose their jobs in the cull. The company's City of London headquarters will be shut and senior executives will move to another office in the capital.

Rio will reduce capital expenditure from $9 billion to $4 billion next year by shutting new projects and deferring the expansion of existing ones.

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So far this year, Rio Tinto has reduced its net debt by $3.2 billion but hopes to cut borrowings by a further $10 billion by the end of 2009.

It took on $40 billion of debt last year to buy Alcan, the Canadian aluminium producer, and must pay back or refinance $8.9 billion by the end of October next year. A further $10 billion is due one year later.

The company had planned to divest $10 billion of assets this year to cut its debt but has struggled to find buyers because of the credit crunch.

However, Rio said that it planned to press on with the divestments and that new assets might be included in the sale. This has raised the possibility that Rio may be forced to sell some of its crown jewels to meet its debt obligations.

Tom Albanese, chief executive of Rio Tinto, said "Given the difficult and uncertain economic conditions, and the unprecedented rate of deterioration of our markets, our imperative is to maximise cash generation and pay down debt."

Rio's share price gained 131p to £13.89 in early trading but is down by 80 per cent from its peak of £71.67 earlier this year. The mining group is valued at about £15 billion, which is considerably less than its total debt.

Rio's assessment of the iron-ore market highlights the rapid slow down in demand for raw materials.

Earlier this year, strong demand for iron ore led to a 96 per cent increase in prices but Rio now expects that full-year production will be 170 million to 175 million tonnes, which is significantly below its capacity of 220 million tonnes in the Pilbara region of Australia. Rio said it expected production next year to be 200 million tonnes.

Mr Albanese 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. We will expand further the scope of assets we are targeting for divestment. By taking these tough decisions now, we will be well positioned when the recovery comes."

Rio said that it would scrap plans to increase its dividend by 20 per cent next year and will instead hold it steady. The company added that the measures it was taking to reduce debt would make a rights issue unnecessary.

Charles Cooper, mining analyst at Evolution Securities, said: "We believe that this package of measures to reduce debt will be supportive to the share price today; however, we recognise that there may be further downside to commodity prices in the short term."

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