Rio Tinto Plc · LSE:RIO
Rio Tinto — FY2020 Earnings Presentation
67 slides from Rio Tinto's earnings presentation, Feb 17, 2021
Slide 1: 2020 Full year results presentation
Notice to ASX 2020 Full year results presentation For personal use only 17 February 2021 Attached is the Rio Tinto 2020 full year results presentation to be given at 8.30am (GMT) / 7.30pm (AEDT) today by Rio Tinto Chief Executive Jakob Stausholm, and interim Chief Financial Officer Peter Cunningham.
Slide 2: Contacts
Contacts For personal use only media.enquiries@riotinto.com riotinto.com Follow @RioTinto on Twitter Media Relations, United Kingdom Media Relations, Australia Illtud Harri Jonathan Rose M +44 7920 503 600 T +61 3 9283 3088 M +61 447 028 913 David Outhwaite T +44 20 7781 1623 Matt Chambers M +44 778
Slide 3: Welcome to 2020 full year results presentation
For personal use only Welcome to our 2020 full year results presentation. Due to ongoing restrictions as a result of the COVID pandemic we are holding this presentation virtually. There will be time at the end of the presentation for Q&A with Jakob, Peter and Simon Thompson. 1
Slide 4: Cautionary statement
For personal use only I would like to draw your attention to the cautionary statement, which contains important information on the basis on which this presentation has been prepared. Now, let me hand over to Jakob and Peter. 2
Slide 5: Opening remarks: a year of extremes
For personal use only Good morning and good evening from Perth. I would like to acknowledge the Traditional Owners of the land where I am presenting from today, the Wadjuk Noongar people. I would also like to acknowledge and pay my respects to all Traditional Owners and Indigenous peoples that host
Slide 6: Juukan Gorge and rebuilding partnerships
demonstrated a commitment to rebuild our partnership. The work we have to do at Juukan is beyond remediation of the site. I am convinced that we must not only remediate the site but work in partnership with Traditional Owners on the development of our business for a shared future. For personal use o
Slide 7: 2020 operational and financial performance
For personal use only Turning to our 2020 operational performance. I want to thank and congratulate all our employees on their agility, resilience and innovation, which enabled the business to manage the challenges of COVID‐19. I’m very proud of how we adapted to the challenges thrown at us. The way
Slide 8: Balance sheet, dividend and climate
initial weakness in the early part of 2020, the Chinese economy has performed strongly, benefitting from targeted stimulus. This underpinned strong commodity prices, particularly for iron ore. As a company, we also benefited from our host governments recognising mining as For personal use only an es
Slide 9: Introduction by interim CFO
For personal use only Thank you Jakob. Good morning and good afternoon everyone. I am honoured to be here as interim CFO. I’ve worked at Rio for the past 27 years across a number of roles including Group Controller, Head of Health Safety Environment and Communities and Head of Investor Relations. Le
Slide 10: Iron ore market
For personal use only Overall, global steel production fell by 1% in 2020. While China lifted its output to a new record of just over 1 billion tonnes, we witnessed a 9% decline in the rest of the world. This gave rise to solid growth in China’s demand for seaborne iron ore which was exacerbated by
Slide 11: Aluminium, copper and other commodity markets
For personal use only Turning to slide 7. While our iron ore business has benefited from robust demand and resilient prices, other commodities have seen more volatility. But we did see a marked recovery in the second half of the year. Demand for primary aluminium declined by around 3% in 2020. COVID
Slide 12: 2020 financial results summary
For personal use only Now on to our financial results for 2020 summarised on slide 8. As Jakob already mentioned, we’ve announced a very resilient set of financials against the backdrop of unprecedented conditions stemming from the pandemic. Starting with revenue. The 3% increase in revenue was most
Slide 13: Underlying EBITDA and free cash flow drivers
For personal use only As you can see on slide 9 the biggest driver in 2020 was commodity prices. These boosted EBITDA by $3.4 billion in aggregate nearly all of which was iron ore. Lower volumes were mainly from a reduction in gold grades at Oyu Tolgoi and reduced refined copper sales at Kennecott d
Slide 14: Return on invested capital
For personal use only Turning to slide 10. In 2020, we further improved our Return on invested capital to 27%. Our industry‐leading profitability is an ongoing feature of our performance. For 19 of the past 20 years we’ve delivered double digit return on invested capital. 10
Slide 15: Free cash flow generation
For personal use only Most importantly, as shown on slide 11, we have a business model that turns earnings into cash. Ever since we amended our capital allocation framework back in 2013 we‘ve delivered strong and stable free cash flow, averaging $6.8 billion over the last eight years. And we did it
Slide 16: Iron ore performance
For personal use only Before talking about our iron ore performance, I’d like to echo Jakob’s words about the deep regret we feel about the tragic events at Juukan Gorge. We’ve reassessed all our activities that have the potential to impact heritage sites. We’ll continue to review mine plans to ensu
Slide 17: Iron ore replacement mine capacity
replacement mine capacity at our existing hubs in Robe Valley, West Angelas and Western Turner Syncline as well as Gudai‐Darri. Our shipments guidance for 2021 takes into account the risks associated with this. For personal use only 12
Slide 18: Iron ore unit cash costs
For personal use only Let me now turn to look at our iron ore unit cash costs on slide 13. Since 2015, these have been stable at between $13 and $15 a tonne. In 2020, we came in just above that at $15.40. Two factors account for the increment. COVID‐19 costs were 60 cents per tonne due to controls w
Slide 19: Iron ore costs outlook
And, finally, other items such as underlying inflation and higher fuel partially offset by efficiencies add 40 cents. While we have not provided specific cost guidance beyond 2021, we will be entering 2022 in much better shape: There will be an impact from our continuing brownfield For personal use
Slide 20: Aluminium
For personal use only Moving onto Aluminium on slide 14. Our financials demonstrate that this is the best integrated aluminum business globally. Production was stable despite COVID‐related impacts on our operations, and also on our markets which gave rise to lower sales prices and reduced demand for
Slide 21: Copper & Diamonds
For personal use only Let’s now take a look at our Copper & Diamonds group on slide 15. 2020 started with weak market conditions, COVID‐19 restrictions and a 5.7 magnitude earthquake in Utah. We also experienced delays in restarting the Kennecott smelter following a planned shutdown and a temporary
Slide 22: Energy & Minerals
For personal use only Turning now to Energy and Minerals on slide 16. The business was flexible and resilient from an operational perspective while fully complying with significant COVID restrictions in the US, Canada and South Africa. At the Iron Ore Company of Canada we took advantage of stronger
Slide 23: Capital allocation framework
For personal use only Now, there is one thing that will not change at Rio Tinto and that is our capital allocation framework as shown on slide 17. You will have seen this slide many times before but it is important to point out that we remain fully committed to it. Sustaining capital is a priority f
Slide 24: Capital expenditure guidance
For personal use only Over the last few years, we have consistently talked about a disciplined ramp‐up of our capital investments. This is exactly what we are doing. Slide 18 shows 2020 capex at $6.2 billion, 13 per cent higher. COVID restrictions did slow the pace of spend in the first half, but wh
Slide 25: Balance sheet
For personal use only As shown on slide 19, our balance sheet remains very strong. Net debt dropped further to just $700 million, or $1.6 billion on a proforma basis when you include 2020 taxes paid in arrears. We also have high liquidity of over $20 billion and a long‐dated finance portfolio with a
Slide 26: Shareholder returns
For personal use only Now onto shareholder returns on slide 20. Our policy, which dates back to 2016, is to pay out 40 to 60 per cent of underlying earnings on average through the cycle. Acknowledging the cyclical nature of our industry, the Board supplements the ordinary dividend with additional re
Slide 27: Jakob Stausholm
RioTinto ‘ob Stausholm 21
Slide 28: Core strengths and room for improvement
For personal use only Thanks Peter. I think you very effectively demonstrated many of Rio’s core strengths. Our foundation is fundamentally strong. But there is also room for improvement. Our 2020 safety performance is the strongest in our 150‐year history. Safety must remain our first priority. One
Slide 29: Four areas of focus
For personal use only We will pursue this by focusing on four areas. Firstly, simply put: Rio Tinto must be the ‘best operator’. Our 2020 results demonstrate our operational strength and improvements, especially with the additional challenges of COVID‐19. But we can further sharpen the consistency o
Slide 30: New leadership team
For personal use only My first task as Chief Executive was to carefully choose my leadership team. I fundamentally believe in teamwork. It will not be me taking all the decisions and I am certainly not the one that has all the answers. So, setting the team was absolutely crucial. Three weeks ago, I
Slide 31: Operational excellence
For personal use only We have today announced a set of strong results, excellent financial performance and an improved operational performance in 2020 compared with 2019. But I believe there is room for improvement and we will pursue this. To start, we must achieve operational excellence by unlockin
Slide 32: Impeccable ESG credentials
For personal use only When I joined Rio Tinto, two years ago, one of the attributes that attracted me to the company was a longstanding track record and commitment to how it operated – way beyond the financial performance. While the destruction of Juukan Gorge has understandably damaged our standing
Slide 33: Climate change targets and governance
with our customers – and their customers – to reduce emissions and decarbonise the production of certain metals. We will include climate change targets in management incentive plans. And our TCFD‐ aligned Climate Change report will be put to an advisory vote at our 2022 Annual For personal use only
Slide 34: Portfolio renewal and major projects
For personal use only Turning to our portfolio, and how we renew it over time. We must double down on development, to create the portfolio for the next decade and the decade beyond. We have time to do so, our portfolio should not be seen through a quarterly lens, but in terms of decades. Our history
Slide 35: Simandou, Resolution Copper and exploration
pathway. We continue to work with our partners to optimise the Simandou project. We expect to complete the first phase of the technical optimisation work on the infrastructure in the first half of 2021. Activity at the mine area has commenced and For personal use only an update of the Social and Env
Slide 36: Oyu Tolgoi underground
For personal use only Oyu Tolgoi is an impressive mine. It started producing in 2014 and has already delivered over one million tonnes of copper. When fully ramped up, it will be the world’s fourth largest copper mine. The underground expansion is well progressed and we have overcome various technic
Slide 37: Oyu Tolgoi discussions with Mongolia
team and they have commenced discussions with the Government of Mongolia. I remain convinced that we will be able to find mutually acceptable solutions as the Oyu Tolgoi development is not only an impressive engineering achievement, delivering the needed copper to the world but it is fundamentally a
Slide 38: Social license and Chief Executive Australia
For personal use only I’d like to conclude with my fourth area of focus. To truly unleash our full potential, as well as looking at how we can improve what we do internally, we need to be more outward looking and earn and protect our social license. As I said earlier, we must understand our role in
Slide 39: Closing remarks and Q&A
I’m looking forward to you meeting our new Executive Leadership team during the year, and no later than the Capital Markets Day in the second half. We now have a full agenda ahead and I must say I am really looking forward to the work – to progress the agenda, develop our executive team and make Rio
Slide 40: For personal use only
For personal use only 30
Slide 41: Materials essential for a low-carbon future
We produce materials essential for a low-carbon future Rising societal expectations Affecting both demand and supply of commodities Decarbonisation Electrification of energy, transport and industries. Demand for higher product quality Population Urbanisation & Transition growth industrialisation in
Slide 42: Oyu Tolgoi delivers substantial economic value to Mongolia
Oyu Tolgoi delivers substantial economic value to Mongolia FDI: OT accounts for one-third of Mongolia’s GDP; 70% of Foreign Direct Investment JOBS: Country's largest private-sector employer, workforce of 12,000 is 95% Mongolian TAXES: Since 2010, OT has spent US$11.6bn in-country in the form of sala
Slide 43: Significant Paterson footprint with potential beyond Winu
Significant Paterson footprint with potential beyond Winu — Extensive portfolio of 100% owned tenure, majority owned joint ‘IPA venture (JV) tenure, and active earn-in opportunities Citadel JV (Antipa) 51% Secured — Continued positive engagement and partnership with local Traditional SER coats: SY |
Slide 44: Resolution Copper enters next phase of public consultation
Resolution Copper: enters next phase of public consultation Timeline Publication of the final EIS on 15 Jan triggers aland exchange approved by the US Congress under the Obama Administration in 2014 The final EIS outlines mitigation measures for potential future impacts including socioeconomics, air
Slide 45: Committed to the Simandou project and Guinea
We are committed to the Simandou project and Guinea — One of the world’s largest untapped and richest high- grade iron ore deposits, located in Guinea — High-grade ores can support the transition to lower- carbon steel — Strengthens Rio Tinto’s iron ore portfolio as well as our product offering — Co
Slide 46: Portfolio to perform in proactive climate action scenarios
Our portfolio to perform strongly in scenarios with proactive climate action Our Scope 3 goals to guide our partnerships 2020 Highlights - Technology for reductions in steelmaking carbon intensity of at - Reduced emissions by 1.1MtCO2e or 3% least 30% from 2030 vs 2018 baseline, though flat in 2020
Slide 47: Portfolio positioned for low-carbon transition
Our portfolio is well positioned for the low-carbon transition substitutable today Thermal coal, oil and gas 0% High transition risks Lower Scope 18 2 risk {notin our portfolio) 0 0 0% sraatarseeatd Copper, Aluminium, battery mi Percentage share of Group: Revenue (%) Growth capex" (%) Lower Scope 3
Slide 48: START: nutrition label for materials
START Empowering customers with a “nutrition label” for materials Ss a : oe — Demand Transparency §§ Digital - Growing demand for qualitative - Transparency from mine to metal information about materials Points of distinction from provenance to production START provides the information consumers dem
Slide 49: ELYSIS zero carbon metal
ELYSIS zero carbon metal meets new market demand Scaling up ELYSIS™ technology — ELYSIS has achieved stable cell operation, producing commercial metal grade — Completed construction of new Industrial R&D Center in Saguenay-Lac-St-Jean for next steps in technology scale-up — Commissioning in full swi
Slide 50: Sustainability Fact Book summary
Sustainability Fact Book summary People Safety Diversity Social Community Climate Environment Water 2020 achievements Zero fatalities at managed operations. All injury frequency rate (AIFR) at 0.37 (target 037), reduced 12% from 2019 (0 42) ~ 26.1% of senior management(c) were women, up from 22.6% i
Slide 51: Strong iron ore pricing driving EBITDA
Strong iron ore pricing driving EBITDA Underlying EBITDA 2020 vs 2019 $ million 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 eur || Iron ore Iron & Titanium Diamonds Copper Aluminium” Other, net 4,000 3,262 3,000 2,000 1,000 405 181 0 es (47) (50) +000 (314)
Slide 52: Variations in volume driven by mine phasing and markets
Some variations in volume driven by mine phasing and market conditions Underlying EBITDA 2020 vs 2019 $ million 28,000 26,000 24,000 22,000 20,000 2197 3,407 (103) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2019 Price Exchange undertying rates EBITDA Energy Inflation 24711 (492) Fl
Slide 53: Iron Ore
Iron Ore Strong pricing supports EBITDA Underlying EBITDA 2020 vs 2019 $ million 25,000 3,161 156 20,000 16,098 — 15,000 (282) 7) 10,000 5,000 o 2019 Price Exchange rates Energy Inftation underlying EBITDA ‘Strong operational performance enabled us to take advantage of the rising price environment f
Slide 54: Aluminium
Aluminium Lower prices and volumes partly offset by improved costs Underlying EBITDA 2020 vs 2019 $ million 2,400 2,285, 2.200 18 2.000 tiie 1/800 (68) . (330) 1,600 4400 1,200 1,000 2019 Price Exchangorates—_-Enorgy Inflation underiying EBITDA Our aluminium business was resiliont in 2020, despite s
Slide 55: Copper & Diamonds
Copper & Diamonds Higher prices & cost reduction efforts partly offset by lower volumes and extended maintenance activities Underlying EBITDA 2020 vs 2019 $ million 2,900 2700 523 a — 23000, 3 urs 1,900 1/700 4/500 2019 Price Exchange rates Energy Inflation underlying EBITDA - At$2.2 billion, underl
Slide 56: Energy & Minerals
Energy & Minerals Stable EBITDA despite COVID-19 restrictions Underlying EBITDA 2020 vs 2019 $ million 3,000 75 1,880 2,000 1,762 69 32 1,646 (0) 61) (9) 70 4,000 (44) (70) 2019 underlying «Price -—=«Exchango rates Energy Inflation -Flexed 2019 Volumes and Mix Cash costs One-off Other 2020 underlyin
Slide 57: Other movements in underlying EBITDA
Other movements in underlying EBITDA Underlying EBITDA impact Energy & $ million 2019 FX! price Inflation Other operations 7 : 74 Exploration & Evaluation (net) -315 9 - Other 629 17 10 Total -1,021 26 64 - Other operations includes the Gove alumina refinery (curtailed in May 2014), Rio Tinto Marine
Slide 58: Group level financial guidance
Group level financial guidance CAPEX Total Group Sustaining Capex Group Pilbara Sustaining Capex Effective tax rate Returns £2021, Rio Tinto, All Rights Reserved FY2021 ~$7.5bn. $3.0 - $3.5bn $1.2-$1.6bn 30% Total returns of 40 - 60% of underlying earnings through the cycle FY2022 ~$7.5bn $3.0 - $3.
Slide 59: Product group level guidance
Product group level guidance 2021 production guidance’ Iron Ore Shipments 325 — 340mt (100% basis) cap Mined Copper 500 - 550kt Refined Copper 210 - 250kt Diamonds 3.0- 3.8m carats* Aluminium Bauxite 56 - 59mt Alumina 7.8-8.2mt Aluminium 3.1-3.3mt Minerals Ti02 “1.1 =1.3mt loc 10.5- 12.0 mt? BO; ~0.
Slide 60: Debt maturity profile
Debt maturity profile 31 December 2020 debt maturity profile* $ million 2,000 1,800 1,600 © 8888 | ot 2028 2027 2028 sm External borrowings 2029 2030 2031 202 | 2033 2035 20% | mLeases 2097 2038 | 2039 | 2 2041 | “Numbers based on December 2020 accounting value. The debt maturty profle shows $12 bil
Slide 61: Pro-forma net debt reconciliation
Pro-forma net debt reconciliation 2020 $bn Reported net debt 07 Australian tax top-up in June of following year 0.9 Shareholder returns remaining relating to disposals - Proforma net debt 1.6 Note: $02bn in 2019 isthe remaining share buyback relaing to the disposal of coal assets RioTinto ©2021, Rio
Slide 62: Modelling EBITDA
Modelling EBITDA Underlying EBITDA sensitivity Copper Aluminium Gold Iron ore (62% Fe CFR freight-adjusted) AS cs Oil (Brent) NNole: The sensiivties give the estimated effect on underlying EBITDA assuming that each indvidual price or exchange rate moved in isolion. The relaionship between curencies
Slide 63: Modelling aluminium costs
Modelling aluminium costs Canadian* smelting unit cash** cost sensitivity (Sit) Impact of $100/t change in each of the input costs below will have on our FY 2020 Canadian smelting unit cash cost of $1,162/t Alumina (FOB) $191 Green petroleum coke (FOB) $27 Calcined petroleum coke (FOB) $36 Coal tar
Slide 64: RTA Value Chain - 2020 Actuals
RTA Value Chain - 2020 Actuals ee Ee Bauxite 56.1 dmt RTA Intersegment Bauxite 39.4 dmt 3" Party Sales Alumina 8.0mt 20% Alumina 1.6mt 54
Slide 65: Application of the returns policy
Application of the returns policy Capital return considerations Results for FY 2020 Long-term growth prospects Balance sheet strength 40-60 per cent of underlying earnings through the cycle Balanced between growth and shareholder returns Outlook Comments — Operating cash flow of $15.9 billion — FCF
Slide 66: Group Income Statement and Cash flow statement
Group Income Statement and Rio Tinto Group Dec-20 YTD ussm Consolidated sales revenue 44,611 Profit after tax for the year 10,400 ~ attributable to owners of Rio Tinto (net earnings) 9,769 = attributable to non-controting interests 031 Alternative performance measures (as per Financial Information b
Slide 67: Group Balance Sheet
Group Balance Sheet Rio Tinto Group Dec-20 YTD ussm Non-current assets 76,535 Current assets 20,855 Total assets 97,390 ‘Current labiltios (11,607) Non-current liabilities (33,880) Total liabilities (45,487) Net assets 51,903 Equity attributable to non-controling interests 4,849 Equity attributable