Rio Tinto Plc · LSE:RIO
Rio Tinto — Debt Investor Presentation (March 2019)
40 slides from Rio Tinto's debt investor presentation, March 2019
Slide 1: Fixed income investors update
Fixed income investors update March 2019
Slide 2: Cautionary statements
Cautionary statements This presentation has been prepared by Rio Tinto plc and Rio Tinto Limited (“Rio Tinto”). By accessing/attending this presentation you acknowledge that you have read and understood the following statement. Forward-looking statements This document, including but not limited to a
Slide 3: Focus on people and sustainability
Focus on people and sustainability Safety Performance Health and Safety Rio Tinto AIFR ICMM (23 companies) AIFR 3 fatalities in 2018; 2 workplace related, 1 security incident 2.78 CRM* a strong focus with 1.4 million verifications in 2018 White Ribbon accreditation in Australia All injury frequency
Slide 4: Tailings storage facilities
Tailings storage facilities With active or inactive tailings storage Active or inactive, with an Rio Tinto Kennecott, Utah, US 32 facilities, including 3 non-managed operational sites and 4 legacy sites 100 additional 36 facilities closed or under rehabilitation operations facilities Construction ty
Slide 5: Three levels of assurance for managing tailings and water storage
Three levels of assurance for managing tailings and water storage Audit of control effectiveness 3 rdlevel Group Internal Audit working with external auditors Audit Assures systems for risk management, internal control and governance are effective nd Group review 2 level Surface Mining Centre of Exc
Slide 6: A strong 2018
A strong 2018 Financial Balance Value performance sheet creation $18.1bn $0.3bn $13.5bn EBITDA* on margin of 42% Net cash at Dec-2018 Total shareholder cash returns – Adjusted net debt of $11.8bn $8.0 billion** – No bond maturities until $2.9bn Operating cash flows Development capital 2020 investmen
Slide 7: Our strong balance sheet gives us resilience and flexibility
Our strong balance sheet gives us resilience and flexibility Net debt 9.6 Net cash of $0.3 billion $ billion 8.0 Committed cash outflows for 2019 will result in 7.0* IFRS 16 adjusted net debt of $8.0 billion**: – $4.0 billion return of Grasberg and Dunkerque proceeds 9.6 via special dividend – $1.7
Slide 8: Increased portfolio value and performance
Increased portfolio value and performance Completed ~$12bn And strengthened disposals since 2015 the portfolio: Increase in CuEq CAGR of 1.4%* Grasberg – Driven by a 3.4% increase in CuEq CAGR across our remaining portfolio Kitimat wharf & land Increased ROCE by 10pp from 2015-2018 Qld coking coal R
Slide 9: Consistent, disciplined capital allocation
Consistent, disciplined capital allocation Investment and shareholder returns delivered from operating cash flow $34bn $12bn $6bn $3bn Cash flow from Cash from $12bn + Sustaining 2018 final operations disposals Dividends paid capex dividend to be paid in Apr-19 $7bn $46bn Growth capex $46bn $3bn Buy
Slide 10: Near-term maturities further reduced in 2018
Near-term maturities further reduced in 2018 31 December 2018 debt maturity profile* Gross debt reduced by $2.3 billion in 2018 to $ million ~$13 billion 3,500 $1.9 billion nominal value of bonds 3,000 purchased in 2018 2,500 Average outstanding debt maturity of 2,000 corporate bonds at ~13 years (~
Slide 11: Commodity specific price drivers in 2018
Commodity specific price drivers in 2018 Iron ore Iron Ore (-4%) 80 Solid growth in global steel production, including Chinese crude steel production of ~930Mt 2018 avg*: $61.2/t vs $64.1/t in 2017 China’s structural policy-driven demand for higher grade 50 products Jan 18 Mar 18 May 18 Jul 18 Sep 1
Slide 12: 2019 outlook
2019 outlook Global GDP Global economic growth 8% USA – Momentum slowing 6% 4% Japan – Volatility and risk of trade war is ongoing Eurozone China’s GDP growth 2% 0% World – Decelerating as expected -2% Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 China – Introd
Slide 13: Strong and consistent EBITDA
Strong and consistent EBITDA Underlying EBITDA Coal EBITDA $ billion EBITDA excl. Coal 18.6 18.1 0.3 0.9 1.2 0.2 0.9 (0.4) (0.4) (0.3) (0.3) (0.2) 17.4 17.2 17.2 2017 Price Exchange Energy CPI Flexed 2017 Volumes & Raw Other cash One-offs 2018 underlying rates underlying mix material cost costs* and
Slide 14: Productivity accelerating in 2019
Productivity accelerating in 2019 Post-tax mine-to-market (M2M) productivity programme 2018 M2M additional free cash flow fully offset by $ billion (free cash flow) raw material cost headwinds, primarily related to Aluminium 0.6 1.0 2018 invested in capabilities and technology for future productivit
Slide 15: Disciplined capital allocation
Disciplined capital allocation Essential 1 sustaining capex Further cash returns to Compelling Ordinary 2 dividends shareholders growth Iterative 3 cycle of Debt management 15 ©2019, Rio Tinto, All Rights Reserved
Slide 16: Disciplined ramp-up of investments
Disciplined ramp-up of investments Capital expenditure profile Maintained sustaining capital $ billion guidance of $2.0 to $2.5 billion per year, including: ~6.5 ~6.5 – Iron Ore sustaining capex of ~6.0 ~$1 billion per year 5.4 Depreciation Pilbara replacement capital 4.5 includes Koodaideri and Rob
Slide 17: Investing through the cycle
Investing through the cycle 2% CAGR** from an extensive pipeline of growth options World Class Resource Base and Established Exploration Programme Pre-Feasibility 6 Brownfield exploration 64 Greenfield exploration & Feasibility programmes programmes Arvida, AP60 Execution Pilbara Iron Ore Pilbara Ir
Slide 18: Discovery of copper-gold mineralisation in Western Australia
Discovery of copper-gold mineralisation in Western Australia Early success in copper at Winu*: – Copper-gold mineralisation intersected – Mineralisation close to surface 50-100m – 1.4 km of strike length open to North, South and East – Located in Western Australia and 100% owned – Extensive drilling
Slide 19: Strong base for future growth and profitability
Strong base for future growth and profitability Consistent Attractive growth financial discipline opportunities Safety is our priority #1 $29bn* 2% CuEq Returned to shareholders in Annual growth rate to 3 years, cash generative assets 2023 from broad pipeline and strong balance sheet of growth oppor
Slide 20: Appendix
Appendix
Slide 21: Net earnings reconciliation
Net earnings reconciliation ($bn) Reported Underlying Exclusions Exclusions from underlying EBITDA: – gains on disposal of businesses and land (Kitimat), and gain on EBITDA 23.3 18.1 5.1* formation of Elysis JV Depreciation & Amortisation (4.6) (4.6) 0.0 – gains on embedded commodity derivatives – o
Slide 22: Iron Ore
Iron Ore continued delivery from a world-class asset 2018 2017 2019 Shipments increased 2% Operating metrics comparison guidance Average realised price* $62.8 / t - 3% Maintained EBITDA margin Shipments (100% basis) 338mt + 2% 338-350Mt Strong demand for our 62% Operating cost / t** $13.3 / t - 0% $
Slide 23: Aluminium
Aluminium stable operations squeezed by raw material costs 2018 2017 2019 1% primary metal productivity Operating metrics comparison guidance creep**** Average aluminium price* $2,470 / t + 11% Average bauxite price** $38.7 / t + 6% Raw material and energy inflation Average alumina price*** $474 / t
Slide 24: Copper & Diamonds
Copper & Diamonds strong operational performance 2018 2017 2019 Improved performance Operating metrics comparison guidance at Escondida Copper price 297 c/lb + 6% – Resulting in $786 million Production – mined copper 634kt + 33% 550-600kt of dividends received Production – refined copper 275kt + 39%
Slide 25: Energy & Minerals
Energy & Minerals* a challenging year 2018 2017 2019 Production instability at RTIT an Operating metrics comparison guidance opportunity to improve in 2019 IOC pellets $114 / t + 5% – 2 furnaces currently being rebuilt at TiO2** $647 / t + 18% Rio Tinto Fer et Titane Production – IOC 9.0mt - 20% 11.
Slide 26: The industry fundamentals are robust with Rio Tinto leading the way
The industry fundamentals are robust with Rio Tinto leading the way Capex / Depreciation and amortisation* Gearing (Net debt / (Net debt + equity))* 400% 40% 300% 30% 200% 20% 100% 10% 0% 0% H1 2012 H2 2012 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 H2 2016 H1 2017 H2 2017 H1 2018 H2 20
Slide 27: Superior cash returns declared of $13.5 billion in 2018
Superior cash returns declared of $13.5 billion in 2018 2018 cash returns declared to shareholders $ billion 4.0 1.1 2.1 Grasberg and Dunkerque 13.5 proceeds 3.1 6.3 1.0 2.2 2018 interim dividend On-market plc SBB by 2018 final dividend Total returns from Off-market Ltd SBB On-market Plc SBB 2019 sp
Slide 28: Our strategy has delivered value through the cycle
Our strategy has delivered value through the cycle Superior cash generation World-class assets Operating and Commercial excellence Capabilities Portfolio Performance People & Partners Disciplined capital allocation Balance sheet strength Superior shareholder returns Compelling growth 28 ©2019, Rio T
Slide 29: Higher aluminium and RTIT prices partly offset by lower iron ore prices
Higher aluminium and RTIT prices partly offset by lower iron ore prices Underlying EBITDA 2017 vs 2018 $ million 19,000 277 18,580 Aluminium* Minerals Uranium Diamonds Copper Iron ore Other, net 500 282 281 182 49 33 0 17,000 (92) -500 (458) 15,000 2017 Price underlying EBITDA 29 * Aluminium include
Slide 30: Strong sales in iron ore, copper, gold and aluminium
Strong sales in iron ore, copper, gold and aluminium Underlying EBITDA 2017 vs 2018 $ million 366 863 203 185 286 177 19,000 277 18,580 18,406 (436) 14 (301) (40) (42) Aluminium Iron ore Gold Iron & Titanium Diamonds Copper Other 17,000 15,000 2017 Price Exchange Energy Inflation Flexed Volumes unde
Slide 31: Iron Ore maintaining our competitive advantage
Iron Ore maintaining our competitive advantage Pilbara cash unit cost 2018 cash unit cost of $13.3/t ($0.1/t lower than 2017) $ per tonne Focus on maintaining strong EBITDA margins (68% in 2018, in line with 2017) 20.4 Productivity initiatives and weakening Australian dollar in 2018 offset: 18.7 – S
Slide 32: Iron Ore lower prices partly offset by higher volumes
Iron Ore lower prices partly offset by higher volumes Underlying EBITDA 2017 vs 2018 $ million 12,000 11,520 321 27 11,325 142 11,008 (105) (31) (479) (70) 10,000 8,000 2017 underlying Price Exchange rates Energy Inflation Flexed Volumes Cash cost Tax & other 2018 underlying EBITDA 2017 underlying r
Slide 33: Aluminium higher prices and volumes offset by raw material cost headwinds
Aluminium higher prices and volumes offset by raw material cost headwinds Underlying EBITDA 2017 vs 2018 $ million 136 3,616 4,000 3,423 283 185 3,095 (132) (94) 3,000 (491) (215) 2,000 1,000 0 2017 underlying Price Exchange rates Energy Inflation Flexed Volumes Cash cost Tax & other 2018 underlying
Slide 34: Copper & Diamonds strong operational performance
Copper & Diamonds strong operational performance Underlying EBITDA 2017 vs 2018 $ million 260 65 2,776 3,000 316 26 1,904 356 1 1,780 2,000 (27) (25) (52) (48) 1,000 0 2017 Price Exchange Energy Inflation Flexed Volumes Cash cost Exploration & Escondida Grasberg Tax & other 2018 underlying rates 201
Slide 35: Energy & Minerals higher prices offset by coal disposal and one-off disruptions
Energy & Minerals higher prices offset by coal disposal and one-off disruptions Underlying EBITDA 2017 vs 2018 $ million 4,000 384 3,062 445 2,803 3,000 (2) (31) (92) (5) 2,193 (201) 2,000 (718) (339) (51) 1,000 0 2017 Price Exchange Energy Inflation Flexed Volumes Cash cost Coal gains on Coal dispo
Slide 36: Other movements in underlying EBITDA
Other movements in underlying EBITDA Underlying EBITDA impact Energy & Cash Interest, $ million 2017 FX/ price Inflation Volumes costs E&E Non-cash tax, other 2018 Other operations (116) 121 (117) 6 (31) - 2 64 (70) Exploration & Evaluation (net) (218) 2 1 - - (17) - - (231) Other (736) - 3 - (22) -
Slide 37: Modelling EBITDA
Modelling EBITDA Underlying EBITDA sensitivity 2018 ($m) impact on FY 2018 underlying average price/ rate EBITDA of 10% price/rate change Copper 297c/lb 388 Aluminium $2,110/t 612 Gold $1,269/oz 46 Iron ore (62% Fe FOB) $61.2/dmt 1,566 A$ 75USc 721 C$ 77USc 354 Oil $71/bbl 78 Note: The sensitivities
Slide 38: Modelling aluminium costs
Modelling aluminium costs ($/t) Impact a $100/t change in Canadian* smelting unit cash** cost sensitivity each of the input costs below will have on our 2018 Canadian smelting unit cash cost of $1,533/t Alumina (FOB) 191 Green petroleum coke (FOB) 34 Calcined petroleum coke (FOB) 30 Coal tar pitch (
Slide 39: Case Study: Active management at Kennecott
Case Study: Active management at Kennecott South impoundment – closed in 2002 North impoundment – opened 2002-present – No longer met seismic hazard design criteria – Design review board comprised of international experts – Upstream construction method – Designed to +7.25 magnitude earthquake (MCE*)
Slide 40: Closure, taking the long term view
Closure, taking the long term view Committed to closing our assets well At end 2018, closure and restoration provisions of $10 billion Dedicated closure team, in-house R&D Dedicated team, defined strategy and technical experts to improve closure outcomes and manage legacy sites Proven closure capabi