Rio Tinto Plc · LSE:RIO
Rio Tinto — H1 2020 Earnings Presentation
52 slides from Rio Tinto's earnings presentation, Jul 29, 2020
Slide 1: 2020 Half Year Results
2020 Half Year Results 29 July 2020
Slide 2: Cautionary and supporting statements
Cautionary and supporting statements This presentation has been prepared by Rio Tinto plc and Rio Tinto Limited (together with their subsidiaries, “Rio Tinto”). By accessing/attending this presentation you acknowledge that you have read and understood the following statement. Forward-looking stateme
Slide 3: J-S Jacques, Chief Executive
J-S Jacques Chief Executive
Slide 4: Extraordinary global challenges
Extraordinary global challenges Restrictions on movements of people and goods and severe dislocations in certain (commodity) markets 80 200 180 60 160 Global flights, in thousands 40 140 120 20 US$/bbl 100 0 80 -20 60 40 -40 20 -60 0 Jan-2020 Feb-2020 Mar-2020 Apr-2020 May-2020 Jun-2020 Jul-2020 WTI
Slide 5: A resilient performance in H1 2020
A resilient performance in H1 2020 Health, safety & well being our top priority – good progress $9.6 billion $3.8 billion Underlying EBITDA Paid to shareholders2 47% & 21% $2.7 billion Underlying EBITDA margin & ROCE1 Corporate taxes paid $2.8 billion $1.2 billion Free cash flow Royalties3 $4.8 bill
Slide 6: Financial resilience supports sustainability
Financial resilience supports sustainability Cultural Heritage COVID-19 – Engaging with PKKP1, Traditional Owners – Fully embedded rigorous health and hygiene across our operations and Indigenous groups controls across Australia – Progressing a return to normal rosters where – Board review of herita
Slide 7: $3.8bn of cash returns paid in H1 2020 with $2.5bn in H2
$3.8bn of cash returns paid in H1 2020 with $2.5bn in H2 $1.2bn $3.6bn + $2.5bn Sustaining capex Ordinary dividends paid 2020 interim dividend to be paid in September 2020 47% EBITDA margin $1.5bn Development capex $5.6bn +8% of operating TSR2 21% cash flow ROCE1 $0.3bn $0.2bn ERA fund transfer to t
Slide 8: Jakob Stausholm, Chief Financial Officer
Jakob Stausholm Chief Financial Officer
Slide 9: Resilient iron ore market in a turbulent world economy ...
Resilient iron ore market in a turbulent world economy ... China’s crude steel production (Mt annualised) Iron Ore* (1% increase YoY) 140 Mtpa 5 Yr Range 5 Yr Average 2019 2020 62% price HY Average 120 1150 1100 100 1050 80 1000 950 60 900 40 850 20 800 750 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Slide 10: ... with very volatile prices in other key commodities
... with very volatile prices in other key commodities Aluminium* Copper* TiO2 * (chloride slag) (-13% decrease YoY) (-11% decrease YoY) (+7% increase YoY) Price HY Average Price HY Average Price HY Average MW Premium (RHS) 850 2800 550 320 2600 500 300 800 450 2400 400 280 750 2200 350 260 2000 300
Slide 11: Very resilient financial results
Very resilient financial results ($bn, except for per share data) H1 2020 H1 2019 Comparison Gross revenue 20.3 21.8 -7% Underlying EBITDA 9.6 10.3 -6% ROCE 21% 23% Cash flow from operations 5.6 6.4 -12% Free cash flow 2.8 3.9 -28% Underlying earnings 4.8 4.9 -4% Underlying earnings per share ($) 2.
Slide 12: Stable EBITDA at constant prices and exchange
Stable EBITDA at constant prices and exchange Underlying EBITDA $ billion 10.3 0.6 0.3 9.9 0.1 0.2 0.1 0.2 0.3 0.2 9.6 Iron Ore -0.06 Aluminium -0.45 Copper -0.15 Other +0.05 H1 2019 Price Exchange Flexed H1 Volume Unit cash Energy Inflation Non-cash One-offs H1 2020 underlying 2019 and mix costs co
Slide 13: Temporary lower cash conversion
Temporary lower cash conversion $ billion -0.2 0.9 4.9 Temporary 4.8 -1.1 0.2 3.9 0.2 2.8 0.9 0.4 0.3 0.4 Capex / Working Joint venture Taxes Provisions Total Depreciation capital income / expensed/ / Other** dividend* paid Underlying earnings Free cashflow H1 2019 H1 2020 * Includes income and divi
Slide 14: Iron Ore
Iron Ore Strong operating performance at a time of high price H1 2020 H1 2019 2020 We remain even more committed Operating metrics comparison guidance to our relationship with communities Average realised price* $85.4 /t 0% via active engagement, following the events in the Juukan Gorge area Shipmen
Slide 15: Aluminium
Aluminium Stable operations and good cash conversion in challenging market H1 2020 H1 2019 2020 FCF of $0.6 billion despite Operating metrics comparison guidance challenging market conditions Average aluminium price* $1,849 / t - 15% Average alumina price** $ 264 / t - 30% Lower prices impacted EBIT
Slide 16: Copper & Diamonds
Copper & Diamonds Focus on productivity as price, grades and earthquake impact result H1 2020 H1 2019 2020 EBITDA and margin impacted by Operating metrics comparison guidance lower price, lower grades and Copper realised price 250 c/lb - 11% earthquake at Kennecott Production – mined copper 266kt -
Slide 17: Energy & Minerals
Energy & Minerals Steady performance with some COVID-19 constraints H1 2020 H1 2019 2020 Operational stability despite some Operating metrics comparison guidance COVID restrictions in Canada and IOC pellets price* $117 / t - 17% South Africa TiO2 slag price** $809 / t + 7% Commercial flexibility at
Slide 18: Disciplined allocation of capital
Disciplined allocation of capital 1 Essential sustaining capex Further cash returns to Compelling 2 Ordinary dividends shareholders growth 3 Iterative cycle of Debt management 18 ©2020, Rio Tinto, All Rights Reserved
Slide 19: Continue to invest $20bn over three years
Continue to invest $20bn over three years Capital expenditure profile Controlled ramp-up of investments $ billion continues. ~7.0 ~7.0 H1 2020 capex of $2.7 billion Depreciation ~6.0 - Sustaining capex of $1.2 billion 5.4 5.5 - Development and replacement 4.5 capex of $1.5 billion Capital portion of
Slide 20: Maintained our balance sheet strength
Maintained our balance sheet strength Net debt Balance sheet strength is an asset. $ billion Offers resilience and creates optionality 14.1 Gearing 10% and net debt to LTM^ EBITDA of 0.23 12.9 11.3 10.0 Operating cash flow of $5.6 billion 9.3 9.3 following $1 billion of taxes paid in June 8.0 2020 r
Slide 21: Shareholder returns based on a well defined pay-out policy
Shareholder returns based on a well defined pay-out policy Shareholder returns of 40-60% of underlying earnings on average $2.5 billion ordinary interim dividend, through the cycle $1.55 per share, up 3% year-on-year 53% pay-out ratio 160% 140% Primary decision taken by Board for final dividend 120%
Slide 22: Our investment case in action
Our investment case in action Our assets Our approach Our performance in H1 2020 Long life Sustainability (ESG) $4.8 billion underlying earnings Competitive Operational Excellence $2.7 billion of profit taxes paid Expandable + Value over volume = $1.2 billion royalty expenses1 Sustainable Capital di
Slide 23: J-S Jacques, Chief Executive
J-S Jacques Chief Executive
Slide 24: Improved conditions but wide range of potential outcomes ahead
Improved conditions but wide range of potential outcomes ahead A V-shaped recovery in China so far: high frequency data Current state of play 200 175 90 85 – China: improvement in conditions with good 150 80 performance in construction and infrastructure 125 75 100 70 % sectors. Support for consumer
Slide 25: Enhance resilience, strengthen partnerships and continue to adapt
Enhance resilience, strengthen partnerships and continue to adapt Resilience Partnerships Agile Strong balance sheet Access to resources COVID-19 tactical response Disciplined capital allocation Technology and R&D Rio Tinto post COVID-19 Access to markets Risk sharing New approach to growth Value ov
Slide 26: Financial, operational and commercial resilience
Financial, operational and commercial resilience Strong balance sheet & capital discipline A well tested and successful framework Access to markets Iron ore to China, Aluminium across North America Value over volume Free cash flow per share. Low operating costs People Health, safety & well being. Sk
Slide 27: Building our portfolio and creating options
Building our portfolio and creating options – $0.3 billion exploration and evaluation in H1 Exploration – Copper a priority – Winu, Resolution & Evaluation – New commodities including battery materials – Jadar lithium in Serbia – $1.5 billion development capital in H1 – Pilbara replacement: Koodaide
Slide 28: Oyu Tolgoi Underground takes another step to first production
Oyu Tolgoi Underground takes another step to first production Preferred mine design selected – lowering risk, providing optionality for extension – Block caving remains a viable mining option with pillars between panels to Hugo North ore body Longitudinal section address stability risks Remote techn
Slide 29: Winu progressing with Maiden Resource and further positive results
Winu progressing with Maiden Resource and further positive results – Inferred Mineral Resource of 503 Mt at 0.45% CuEq (0.2% CuEq cutoff) and 188 Mt @ 0.68% CuEq (0.45% CuEq cutoff)* – Deposit open at depth as well as to the North and Southeast – Studies progressing - metallurgical testing and basel
Slide 30: $38bn cash returns since 2016 including $2.5bn to be paid in H2 2020
$38bn cash returns since 2016 including $2.5bn to be paid in H2 2020 $10bn $22bn + $2.5bn Sustaining capex Ordinary and special 2020 interim dividend dividends paid to be paid in September 2020 44% average EBITDA $55bn $11bn $67bn $4bn 27% margin1 operating cash flows 17% + $12bn Development capex o
Slide 31: Appendices
My = ; ae CUR, BP 7p) RioTinto 29 July 2020
Slide 32: Lower aluminium and copper prices
Lower aluminium and copper prices Underlying EBITDA H1 2020 vs H1 2019 $ million 12,000 10,250 Iron ore Iron & Titanium Diamonds Copper Aluminium* Other, net 1,000 10,000 (604) 8,000 130 0 6,000 ( 28) ( 47) ( 63) ( 148) 4,000 ( 448) -1,000 2,000 0 H1 2019 Price underlying EBITDA * Aluminium includes
Slide 33: Only small variations in volumes across commodities
Only small variations in volumes across commodities Underlying EBITDA H1 2020 vs H1 2019 $ million 12,000 87 10,250 125 31 50 255 9,869 10,000 (604) (157) (106) (49) (35) (55) 8,000 (135) 6,000 4,000 Diamonds Gold Aluminium Copper Iron & Iron Ore Other Titanium 2,000 0 H1 2019 Price Exchange Energy
Slide 34: Iron Ore
Iron Ore Very stable EBITDA Underlying EBITDA H1 2020 vs H1 2019 $ million 54 7,659 7,698 7,552 120 33 58 (38) (21) (60) 7,000 H1 2019 Price Exchange rates Energy Inflation Flexed H1 2019 Volumes and Mix Cash costs Other H1 2020 underlying underlying underlying EBITDA EBITDA EBITDA – We increased ou
Slide 35: Aluminium
Aluminium Lower prices partly offset by improved costs and higher bauxite volumes Underlying EBITDA H1 2020 vs H1 2019 $ million 1,127 166 925 1,000 113 22 31 750 (22) (55) (457) 0 H1 2019 Price Exchange rates Energy Inflation Flexed H1 2019 Volumes Cash cost Other H1 2020 underlying underlying & Mi
Slide 36: Copper & Diamonds
Copper & Diamonds Lower volumes due to lower grades, KUC earthquake and lower prices Underlying EBITDA H1 2020 vs H1 2019 $ million 1,213 1,184 1,250 59 35 (99) (24) (154) 670 (202) (138) (20) 250 H1 2019 Price Exchange rates Energy Inflation Flexed H1 Volumes and Cash cost KUC Other H1 2020 underly
Slide 37: Energy & Minerals
Energy & Minerals Lower prices and one-off costs primarily relating to RBM Underlying EBITDA H1 2020 vs H1 2019 $ million 2,000 954 819 739 1,000 48 14 8 (157) (40) (16) (50) (22) 0 H1 2019 Price Exchange rates Energy Inflation Flexed H1 Volumes and Cash costs One-offs Other H1 2020 underlying 2019
Slide 38: Other movements in underlying EBITDA
Other movements in underlying EBITDA Underlying EBITDA impact Energy & Interest, $ million H1 2019 FX/ price Inflation Volumes Cash costs E&E Non-cash tax, other H1 2020 Other operations (88) 55 (5) 30 (53) - 35 16 (10) Exploration & Evaluation (net) (138) - - - - 27 - (10) (121) Other (370) 2 1 - (
Slide 39: Group level financial guidance
Group level financial guidance FY2020 FY2021 FY2022 CAPEX Total Group ~$6.0bn ~$7.0bn ~$7.0bn Sustaining Capex Group Up to $3.0bn Up to $3.0bn Up to $3.0bn Pilbara Sustaining Capex $1.0-1.5bn $1.0-$1.5bn $1.0-$1.5bn Effective tax rate 30% Returns Total returns of 40 – 60% of underlying earnings thro
Slide 40: Group level financial guidance
Group level financial guidance 2020 production guidance1 2020 costs $14-15/wmt (FOB), based on an Iron Ore Shipments 324 – 334mt (100% basis) Australian dollar exchange rate of $0.67 C&D C1 unit costs 120-135 c/llb Mined Copper 475 – 520kt Refined Copper 165 – 205kt Diamonds 12 – 14m carats Aluminiu
Slide 41: Oyu Tolgoi and Turquoise Hill Resources – key dates
Oyu Tolgoi and Turquoise Hill Resources – key dates Rio Tinto: completion of 2020 OT Feasibility Study and updated Mineral Reserves and Mineral Resources1 announced Rio Tinto: Definitive Estimate – projected to be complete3 03 July 2020 Q4 2020 Q3 2020 TRQ: to disclose Technical Report2 1 Prepared i
Slide 42: Debt maturity profile
Debt maturity profile 30 June 2020 debt maturity profile* $ million Reported gross debt decreased by $0.7 billion to $13.6 billion at 30 June, 2,000 mainly attributable to the EUR 2020 1,800 bond redemption 1,600 Average outstanding debt maturity of 1,400 corporate bonds at ~13 years 1,200 (~ 10 yea
Slide 43: Pro-forma net debt reconciliation
Pro-forma net debt reconciliation FY2019 HY 2020 $bn $bn Reported net debt 3.7 4.8 Australian tax top-up in June of following year 1.0 Shareholder returns remaining relating to disposals 0.2 Proforma net debt 4.9 4.8 Note: $0.2bn in 2019 is the remaining share buyback relating to the disposal of coa
Slide 44: Modelling EBITDA
Modelling EBITDA Underlying EBITDA sensitivity H1 2020 ($m) impact on FY 2020 underlying average / rate EBITDA of 10% price/rate change Copper 249c/lb 276 Aluminium $1,595/t 447 Gold $1,645/oz 38 Iron ore (62% Fe CFR freight-adjusted) $85.1/dmt 1,892 A$ 0.66US$ 542 C$ 0.73US$ 209 Oil (Brent) $41/bbl
Slide 45: Modelling aluminium costs
Modelling aluminium costs Canadian* smelting unit cash** cost sensitivity ($/t) Impact of $100/t change in each of the input costs below will have on our H1 2020 Canadian smelting unit cash cost of $1,196/t Alumina (FOB) $191 Green petroleum coke (FOB) $36 Calcined petroleum coke (FOB) $33 Coal tar
Slide 46: Application of the returns policy
Application of the returns policy Capital return considerations Comments – Operating cash flow of $5.6 billion 1 Results for H1 2020 – FCF of $2.8 billion – Underlying earnings down 4% to $4.8 billion – Focused on Oyu Tolgoi Long-term growth prospects – Investing in replacing high quality assets in
Slide 47: COVID-19: Chinese High-frequency data
COVID-19: Chinese High-frequency data Daily coal consumption of major electricity producers Daily property sales, recovering k tons k sqm 1,000 1,200 800 800 600 400 400 200 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2017 2018 2019 2020 2017 201
Slide 48: COVID-19: Chinese High-frequency data
COVID-19: Chinese High-frequency data Daily food wholesale price index, easing Daily cement price index vs rebar price Index Index RMB per ton 160 180 5100 140 160 4400 120 140 3700 100 80 120 3000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-1
Slide 49: Technology at our core
Technology at our core Sustaining our leading Deploying emerging World class talent cost positions technologies Delivering real Proven track record Tackling critical growth options in project study industry challenges through exploration and execution 49 ©2020, Rio Tinto, All Rights Reserved
Slide 50: Leading mining industry innovation
Leading mining industry innovation R&D / Pilot Phase Deployment start date Deployment 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Pilbara remote operations centre Automation Autonomous trucks MAS1 / RTVis2 TM Autonomous drills AutoHaulTM Tailings Press Filter tech Process Tech AP45 Aluminium S
Slide 51: Group Income Statement and Cash flow statement
Group Income Statement and Cash flow statement Rio Tinto Group Oyu Tolgoi and Turquoise Hill(1) Proforma Rio Tinto Group (excluding OT and TRQ)(2) Jun-20 Jun-19 Jun-20 Jun-19 Jun-20 Jun-19 YTD YTD YTD YTD YTD YTD Actual ($m) Actual ($m) Actual ($m) Actual ($m) Actual ($m) Actual ($m) Consolidated sa
Slide 52: Group Balance Sheet
Group Balance Sheet Rio Tinto Group Oyu Tolgoi and Turquoise Hill(1) Proforma Rio Tinto Group (excluding OT and TRQ) Jun-20 Dec-19 Jun-20 Dec-19 June-20 Dec-19 YTD YTD YTD YTD YTD YTD Actual ($m) Actual ($m) Actual ($m) Actual ($m) Actual ($m) Actual ($m) Non-current assets 69,376 70,499 10,155 9,58