Slide 1: 2016 half year results
03 August 2016 Highlights Financial performance Outlook Appendix 2016 half year results
Slide 2: Cautionary statements
2 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 contains certain forward-look
Slide 3: J-S Jacques, Chief executive
03 August 2016 Highlights Financial performance Outlook Appendix J-S Jacques Chief executive
Slide 4: Delivered shareholder value in H1 2016
4 Delivered shareholder value in H1 2016… Net cash from operating activities of $3.2 billion Reduced costs by $0.6 billion Total capex spend of $1.3 billion Disposal proceeds of $0.6 billion received in the half Strong balance sheet with net debt reduced to $12.9 billion Final 2015 dividend of $1.9
Slide 5: Maintained 33% Group EBITDA margins
5 … and maintained 33% Group EBITDA margins Iron Ore Aluminium • Pilbara operating FOB EBITDA margins • Integrated operating EBITDA margins of 58% of 25% • Cash flows from operations of $1,690m • Cash flows from operations of $993m and free cash flow of $1,332m and free cash flow of $660m Copper & D
Slide 6: Chris Lynch, Chief financial officer
03 August 2016 Highlights Financial performance Outlook Appendix Chris Lynch Chief financial officer
Slide 7: Prices reduced earnings by 65%, partially offset by exchange, energy and management actions
7 Prices reduced earnings by 65%, partially offset by exchange, energy and management actions Underlying earnings H1 2015 vs H1 2016 US$ million (post tax) 3,000 2,923 2,500 Total cost reductions of $414m post-tax or $580m pre-tax 2,000 410 4 46 1,563 1,500 61 241 1,252 (125) (74) (24) 1,000 (1,899)
Slide 8: Net earnings
8 Net earnings US$m H1 2016 underlying earnings 1,563 Impairments/Onerous contracts (503) Losses/gains on disposals 193 Exchange gains/losses on 558 debt and derivatives Restructuring costs and (88) global headcount reductions Other (10) H1 2016 net earnings 1,713 ©2016, Rio Tinto, All Rights Reserv
Slide 9: Achieved almost $6.8 billion of cost reductions against 2012 base
9 Achieved almost $6.8 billion of cost reductions against 2012 base Pre-tax operating cash cost improvements Reduction vs. 2012 (US$ billion) • Achieved $580 million of the $1 billion 2016 cost target • Cost performance helped deliver a 1.0 8.2 H1 2016 EBITDA margin of 33% (34% in FY 2015) • Strong
Slide 10: Disciplined capital allocation focuses spend on the most compelling projects
10 Disciplined capital allocation focuses spend on the most compelling projects Capital expenditure profile • Completed two projects in 2015 US$ billion1 • Capital allocation discipline requires project IRR >15% ~5.5 • Growth capital is focused around ~5 4.7 three key approved projects: ~4 − Amrun −
Slide 11: Strong balance sheet remains fundamental
11 Strong balance sheet remains fundamental Debt and net gearing ratio1 • Net debt levels $0.9 billion lower vs US$ billion Dec. 2015, despite $1.9 billion 29.4 28.3 dividend payment 25.7 24.9 24.8 23.1 • $8.3 billion of cash on hand as at 30 21.2 June 2016 22.1 • Targeting 20-30% gearing ratio 18.1
Slide 12: Gross debt has reduced by almost $2 billion
12 Gross debt has reduced by almost $2 billion Bond maturity profile (Dec-15 vs Jun-16) • Gross debt has been reduced during US$ billion H1 2016 5 − $6.0 billion of bonds repurchased or repaid out of cash balance − $4.1 billion of Oyu Tolgoi Project 4 Finance (OTPF) fully consolidated 3 in H1 2016 −
Slide 13: Our capital allocation framework
13 Our capital allocation framework 1. Essential 2. Ordinary 3. Iterative cycle of sustaining capex dividends Further cash returns to Compelling shareholders growth Debt management ©2016, Rio Tinto, All Rights Reserved
Slide 14: Interim dividend of 45 US cents per share
14 Interim dividend of 45 US cents per share • H1 2016 interim dividend of 45 US Balanced capital allocation cents per share declared by Board • Interim dividend equates to Maintain an appropriate balance ~US$809m on gross basis between: • Balance between interim and final to • Investment in compell
Slide 15: J-S Jacques, Chief executive
03 August 2016 Highlights Financial performance Outlook Appendix J-S Jacques Chief executive
Slide 16: Market conditions remain volatile
16 Market conditions remain volatile Use of credit kick-started housing Medium-term prospects for global growth activity in China Percentage change, year-on-year Percentage growth, year-on-year 40 6 30 Forecast, 5 Sep -2011 Actual 20 Growth Forecast, Oct -2013 4 10 Forecast, Apr - 2016 3 0 2 -10 -20
Slide 17: Continual improvement to create value
17 Continual improvement to create value World class assets Balance sheet Portfolio strength Disciplined capital Operating excellence allocation Superior Performance shareholder returns Capabilities People & Compelling Partners growth SUPERIOR CASH GENERATION ©2016, Rio Tinto, All Rights Reserved
Slide 18: Tier 1 assets at the centre of the business
18 Tier 1 assets at the centre of the business Copper & Energy & Iron Ore Aluminium Diamonds Minerals Bauxite Oyu Tolgoi, Grasberg Borates, Coal, Main Pilbara First quartile Escondida, Kennecott IOC, TiO2 & businesses smelters & Diamonds Uranium Low-cost, world- Demand-led operating Large, low-cost
Slide 19: Safety comes first
19 Safety comes first A history of continual improvement in safety AIFR per 200,000 hours worked • Fatality in the Pilbara in 2016 1.4 • Lowest ever injury rates in 2015 • Continued focus on personal and 1.2 process safety across all 1.0 operations 0.8 • Introduction of new Critical Risk Management
Slide 20: Continually challenge to deliver operational excellence
20 Continually challenge to deliver operational excellence H1 2016 haul truck effective utilisation Percentage • Operational excellence is embedded across the Group • Costs and productivity target challenges the business to +30% constantly improve • Growth & Innovation promotes: − Opportunity identi
Slide 21: Commercial capability to capture full value
21 Commercial capability to capture full value Iron Ore Aluminium Pilbara Blend Fines achieved average spot price against index1 Value-added product represents >50% of production US$/dmt above Platts 62% index Achieved premia US$ per tonne 1.1 0.8 0.8 227 251 226 62%Fe index 2014 2015 H1 2016 2014 2
Slide 22: Delivering value for 50 years
22 Delivering value for 50 years World-class asset low-cost, long-life, expandable Superior shareholder returns Average EBITDA margin of 50% since 1963 Innovative partnerships 10 Land Agreements with Traditional Owners ©2016, Rio Tinto, All Rights Reserved
Slide 23: Focused investment in compelling growth
23 Focused investment in compelling growth Al Cu Fe Amrun OT Underground Silvergrass Approved in November 2015 Approved in May 2016 Approved in August 2016 ~20 Mt/a of mine and 22.8 Mt/a of bauxite1 560ktpa2 of copper plant capacity3 Expected IRRs: >20%4 >20%5 >100%6 First production: 2019 2020 Stag
Slide 24: Continual improvement to create value
24 Continual improvement to create value World class assets Balance sheet strength Portfolio (gearing ratio of 20-30%) Disciplined capital Operating Superior shareholder excellence allocation returns (cash returns of Performance 40-60% of underlying earnings through cycle) Capabilities People & Comp
Slide 25: 2016 half year results
03 August 2016 Highlights Financial performance Outlook Appendix 2016 half year results
Slide 26: Developing people and delivering excellence
26 Developing people and delivering excellence CEO JS Jacques CFO Chris Lynch Aluminium Copper Energy Iron Ore Growth Health, Organisation Legal & (Montreal) & Diamonds & Minerals (Perth) & Innovation Safety & Resources Regulatory (London) (London) (Brisbane) Environment (London) Affairs (Perth) (Lo
Slide 27: Robust product group cash flows
27 Robust product group cash flows Net cash generated from operating activities ($m) H1’15 H1’16 Iron Ore 2,005 1,690 Aluminium 1,556 993 Copper & Diamonds 867 447 Energy & Minerals 676 469 Product group total 5,104 3,599 Other ops./ other items/ (669) (359) exploration Total 4,435 3,240 ©2016, Rio
Slide 28: Prices, lower energy costs and cost reductions partially offset lower volumes and write-downs
28 Prices, lower energy costs and cost reductions partially offset impact of lower volumes and asset write-downs Underlying earnings H2 2015 vs H1 2016 US$ million (post tax) 2,000 273 24 90 29 1,681 1,616 1,563 (30) (24) (232) (183) 1,000 0 H2 2015 Price Exchange Energy Inflation H2 2015 Volumes Ca
Slide 29: Weaker prices significantly reduced underlying earnings in H1 2016
29 Weaker prices significantly reduced underlying earnings in H1 2016 Underlying earnings H1 2015 vs H1 2016 US$ million (post tax) 3,000 2,923 2,500 2,000 3 10 (23) (28) (63) (72) (79) 1,500 (223) 1,000 (1,899) (661) (763) 500 0 H1 2015 Price underlying earnings ©2016, Rio Tinto, All Rights Reserve
Slide 30: Partly offset by exchange rates and energy costs
30 … partly offset by exchange rates and energy costs but with slightly lower volumes Underlying earnings H1 2015 vs H1 2016 US$ million (post tax) 3,000 2,923 158 2,500 27 16 2,000 2 0 (7) (37) 1,500 (45) 61 241 1,252 (74) (138) (24) 1,000 (1,899) 500 0 H1 2015 Price Exchange Energy Inflation Flexe
Slide 31: Iron Ore: cost reductions, volumes, exchange and energy offset lower prices
31 Iron Ore: cost reductions, volumes, favourable exchange and energy partially offset lower prices Underlying earnings H1 2015 vs H1 2016 US$ million (post tax) 2,500 2,100 2,000 1,743 101 51 154 63 47 1,438 1,500 (1) (744) (28) 1,000 500 0 H1 2015 Price Exchange Energy Inflation Flexed Volumes Cas
Slide 32: Aluminium: cost improvements and exchange rates partially offset lower prices
32 Aluminium: cost improvements and exchange rates partially offset lower prices Underlying earnings H1 2015 vs H1 2016 US$ million (post tax) 1,000 793 500 34 377 163 47 157 27 (4) (656) (10) (17) 0 H1 2015 Price Exchange Energy Inflation Flexed Volumes Cash cost Exploration Tax & other H1 2016 und
Slide 33: Copper & Diamonds: lower prices and volumes significantly lowered earnings
33 Copper & Diamonds: lower prices and volumes significantly lowered earnings Underlying earnings H1 2015 vs H1 2016 US$ million (post tax) 500 393 250 15 151 (236) (7) (14) - 1 23 (207) (35) (67) (250) H1 2015 Price Exchange Energy Inflation Flexed Volumes Cash cost Exploration Tax & other H1 2016
Slide 34: Energy & Minerals: favourable exchange, energy and cost reductions offset lower prices
34 Energy & Minerals: favourable exchange, energy and cost reductions offset lower prices Underlying earnings H1 2015 vs H1 2016 US$ million (post tax) 250 74 35 82 111 19 - (12) 122 (15) (50) (2) (250) (250) H1 2015 Price Exchange Energy Inflation Flexed Volumes Cash cost Exploration Tax & other H1
Slide 35: Other movements in underlying earnings
35 Other movements in underlying earnings Underlying earnings impact Interest, FX/ Energy & Cash Epl'n tax & US$ million H1 2015 price Inflation Volumes Costs eval'n other H1 2016 Other operations (20) (1) (10) 4 41 - (46) (32) Central Exploration (net) (56) 4 - - - (2) 1 (53) Interest (146) - - - -
Slide 36: Modelling earnings
36 Modelling earnings H1 2016 ($m) impact on 2016 average price/ underlying earnings of 10% Earnings sensitivity rate price/rate change Copper 213c/lb 204 Aluminium $1,544/t 450 Gold $1,221/oz 36 Iron ore (62% Fe FOB) $48/dmt 761 Coking coal (benchmark) $84/t 58 Thermal coal (average spot) $51/t 78