REG - Rio Tinto - Final Results
23/02/2022 07:00
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RNS Number : 4929C Rio Tinto PLC 23 February 2022
Rio Tinto announces record financial results and total dividend of 1,040 US
cents per share for 2021, a 79% payout
23 February 2022
Rio Tinto Chief Executive Jakob Stausholm said: "Our people have continued to
safely run our world-class assets and are working hard to improve our
operational performance, despite challenging operating conditions from
prolonged COVID-19 disruptions. The recovery of the global economy, driven by
industrial production, resulted in significant price strength for our major
commodities, which we were able to capture, achieving record financial results
with free cash flow of $17.7 billion and underlying earnings of $21.4 billion,
after taxes and government royalties of $13.0 billion. This enables us to pay
our highest total dividend ever of 1,040 US cents per share, including a 247
US cents per share special dividend, representing a 79% payout.
"With the launch of our new strategy, we have set a new direction for Rio
Tinto to thrive in a decarbonising world. We have a portfolio that is well
positioned, and are targeting disciplined investment in commodities that will
see strong demand in the coming decades. Our agenda is an ambitious,
multi-year journey which we are determined to deliver and we have already
taken the first steps, with underground operations under way following the Oyu
Tolgoi agreement and a binding agreement to acquire the Rincon lithium project
in Argentina. We continue to evolve and deepen the way we engage and interact
with all stakeholders as we work hard to generate and strengthen relationships
wherever we operate. Our actions will ensure we continue to deliver attractive
returns to shareholders, invest in sustaining and growing our portfolio, and
make a broader contribution to society, particularly in relation to the drive
to net-zero carbon emissions."
At year end 2021 2020 Change
Net cash generated from operating activities (US$ millions) 25,345 15,875 60 %
Purchases of property, plant and equipment and intangible assets (US$ 7,384 6,189 19 %
millions)
Free cash flow(1) (US$ millions) 17,664 9,407 88 %
Consolidated sales revenue (US$ millions) 63,495 44,611 42 %
Underlying EBITDA(1) (US$ millions) 37,720 23,902 58 %
Profit after tax attributable to owners of Rio Tinto (net earnings) (US$ 21,094 9,769 116 %
millions)
Underlying earnings per share(1) (EPS) (US cents) 1,321 770 72 %
Ordinary dividend per share (US cents) 793.0 464.0 71 %
Special dividend per share (US cents) 247.0 93.0 166 %
Total dividend per share (US cents) 1,040.0 557.0 87 %
Net cash / (debt)(1) (US$ millions) 1,576 (664)
Underlying return on capital employed (ROCE)(1) 44 % 27 %
(1) This financial performance indicator is a non-GAAP alternative performance
measure ("APM"). It is used internally by management to assess the performance
of the business and is therefore considered relevant to readers of this
document. It is presented here to give more clarity around the underlying
business performance of the Group's operations. APMs are reconciled to
directly comparable IFRS financial measures on pages 78 to 86. Our financial
results are prepared in accordance with International Financial Reporting
Standards (IFRS) - see page 43 for further information. Footnotes are set out
in full on page 8.
• Safety continues to be our first priority: our managed operations were
fatality-free for a third successive year. The all-injury frequency rate
deteriorated slightly to 0.40: fatigue, labour shortages and other pressures
from COVID-19 have heightened the safety risk in day-to-day operations and we
recognise that there is no room for complacency.
• On 1 February 2022, we published
(https://www.riotinto.com/news/releases/2022/Rio-Tinto-releases-external-review-of-workplace-culture)
a comprehensive external review of our workplace culture, commissioned as part
of our commitment to ensure sustained cultural change across our global
operations. The review is part of the work being undertaken by our Everyday
Respect task force, which was launched in March 2021 to better understand,
prevent and respond to harmful behaviours in the workplace. We will implement
all recommendations from the report.
• We continue to focus on rebuilding our relationships with Traditional
Owners across our global operations. In September we published
(https://www.riotinto.com/news/releases/2021/Rio-Tinto-publishes-first-Communities-and-Social-Performance-report)
an interim report on our Communities and Social Performance commitments
showing our progress. At the end of 2021, the relationship between the Puutu
Kunti Kurrama and Pinikura (PKKP) leadership and Rio Tinto Iron Ore is
constructive and considered. An agreement on a co-management of Country
approach and appropriate remedy for the destruction of Juukan Gorge is
substantially progressed.
• On 14 February 2022, we announced
(https://www.riotinto.com/news/releases/2022/Yinhawangka-people-and-Rio-Tinto-agree-new-social-cultural-heritage-plan)
an agreement with the Yinhawangka Aboriginal Corporation on a new co-designed
management plan to ensure the protection of significant social and cultural
heritage values as part of our proposed development of the Western Range iron
ore project in the Pilbara region of Western Australia. The Social, Cultural
Heritage Management Plan is the result of strong collaboration over the past
year between the Yinhawangka people and Rio Tinto including "on-Country"
visits, archaeological and ethnographic surveys and workshops. As a result,
the mine has been designed to reduce impacts on social and cultural heritage
values. We submitted the plan to Western Australia's Environmental Protection
Authority on 1 February 2022, as part of our submission regarding the Greater
Paraburdoo Iron Ore Hub Proposal.
• In October, we unveiled a longer term strategy to ensure we thrive in a
decarbonising world, while continuing to pay attractive dividends, in line
with our shareholder returns policy. To achieve this, we will accelerate our
own decarbonisation, grow in materials enabling the global energy transition
and develop products and services that help our customers to decarbonise,
through our key enablers of becoming best operator, excelling in development,
achieving an impeccable ESG performance and strengthening our social licence
to operate.
• To deliver our strategy, we set a new target to reduce our Scope 1 and 2
carbon emissions by 50% by 2030, more than tripling our previous target, and
are bringing forward our 15% reduction in emissions to 2025 (previously 2030),
supported by an estimated $7.5 billion of direct investments between 2022 and
2030. These projects deliver a range of economic outcomes but in aggregate are
value accretive at a very modest carbon price. Most importantly, they
safeguard the integrity of our assets over the longer term and reduce the risk
profile of our cash flows. We are accelerating our activity in the Pilbara and
expanding our tenure for potential wind and solar sites.
• Following the comprehensive agreement announced
(https://www.riotinto.com/news/releases/2022/Oyu-Tolgoi-partners-reach-comprehensive-agreement-and-approve-commencement-of-underground-mining-operations)
on 25 January 2022, underground operations are now under way at the Oyu Tolgoi
copper/gold project in Mongolia. The agreement will move the project forward,
reset the relationship between the partners and unlock the most valuable part
of the mine, with first sustainable production expected in the first half of
2023.
• In line with our rigorous approach to capital allocation, we made
significant progress with our Battery Minerals portfolio in 2021, signing a
binding agreement to acquire the Rincon lithium project in Argentina. We also
committed funding for the Jadar lithium-borates project in Serbia, subject to
receiving all relevant approvals, permits and licences. In January 2022, the
Government of Serbia cancelled the Spatial Plan for the Jadar project and
required all related permits to be revoked. We are disappointed by this
announcement and are committed to exploring all options and are reviewing the
legal basis of the decision and the implications for our activities and people
in Serbia.
• To achieve our ambition of becoming the best operator, we initiated the
Rio Tinto Safe Production System at five pilot sites in 2021, focusing on
sustainably unlocking capacity. We are already seeing returns, including a
significant improvement at the Kennecott concentrator since deployment in
July. We are planning a more extensive programme in 2022, subject to COVID-19
constraints, with up to 30 deployments at 15 sites and up to 80 rapid
improvement projects, targeting bottlenecks.
Key financial highlights
• $25.3 billion net cash generated from operating activities was 60%
higher than 2020 driven by higher prices. This flowed through to 88% higher
free cash flow(1) of $17.7 billion, which included a 19% rise in capital
expenditure to $7.4 billion.
• $21.1 billion of net earnings, 116% higher than 2020, reflected the
higher prices, the impact of closure provision increases at Energy Resources
of Australia (ERA) and other non-operating sites, $0.5 billion of exchange and
derivative gains and $0.2 billion of impairments(2). Effective tax rate on net
earnings of 27.7% compared with 33.1% in 2020.
• $37.7 billion underlying EBITDA(1) was 58% above 2020, with an
underlying EBITDA margin(1) of 57%.
• $21.4 billion underlying earnings(1) (underlying EPS(1) of 1,321.1 US
cents) were 72% above 2020 with a 28.0% effective tax rate on underlying
earnings(1), compared with 29.5% in 2020.
• $1.6 billion of net cash(1) at year end, compared with net debt(1) of
$0.7 billion at the start of the year, reflected the free cash flow(1) of
$17.7 billion, partly offset by $15.4 billion of cash returns to shareholders.
• $16.8 billion full-year dividend, equivalent to 1,040 US cents per share
and 79% of underlying earnings, includes $6.7 billion record final ordinary
dividend (417 US cents per share) and $1.0 billion final special dividend (62
US cents per share) declared today.
$16.8 billion* of dividends declared for 2021: payout ratio averages 74% over
past six years
Ordinary dividend US$ billion US cents
per share
Interim ordinary dividend paid in September 2021 6.1 376
Final ordinary dividend to be paid in April 2022 6.7 417
Full-year ordinary dividend represents 60% payout 12.8 793
Additional returns
Special dividend paid in September 2021 3.0 185
Special dividend to be paid in April 2022 1.0 62
Combined total is 79% of 2021 underlying earnings 16.8 1,040
* Based on weighted average number of shares and declared dividends per share
for the respective periods excluding foreign exchange impacts on payment.
Strong cash flow from operations
2021 2020
US$m US$m
Net cash generated from operating activities 25,345 15,875
Purchases of property, plant and equipment and intangible assets (7,384) (6,189)
Sales of property, plant and equipment 61 45
Lease principal payments (358) (324)
Free cash flow(1) 17,664 9,407
Disposals 4 10
Dividends paid to equity shareholders (15,357) (6,132)
Share buy-backs - (208)
Other (71) (90)
Decrease in net debt(1) 2,240 2,987
Footnotes are set out on page 8.
• $25.3 billion in net cash generated from operating activities, 60%
higher than 2020, primarily driven by higher prices for our major
commodities, which also led to an increase in dividends received from equity
accounted units and paid to joint venture partners. It is net of an increase
in taxes and royalties paid in line with higher profits and a rise in working
capital, primarily due to higher iron ore portside inventories following
higher volumes of SP10 and constrained availability of high-grade blending
stocks in the fourth quarter.
• $7.4 billion capital expenditure was comprised of $0.6 billion of growth
capital, $3.3 billion of replacement capital and $3.5 billion of sustaining
capital. In 2021, we funded our capital expenditure from operating activities
and expect to continue funding our capital programme from internal sources,
except for the Oyu Tolgoi underground development, which is currently
project-financed.
• $15.4 billion of dividends paid in 2021 was comprised of the 2020 final
paid in April 2021 ($6.4 billion) and the 2021 interim paid in September ($9.0
billion, including foreign exchange impacts).
• As a result of the above, net debt(1) improved by $2.2 billion in 2021,
ending the year with net cash(1) of $1.6 billion.
Guidance
• We expect capital expenditure to be around $8.0 billion in 2022, which
considers potential increases of around 15% for the Pilbara replacement
projects. In each of 2023 and 2024, we expect capital expenditure to be
between $9.0 and $10.0 billion, which includes the ambition to invest up to
$3.0 billion in growth per year, depending on opportunities. Each year also
includes sustaining capital of around $3.5 billion, of which around $1.5
billion a year is for Pilbara iron ore, subject to ongoing inflationary
pressure. Around half of our capital expenditure is denominated in Australian
dollars. In addition, our guidance includes around $1.5 billion over the next
three years on decarbonisation projects, mainly relating to repowering the
Pilbara: this will accelerate from 2025, bringing our best estimate to around
$7.5 billion, in aggregate from 2022 to 2030.
• Effective tax rate on underlying earnings of ~30% in 2022. In June 2022,
we expect to make a US$1.1 billion* final payment to the Australian Taxation
Office in respect of 2021 corporate profits. * Based on the 2021
year-end Australian dollar exchange rate of 0.73.
2022 unit cost guidance 2021 Actuals 2022 Guidance
Pilbara iron ore unit cash costs, free on board (FOB) basis - US$ per wet 18.6 19.5-21.0
metric tonne(1)
Australian dollar exchange rate 0.75 0.75
Copper C1 unit costs (average for Kennecott, Oyu Tolgoi and Escondida) - US 82 130-150
cents per lb
(1 )Excludes COVID-19 costs (defined below) of $0.5 per tonne in 2021.
• In 2022, we expect Pilbara iron ore unit cash costs to increase to
$19.5-21.0 per tonne. Guidance reflects rising input prices and labour costs,
an increased mining work index and higher mine processing plant maintenance,
partially offset by the ramp-up of Gudai-Darri and continued efficiency
improvements. Unit costs are stated at an Australian dollar exchange rate of
0.75 and exclude any additional COVID-19 response costs.
• In 2022, we expect copper C1 unit costs to rise due to lower by-product
credits, as a result of mining areas with lower gold volumes at Oyu Tolgoi and
lower molybdenum grades at Kennecott and rising input costs, partially offset
by higher refined copper production at Kennecott.
2022 production guidance (Rio Tinto share, unless otherwise stated) 2021 Actuals 2022 Guidance
Pilbara iron ore (shipments, 100% basis) (Mt) 322 320 to 335
Bauxite (Mt) 54 54 to 57
Alumina (Mt) 7.9 8.0 to 8.4
Aluminium (Mt) 3.2 3.1 to 3.2
Mined copper (kt) 494 500 to 575
Refined copper (kt) 202 230 to 290
Diamonds(2) (M carats) 3.8 5.0 to 6.0
Titanium dioxide slag (Mt) 1.0 1.1 to 1.4
Iron Ore Company of Canada pellets and concentrate (Mt) 9.7 10.0 to 11.0
Boric oxide equivalent (Mt) 0.5 ~0.5
(2 )Reflects 100% ownership of Diavik (previously 60%) from 1 November 2021.
• Production guidance is unchanged from our Fourth Quarter Operations
Review released
(https://www.riotinto.com/news/releases/2022/Rio-Tinto-releases-fourth-quarter-production-results)
on 18 January 2022.
• Iron ore shipments and bauxite production guidance remain subject to
weather and market conditions.
• Our cost and volume guidance assumes development of the pandemic does
not lead to further government-imposed restrictions or an increase in cases
and/or severity, which could result in a significant number of our
production-critical workforce and contractor base being unable to work due to
illness and/or isolation requirements. This risk extends to prolonged
interruption of service from a key partner or supplier which could lead to
severely constrained operational activity of a key asset or project. This risk
is exacerbated globally by tight labour markets, localised inflation and
supply chain delays.
• Pilbara shipments guidance remains subject to commissioning and ramp-up
of new mines and management of cultural heritage, including any impacts from
the Aboriginal Cultural Heritage Act 2021. We support the strengthening of
Aboriginal heritage protection in Western Australia and continue to engage
with Traditional Owners regarding current and proposed plans for mining
activities, adjusting mine plans where required. Given the quality of our
resource, we retain a range of development options in the Pilbara, subject to
heritage and environmental approvals.
• There have been no material changes to the estimates of Pilbara Ore
Reserves from those reported in our 2020 Annual Report released to the
Australian Securities Exchange on 22 February 2021. However, during 2021
there has been some depletion in reserves, including a further 46 million dry
tonnes due to protection of heritage sites, primarily from Gudai-Darri. This
is in addition to the 54 million dry tonne reduction due to heritage
considerations in Ore Reserves in 2020.
• COVID-19 costs include incremental travel costs (such as chartering
aircraft in the event of the withdrawal of commercial alternatives),
incremental logistical costs from disruption of normal arrangements, the cost
of leasing alternative office accommodation, medical treatment and
repatriation costs for stranded travellers and expatriates, the cost of deep
cleaning affected locations, incremental costs arising from the shutdown of
facilities (such as security, care & maintenance costs), increased
overtime and temporary contractor costs to cover sickness, the incremental
cost of alternative procurement where normal supply chains are broken and
critical items are sourced elsewhere and increased spend on IT infrastructure
and capacity to support remote working.
Our projects and development options
• We increased our exploration and evaluation spend by 16% to $726 million
in 2021, as we advanced our evaluation projects, progressed our greenfield
exploration programmes and unlocked new opportunities.
• Commissioning and ramp-up of Pilbara growth and brownfield mine
replacement projects has been impacted by ongoing COVID-19 restrictions,
including labour access and supply chain quality issues. The latter have been
exacerbated by an inability to conduct pre-delivery quality assurance and
control at international steel and equipment manufacturers due to limitations
on travel.
◦ The $2.6 billion(3) Gudai-Darri greenfield iron ore mine in
Western Australia is advancing. The first train was loaded from the mobile
crushing and screening facilities in December and first production from the
main plant is expected in the second quarter of 2022, subject to the
continuing impacts of COVID-19. This first phase of Gudai-Darri, with a 43
million tonne annual capacity, will replace depleting orebodies and provide
some incremental capacity.
◦ The $0.9 billion(3) (Rio Tinto share) investment in the Robe
River Joint Venture replacement iron ore mines is progressing. First ore at
West Angelas (C and D deposits) was achieved in June and are now fully
commissioned. First ore at Robe Valley (Mesa B, C, H) was achieved in August.
Ongoing Mesa A wet plant construction and commissioning challenges have
impacted production ramp-up. New wet plant components are on order and
production will operate at a reduced capacity until repairs are completed.
◦ The $0.8 billion(3) Western Turner Syncline phase 2 mine, which
will also replace existing iron ore production, achieved first ore in October,
following commissioning of the autonomous mining truck fleet. Some residual
brownfield plant works are due to be complete during mid-year shutdowns.
• Underground operations are now under way at the Oyu Tolgoi underground
copper/gold project in Mongolia, following the comprehensive agreement reached
(https://www.riotinto.com/news/releases/2022/Oyu-Tolgoi-partners-reach-comprehensive-agreement-and-approve-commencement-of-underground-mining-operations)
with our partners on 25 January 2022. Sustainable production is expected in
the first half of 2023, with the capital forecast at $6.925 billion, including
$175 million of estimated COVID-19 impacts to the end of 2021(4).
• The $0.9 billion first phase of the south wall pushback at Kennecott in
the US, extending mine life to 2026, is now complete and we are gradually
accessing higher copper grades. Stripping for the $1.5 billion second phase,
extending operations to 2032, remains on track. In July, we announced
(https://www.riotinto.com/news/releases/2021/Rio-Tinto-progresses-studies-for-potential-underground-mining-at-Kennecott-copper)
a $108 million investment for underground characterisation studies: potential
underground mining would occur concurrently with open pit operations and
result in increased output.
• At the Jadar lithium-borates project, we committed $2.4 billion of
funding in July, subject to receiving all relevant approvals, permits and
licences. In January 2022, the Government of Serbia cancelled the Spatial Plan
for the Jadar project and required all related permits to be revoked. We are
disappointed by this announcement and are committed to exploring all options
and are reviewing the legal basis of the decision and the implications for our
activities and people in Serbia.
• The Zulti South project at Richards Bay Minerals (RBM) in South Africa
remains on full suspension.
• At the Winu copper-gold project in Western Australia, there has been
progress towards securing consent from the Traditional Owners to the Project
Agreement in advance of submitting the necessary environmental and regulatory
approvals. Drilling, fieldwork and study activities continue to progress to
schedule.
• At the Resolution Copper project in Arizona, we continue to work with
the US Forest Service to secure approval of the Final Environmental Impact
Statement. In parallel, mine studies and engagement with the Native American
tribes and local communities continue to progress.
• At the Simandou iron ore project in Guinea, we continue to engage with
key stakeholders in-country including the Government of Guinea. We remain
committed to an inclusive partnership, seeking mutual and sustainable benefits
by developing our project in line with international social and environmental
standards. A new drilling programme has commenced, and expressions of interest
are being sourced for construction and early development works expected to be
carried out in 2022.
1. This financial performance indicator is a non-GAAP alternative
performance measure ("APM"). It is used internally by management to assess the
performance of the business and is therefore considered relevant to readers of
this document. It is presented here to give more clarity around the underlying
business performance of the Group's operations. APMs are reconciled to
directly comparable IFRS financial measures on pages 78 to 86.
2. Refer to page 50 for pre-tax analysis of impairment charge.
3. Potential for capital cost to rise by around 15% due to ongoing
COVID-19 restrictions on commissioning and ramp-up of Pilbara growth and
brownfield mine replacement projects, including labour access and supply chain
quality issues. The latter has been exacerbated by an inability to conduct
pre-delivery quality assurance and control at international steel and
equipment manufacturers due to limitations on travel.
4. These estimates exclude any impacts of delays to work schedules caused
by restricted approved budgets since the start of 2021. This, together with
any ongoing COVID-19 impacts, will be assessed following the commencement of
underground operations with further updates provided to the market in due
course. Panels 1 and 2 studies will be ongoing throughout 2022. Further study
work is also under way to assess the extraction methodology and ultimate
recovery of the Panel 0 recoverable pillars.
Communities & Social Performance (CSP)
At the end of 2021, the relationship between Puutu Kunti Kurrama and Pinikura
(PKKP) leadership and Rio Tinto Iron Ore is constructive and considered. The
ongoing rehabilitation works at Juukan Gorge are on schedule and have the
active involvement of the appointed Puutu Kunti Kurrama (PKK) committee
members. An agreement on a co-management of Country approach and an
appropriate remedy for the destruction of Juukan Gorge is substantially
progressed. Together we are charting new territory, and this takes time, but
we are moving forward on a model which is respectful and seeks to provide
certainty of protection for cultural heritage while mining activities take
place.
On 30 September, we published
(https://www.riotinto.com/-/media/Content/Documents/Invest/Reports/CSP-reports/RT-CSP-commitments-disclosure-interim-report-2021.pdf?rev=74138a4a4d624ef7bd892cf0f6de36b7)
our first CSP commitments interim report as part of our efforts to increase
transparency in our approach to cultural heritage protection. Over the past
months, we have been working hard to rebuild trust and meaningful
relationships with the Pilbara Traditional Owners. We have also been working
on actions to strengthen our cultural heritage approach, processes and
performance.
On 17 October, we welcomed
(https://www.riotinto.com/news/releases/2021/Rio-Tinto-Statement-on-Joint-Standing-Committee-on-Northern-Australia-Report)
the Joint Standing Committee on Northern Australia's final report into the
destruction of the rock shelters at Juukan Gorge. We continue to work closely
with Traditional Owners to build trusted relationships and better understand
and protect their cultural heritage.
On 14 February 2022, we announced
(https://www.riotinto.com/news/releases/2022/Yinhawangka-people-and-Rio-Tinto-agree-new-social-cultural-heritage-plan)
an agreement with the Yinhawangka Aboriginal Corporation on a new co-designed
management plan to ensure the protection of significant social and cultural
heritage values as part of our proposed development of the Western Range iron
ore project in the Pilbara region of Western Australia. The Social, Cultural
Heritage Management Plan is the result of strong collaboration over the past
year between the Yinhawangka people and Rio Tinto including "on-Country"
visits, archaeological and ethnographic surveys and workshops. As a result,
the mine has been designed to reduce impacts on social and cultural heritage
values. We submitted the plan to Western Australia's Environmental Protection
Authority on 1 February 2022, as part of our submission regarding the Greater
Paraburdoo Iron Ore Hub Proposal.
Climate change strategy update
We have put the low-carbon transition at the heart of our new business
strategy and are ready to make an important contribution to tackling climate
change. In 2021, we set more ambitious decarbonisation targets for our
operations and we are stepping up our approach and goals to partnering with
our customers for the decarbonisation of our value chains.
We now aim to achieve a 15% absolute reduction in Scope 1 and 2 emissions five
years earlier, by 2025, and have more than tripled our 2030 target to reduce
emissions by 50% against our 2018 equity baseline. Our new target with our
commitment to reach net zero emissions by 2050 is aligned with efforts to
limit warming to 1.5°C, which is aligned with the stretch goal of the Paris
Agreement.
In 2021, our Scope 1 and 2 emissions were 31.1Mt CO(2)e (2020: 31.5Mt CO(2)e),
4% below our 2018 equity baseline. The reductions achieved since 2018 are
primarily the result of switching to renewable electricity contracts at
Kennecott in the US and the Escondida mine in Chile (managed by BHP; Rio Tinto
owns 30%), and also relate to unplanned operational disruptions in 2021 at
Richards Bay Minerals in South Africa and the Kitimat aluminium smelter in
Canada.
Our 2025 and 2030 targets are supported by a decarbonisation roadmap focused
on the accelerated deployment of renewable power and the development of
projects from our marginal abatement cost curve. In 2021, we progressed
studies across a broad range of emissions reduction opportunities and approved
0.26Mt CO(2)e of new abatement projects, including solar and wind projects at
Weipa, QIT Madagascar Minerals (QMM) and Kennecott.
We recognise that to thrive in the long term we need to be part of net zero
value chains. Our approach to addressing Scope 3 emissions is to engage with
our customers on climate change and work with them to develop and scale up the
technologies to decarbonise steel and aluminium production.
Our Scope 3 emissions were 554Mt CO(2)e in 2021 (2020: 570Mt CO(2)e), of which
around 95% is from the processing of iron ore, bauxite and other products by
our customers. 94% of these processing emissions take place at customer
facilities in China, South Korea, Japan and other countries that have pledged
to be carbon neutral by around mid-century. As our customers start to align
with their governments' pledges, we note that about 28% of our iron sales are
directly to steel producers that have already set public targets for their
Scope 1 and 2 emissions (our Scope 3), and have ambitions to reach net zero by
around mid-century.
For 2022, we have committed to engage with all our direct iron ore customers,
representing approximately 75% of our iron ore sales and related Scope 3
emissions, and all our bauxite customers to share information on our
respective climate change goals and roadmaps, and actively seek areas of
mutual collaboration on decarbonisation projects and technologies. Progress on
both our Scope 1 and 2 targets as well as Scope 3 goals are explicitly linked
to executive remuneration.
In 2021, the Board announced its intention to put a Climate Action Plan before
shareholders at our 2022 annual general meetings and seek a non-binding
advisory vote on the company's ambitions, emissions targets and actions to
achieve them.
Our 2021 Climate Change Report is available on our website, riotinto.com.
Underlying EBITDA and underlying earnings by product group
Underlying EBITDA Underlying earnings
2021 2020 Change 2021 2020 Change
Adjusted
Adjusted
Year ended 31 December US$m US$m % US$m US$m %
Iron Ore 27,592 18,837 46 % 17,323 11,398 52 %
Aluminium 4,382 2,152 104 % 2,468 471 424 %
Copper 3,969 2,084 90 % 1,579 754 109 %
Minerals 2,603 1,710 52 % 888 580 53 %
Reportable segment total 38,546 24,783 56 % 22,258 13,203 69 %
Other operations (28) 24 (217) % (84) (48) 75 %
Inter-segment transactions 42 (94) (145) % 19 (32) (159) %
Product group total 38,560 24,713 56 % 22,193 13,123 69 %
Central pension costs, share-based payments, insurance and derivatives 110 117 (6) % 133 118 13 %
Restructuring, project and one-off costs (80) (133) (40) % (51) (108) (53) %
Other central costs (613) (545) 12 % (585) (455) 29 %
Central exploration and evaluation (257) (250) 3 % (215) (216) - %
Net interest (95) (14) 579 %
Total 37,720 23,902 58 % 21,380 12,448 72 %
The financial information by Product group has been recast in accordance with
the organisational restructure announced on 28 January 2021. See page 76 for
further information. Underlying EBITDA and underlying earnings are non-GAAP
alternative performance measures ("APMs") used by management to assess the
performance of the business, and provide additional information which
investors may find useful. APMs are reconciled to directly comparable IFRS
financial measures on pages 78 to 86.
Central and other costs
Pre-tax central pension costs, share-based payments, insurance and derivatives
were a $110 million credit compared with a $117 million credit in 2020,
mainly due to higher insurance recoveries in 2021 combined with slightly lower
claims than in 2020, offset by derivative losses in 2021 of $97 million
compared to gains of $45 million in 2020.
On a pre-tax basis, restructuring, project and one-off central costs were 40%
lower than 2020 mainly due to lower provisions with respect to legacy
operations.
Other central costs of $613 million were 12% higher than in 2020 driven by
stronger local currencies and inflation, along with increased costs associated
with progressing our CSP and ESG objectives.
Continuing to prioritise our central exploration programmes
We have a strong portfolio of exploration projects with activity in 18
countries across seven commodities in early exploration and studies stages,
reflected in our pre-tax central spend of $257 million. All projects have
followed government COVID-19 requirements, while focusing on protecting the
wellbeing and health of local communities. In 2021, we continued to prioritise
our exploration portfolio, with a particular focus on copper projects in
Australia, Canada, United States, Kazakhstan and Zambia and increased activity
on greenfield nickel projects in Canada and Finland. We continue to partner
with other companies in all regions where we explore: examples are our
agreement with KoBold Metals for copper and nickel exploration and our
agreement with Western Copper and Gold Corporation, where we made a strategic
investment to advance exploration on the Casino copper-gold project located in
Yukon, Canada. We also signed a mineral investment contract with the Republic
of Angola and Endiama to explore for diamonds, and continued mine-lease
exploration at our managed businesses including Pilbara Iron in Australia and
Diavik in Canada. We renewed our exploration technology strategy and further
invested in technology to support our exploration teams on the ground.
Commentary on financial results
To provide additional insight into the performance of our business, we report
underlying EBITDA and underlying earnings. The principal factors explaining
the movements in underlying EBITDA are set out in this table.
US$m
2020 underlying EBITDA 23,902
Prices 17,464
Exchange rates (606)
Volumes and mix (583)
General inflation (690)
Energy (398)
Operating cash unit costs (1,051)
Higher exploration and evaluation spend (101)
Non-cash costs/other (217)
2021 underlying EBITDA 37,720
Strong financial results driven by significant momentum from higher prices
We have continued to safely run our world-class assets and are working hard to
improve our operational performance, despite challenging operating conditions
from prolonged COVID-19 disruptions. The recovery of the global economy
resulted in significant price strength for our major commodities: we
maintained our financial discipline in 2021 and were able to retain around 80%
of the benefit from higher prices, achieving record financial results.
The strong commodity prices drove a $17,464 million uplift in underlying
EBITDA compared with 2020. This was primarily from the strength in the Platts
index for 62% iron fines, partially offset by a higher proportion of lower
quality products (+$11,589 million). Higher London Metal Exchange (LME) prices
were the main driver for a significant price uplift for copper (+$1,896
million) and for our Aluminium business (+$3,027 million). We have included a
table of prices and exchange rates on page 88.
The 2021 monthly average Platts index for 62% iron fines converted to an FOB
basis was 45% higher on average compared with 2020. There was a strong
resurgence in demand for iron ore, with global crude steel production
estimated to have grown by 6%. Chinese demand strength was most apparent in
the first half of 2021 while the recovery in demand for steel and iron ore in
developed and other emerging economies maintained its momentum. At the same
time, seaborne iron ore supply recovered, albeit at a slower than anticipated
rate.
The average LME price for copper was 50% higher, while the LME aluminium price
was 46% higher, compared with 2020. The gold price rose 2%.
The mid-west premium duty paid for aluminium in the US averaged $584 per
tonne, 119% higher than in 2020.
Australian and Canadian dollars strengthened during 2021
Compared with 2020, on average, the US dollar weakened by 9% against the
Australian dollar, by 7% against the Canadian dollar and by 11% against the
South African rand. Currency movements lowered underlying EBITDA by $606
million relative to 2020.
Lower iron ore sales volumes impact underlying EBITDA
Lower sales volumes and changes in product mix across the portfolio reduced
underlying EBITDA by $583 million compared to 2020. This was mostly
attributable to a 3% decline in iron ore shipments from the Pilbara, as a
result of above average rainfall in the first half of the year, our focus on
cultural heritage management and delays in growth and brownfield mine
replacement tie-in projects. Other key variances included lower volumes at
Iron Ore Company of Canada (labour and equipment availability challenges) and
reduced copper sales volumes at Escondida (prolonged COVID-19 impact leading
to lower recoveries and throughput). These were partly offset by higher
product premiums in our Aluminium business, increased gold sales from Oyu
Tolgoi (the significant improvement in grades is expected to reverse in 2022)
and higher refined copper sales at Kennecott despite a furnace failure in
September 2021 (2020 was significantly impacted by an earthquake and a major
smelter maintenance shutdown).
Impact of rising inflation and rebound in energy prices
Average movements in energy prices compared with 2020 reduced underlying
EBITDA by $398 million, mainly due to higher diesel prices for our trucks,
trains and ships and an increase in power costs at Kennecott. Rising general
price inflation across our global operations resulted in a $690 million
reduction in underlying EBITDA.
Focus on cost control
We remained focused on cost control throughout the year, in particular
maintaining discipline on our long-run fixed costs: however, a rise in our
operating cash unit costs reduced underlying EBITDA by $1,051 million (on a
unit cost basis) compared with 2020. This reflects fixed cost inefficiencies
from the reduction in volumes, along with temporary cost pressures over and
above general inflation, reflecting higher market-linked prices for raw
materials and the constraints that COVID-19 has placed on resourcing and
supply chains. We also made targeted investments in our ESG and CSP teams in
2021, in order to advance our social licence priorities. Unit costs at our
Pilbara iron ore operations rose to $18.6 per tonne ($19.1 per tonne including
COVID-19 costs) contributing to the variance, reflecting: higher input prices,
including labour and explosives, an increase in the mine work index,
operational readiness costs for our growth and brownfield mine replacement
tie-in projects and fixed cost inefficiencies from lower volumes. At our
Aluminium business, we incurred cyclical cost increases for coke, pitch and
alloys, while our Bauxite business in Queensland experienced higher
maintenance costs following overruns on planned shutdowns. These cost
pressures were partly offset by fixed cost efficiencies at Oyu Tolgoi in line
with higher copper and gold production.
Increasing our global exploration and evaluation activity
We increased our exploration and evaluation spend by $101 million, or 16%,
to $726 million. This was focused on our greenfield programmes across 18
countries and our highest value evaluation projects, particularly the Winu
copper-gold project in Western Australia, Resolution Copper in Arizona,
Simandou iron ore in Guinea and Jadar lithium-borates in Serbia.
Non-cash costs/other
Movements in non-cash costs, one-off and other items lowered underlying EBITDA
by $217 million compared with 2020. This mainly reflected the impact of
community disruption at RBM in 2021 (-$162 million); reduced capacity at the
Kitimat aluminium smelter (-$280 million) following the strike which commenced
in July, with agreement reached in October; and additional provisions (-$218
million), mainly environmental, for our legacy operations and Pacific
Aluminium smelters. This was partly offset by the non-recurrence of the pot
failures at Kitimat in 2020 ($206 million) and the impact of community
disruption at RBM in 2020 ($91 million). COVID-19 costs across the Group were
$39 million lower than in 2020.
Net earnings
The principal factors explaining the movements in underlying earnings and net
earnings are set out here.
US$m
2020 net earnings 9,769
Total changes in underlying EBITDA 13,818
Increase in depreciation and amortisation (pre-tax) in underlying earnings (372)
Decrease in interest and finance items (pre-tax) in underlying earnings (100)
Increase in tax on underlying earnings (3,574)
Increase in underlying earnings attributable to outside interests (840)
Total changes in underlying earnings 8,932
Changes in exclusions from underlying earnings:
Movement in net impairment charges 918
Gain on recognition of a new wharf at Kitimat, Canada 336
Movement in exchange differences and gains/losses on debt 1,810
Movement in closure estimates (non-operating and fully impaired sites) (671)
2021 net earnings 21,094
Depreciation and amortisation, net interest, tax and non-controlling
interests
The depreciation and amortisation charge was $372 million higher than 2020,
mainly due to the impact of the stronger Australian and Canadian dollars
against the US dollar.
Lower interest and finance items (pre-tax) were reflective of a lower level of
net debt on average during the year, in part due to repayment of $526 million
of Euro Bonds, which matured in May 2020. It also reflected more of our debt
being at floating interest rates and lower LIBOR rates.
The 2021 effective corporate income tax rate on underlying earnings, excluding
equity accounted units, was 28.0%, compared with 29.5% in 2020, mainly due to
the re-recognition of deferred tax assets in Australia. The effective tax rate
on underlying earnings in Australia was 30% in 2021 compared with 32% in 2020.
We anticipate an effective tax rate on underlying earnings of approximately
30% in 2022.
Items excluded from underlying earnings
Net impairment charges decreased by $918 million compared with 2020. In 2021,
we impaired the value of the Kitimat aluminium smelter by $197 million: as a
result of a workforce strike in mid-2021, output was reduced to 25% and
ramp-up to full capacity will extend through 2022, giving rise to an
impairment test. In 2020, we recognised $1,115 million of impairment charges,
consisting of $472 million related to three of our Pacific Aluminium smelters
(NZAS, Bell Bay and Boyne), $131 million related to the ISAL smelter in
Iceland, $220 million for the Sohar smelter in Oman and $292 million related
to our interest in the Diavik Diamond Mine.
There is a detailed explanation of the impairment process on pages 50 to 53.
On 3 December, we gained control over a new wharf at Kitimat, Canada that was
built and paid for by LNG Canada. The $336 million gain on recognition has
been excluded from underlying earnings on the grounds of materiality and
linkage to the impairment.
In 2021, we recognised non-cash exchange and derivative gains of $546 million.
This was mainly on US dollar debt in non-US dollar functional currency Group
companies, intragroup balances, and the revaluation of certain derivatives
which do not qualify for hedge accounting. These gains compared with a 2020
loss of $1,264 million, giving rise to a positive year-on-year movement of
$1,810 million. The exchange gains are largely offset by currency translation
losses recognised in equity. The quantum of US dollar debt is largely
unaffected and we will repay it from US dollar sales receipts.
In 2021, we recognised a $671 million increase in closure costs relating to
the Diavik Diamond Mine, Gove refinery, ERA and some of our legacy sites,
where the environmental impact preceded our ownership. The adjustments at ERA
and the Gove refinery have been recognised in the income statement as these
are non-operating sites, and excluded from underlying earnings due to the
magnitude of the individual updates and materiality when aggregated. In 2020,
we initially recognised an increase in the Diavik closure provision based on
our preliminary findings from the pre-feasibility study. On completion of the
study in 2021 a true-up was recorded and has been excluded, in line with the
treatment of the initial increase in 2020, which was excluded from underlying
earnings as Diavik was fully impaired during the year. Other closure costs
excluded in 2020 were the increase in the Gove refinery provision offset by a
decrease in the Argyle mine provision on completion of pre-feasibility studies
at each site. These are included in Movement in closure estimates. Further
analysis can be found on pages 85 to 86.
Profit
Net earnings and underlying earnings refer to amounts attributable to the
owners of Rio Tinto. The net profit attributable to the owners of Rio Tinto in
2021 was $21.1 billion (2020: $9.8 billion). We recorded a profit after tax in
2021 of $22.6 billion (2020: $10.4 billion) of which a profit of $1.5 billion
(2020: $0.6 billion) was attributable to non-controlling interests.
Net earnings and underlying earnings
The differences between underlying earnings and net earnings are set out in
this table (all numbers are after tax and exclude non-controlling interests).
2021 2020
US$m US$m
Underlying earnings 21,380 12,448
Items excluded from underlying earnings
Impairment charges net of reversals (197) (1,115)
Gain on recognition of a new wharf at Kitimat, Canada 336 -
Foreign exchange and derivative gains/(losses) on net debt and intragroup 546 (1,264)
balances and derivatives not qualifying for hedge accounting
Net losses from movements to closure estimates (non-operating and fully (971) (300)
impaired sites)
Net earnings 21,094 9,769
On pages 85 to 86 there is a detailed reconciliation from underlying earnings
to net earnings, including pre-tax amounts and additional explanatory notes.
The differences between Profit after tax and underlying EBITDA are set out in
the table on page 79.
Balance sheet
Net debt reduced by $2.2 billion in 2021, resulting in a net cash position of
$1.6 billion at 31 December 2021. This reflected our strong free cash flow,
partly offset by dividend payments of $15.4 billion.
Our net gearing ratio (net (cash) / debt to total capital) improved to -3% at
31 December 2021 (31 December 2020: 1%).
Our total financing liabilities excluding net debt derivatives at 31 December
2021 (see page 55) were US$13.5 billion (31 December 2020: $13.8 billion) and
the weighted average maturity was around 11 years. At 31 December 2021,
approximately 85% of these liabilities were at floating interest rates (94%
excluding leases).
On 28 October, we issued $1.25 billion 30-year fixed rate SEC-registered bonds
with a coupon of 2.75%. The proceeds of the new issuance were used to fund the
early redemption and extinguishment of the company's $1.20 billion 3.75% bonds
due to mature in June 2025. The maximum amount within non-current borrowings
maturing in any one calendar year is $1.4 billion, which matures in 2024.
We had $15.2 billion in cash and cash equivalents plus other short-term cash
investments at 31 December 2021 (31 December 2020: $12.9 billion). In
November, we took advantage of strong market conditions and completed the
renewal of our $7.5 billion of fully committed Revolving Credit Facilities
with 26 participating banks. The Facilities remained undrawn throughout the
period, mature in November 2026 (previously November 2023) and include two
consecutive one-year extension options.
Provision for closure costs
At 31 December 2021, provisions for close-down and restoration costs and
environmental clean-up obligations were $14.5 billion (31 December 2020:
$13.3 billion). The principal movements during the year were weaker
Australian and Canadian currencies (-$0.5 billion), increases in existing and
new provisions adjusted to mining properties ($0.5 billion) and charged to
profit ($1.5 billion), partly offset by utilisations of the provision through
spend (-$0.5 billion). Of the $14.5 billion in provisions, $10.7 billion
relates to operating sites and $3.8 billion is for legacy sites. Remaining
lives of operations and infrastructure range from one to over 50 years with an
average for all sites, weighted by present closure obligation, of around 16
years (2020: 17 years).
The provisions are based on risk-adjusted cash flows using a real-rate
discount rate of 1.5% to reflect the obligations at present value.
In 2022, we expect to utilise around $0.7 billion of the provisions as we
advance our closure activities at Argyle, ERA, Gove alumina refinery and
legacy sites.
We have disclosed further information, including the composition of the
provision by cost category and by geography, on pages 57 to 60.
Our shareholder returns policy
The Board is committed to maintaining an appropriate balance between cash
returns to shareholders and investment in the business, with the intention of
maximising long-term shareholder value.
At the end of each financial period, the Board determines an appropriate total
level of ordinary dividend per share. This takes into account the results for
the financial year, the outlook for our major commodities, the Board's view of
the long-term growth prospects of the business and the company's objective of
maintaining a strong balance sheet. The intention is that the balance between
the interim and final dividend be weighted to the final dividend.
The Board expects total cash returns to shareholders over the longer term to
be in a range of 40 to 60% of underlying earnings in aggregate through the
cycle. Acknowledging the cyclical nature of the industry, it is the Board's
intention to supplement the ordinary dividend with additional returns to
shareholders in periods of strong earnings and cash generation.
Record cash returns* declared: 74% average payout over past six years
2021 2020
US$ billion US$ billion
Ordinary dividend
Interim 6.1 2.5
Final 6.7 5.0
Full-year ordinary dividend 12.8 7.5
Additional returns
Special dividend announced in July 2021, paid in September 2021 3.0 n/a
Special dividend announced in February, paid in April of the following year 1.0 1.5
Total cash returns to shareholders declared for each year 16.8 9.0
Combined total as % of underlying earnings 79 % 72 %
*Based on weighted average number of shares and declared dividends per share
for the respective periods and excluding foreign exchange impacts on payment.
We determine dividends in US dollars. We declare and pay Rio Tinto plc
dividends in pounds sterling and Rio Tinto Limited dividends in Australian
dollars. The 2021 final dividend has been converted at exchange rates
applicable on 22 February 2022 (the latest practicable date before the
dividend was declared). American Depositary Receipt (ADR) holders
receive dividends at the declared rate in US dollars.
Ordinary dividend per share declared 2021 dividends 2020 dividends
Rio Tinto Group
Interim (US cents) 376.00 155.00
Final (US cents) 417.00 309.00
Full-year (US cents) 793.00 464.00
Rio Tinto plc
Interim (UK pence) 270.84 119.74
Final (UK pence) 306.72 221.86
Full-year (UK pence) 577.56 341.60
Rio Tinto Limited
Interim (Australian cents) 509.42 216.47
Final (Australian cents) 577.04 397.48
Full-year (Australian cents) 1,086.46 613.95
Special dividend per share declared 2021 dividends 2020 dividends
Rio Tinto Group
Interim (US cents) 185.00 -
Final (US cents) 62.00 93.00
Rio Tinto plc
Interim (UK pence) 133.26 -
Final (UK pence) 45.60 66.77
Rio Tinto Limited
Interim (Australian cents) 250.64 -
Final (Australian cents) 85.80 119.63
The 2021 final ordinary dividend and the special dividend to be paid to our
Rio Tinto Limited shareholders will be fully franked. The Board expects Rio
Tinto Limited to be in a position to pay fully franked dividends for the
foreseeable future.
On 21 April 2022, we will pay the 2021 final ordinary dividend and the special
dividend to holders of ordinary shares and holders of ADRs on the register at
the close of business on 11 March 2022 (record date). The ex-dividend date is
10 March 2022.
Rio Tinto plc shareholders may choose to receive their dividend in Australian
dollars, and Rio Tinto Limited shareholders may choose to receive theirs in
pounds sterling. Currency conversions will be based on the pound sterling and
Australian dollar exchange rates five business days before the dividend
payment date. Rio Tinto plc and Rio Tinto Limited shareholders must register
their currency elections by 29 March 2022.
We will operate our Dividend Reinvestment Plans for the 2021 final dividend -
see our website riotinto.com for details. Rio Tinto plc and Rio Tinto Limited
shareholders' election notice for the Dividend Reinvestment Plans must be
received by 29 March 2022. Purchases under the Dividend Reinvestment Plan are
made on or as soon as practicable after the dividend payment date and at
prevailing market prices. There is no discount available.
Review of operations
Iron Ore
2021 year-end results 2021 2020 Change
Pilbara production (million tonnes - 100%) 319.7 333.4 (4) %
Pilbara shipments (million tonnes - 100%) 321.6 330.6 (3) %
Salt production (million tonnes - Rio Tinto share)(1) 5.8 4.9 20 %
Gross product sales (US$ millions) 39,582 27,508 44 %
Average realised price (US$ per dry metric tonne, FOB basis) 143.8 98.9 45 %
Underlying EBITDA (US$ millions) 27,592 18,837 46 %
Pilbara underlying FOB EBITDA margin(2) 76 % 74 %
Underlying earnings (US$ millions) 17,323 11,398 52 %
Net cash generated from operating activities (US$ millions) 19,177 13,218 45 %
Capital expenditure (US$ millions)(3) (3,947) (2,941) 34 %
Free cash flow (US$ millions) 15,172 10,233 48 %
Underlying return on capital employed(4) 100 % 74 %
1. Dampier Salt is reported within Iron Ore, reflecting management
responsibility. Iron Ore Company of Canada continues to be reported within
Minerals. The Simandou iron ore project in Guinea is reported within Copper.
2. The Pilbara underlying free on board (FOB) EBITDA margin is defined as
Pilbara underlying EBITDA divided by Pilbara gross product sales,
excluding freight revenue.
3. Capital expenditure is the net cash outflow on purchases less sales of
property, plant and equipment, capitalised evaluation costs and purchases less
sales of other intangible assets.
4. Underlying return on capital employed (ROCE) is defined as underlying
earnings excluding net interest divided by average capital employed.
Financial performance
Our Pilbara iron ore shipments decreased by 3% compared with 2020. Shipments
were impacted by lower mined production due to above-average rainfall in the
first half of 2021, cultural heritage management and delays in growth and
brownfield mine replacement tie-in projects.
Underlying EBITDA of $27.6 billion was 46% higher than 2020, driven by higher
prices ($10.3 billion), with a 45% rise in the monthly average Platts index
for 62% iron fines adjusted to an FOB basis compared with 2020. This more than
compensated for the impact from reduced shipments and rising unit costs.
2021 Pilbara unit cash costs, which were $18.6 per tonne (excluding COVID-19
costs of $0.5 per tonne), marginally exceeded guidance of $18.0 to 18.5 per
tonne and compared with $14.8 per tonne in 2020 (excluding COVID-19 costs of
$0.6 per tonne). Unit cost performance was driven by higher input prices
including labour, explosives and energy, a 9% stronger Australian dollar, an
increase in the mine work index, operational readiness costs for our growth
and brownfield mine replacement tie-in projects and fixed cost inefficiencies
from lower volumes.
We have continued investing in productivity and automation: around 80% of the
haul truck fleet is now autonomous.
Our Pilbara operations delivered an underlying FOB EBITDA margin of 76%,
compared with 74% in 2020.
We price the majority of our iron ore sales (77%) by reference to the average
index price for the month of shipment. In 2021, we priced approximately 11% of
sales with reference to the prior quarter's average index lagged by one month
with the remainder sold either on current quarter average, current month
average or on the spot market. We made approximately 72% of sales including
freight and 28% on an FOB basis.
We achieved an average iron ore price of $132.3 per wet metric tonne on an
FOB basis (2020: $91.0 per wet metric tonne) across our product suite. This
equates to $143.8 per dry metric tonne, assuming 8% moisture (2020: $98.9 per
dry metric tonne), which compares with the monthly average Platts index for
62% iron fines converted to an FOB basis of $146.9 per dry metric tonne (2020:
$101.3 per dry metric tonne). The slightly lower realised price compared to
the Platts index was due to the higher proportion of SP10 volumes and the
increased discounts for lower grade products, particularly in the second half
of 2021.
Gross product sales for our Pilbara operations included freight revenue of
$2.7 billion (2020: $1.5 billion).
Net cash generated from operating activities of $19.2 billion was 45% higher
than 2020, in line with the movement in underlying EBITDA. Free cash flow of
$15.2 billion was 48% higher than 2020, due to a 34% increase in capital
expenditure to $3.9 billion, relating to construction of growth and brownfield
mine replacement tie-in projects.
Review of operations
Pilbara operations produced 319.7 million tonnes (Rio Tinto share 266.8
million tonnes) in 2021, 4% lower than 2020, for the reasons mentioned above.
Ongoing COVID-19 restrictions and a tight labour market have further impacted
our ability to access experienced contractors and particular skill sets.
Production from the new greenfield mine at Gudai-Darri and brownfield mine
replacement project at Robe Valley was delayed due to the COVID-19 impact on
labour availability and other factors, including an inability to conduct
pre-delivery quality assurance and control at international steel manufactures
due to limitations on travel. First ore from Gudai-Darri was railed in
December from the modular crushing and screening plant installed to supplement
production and mitigate commissioning delays. Robe Valley production was
significantly impacted by the Mesa A wet plant commissioning delays.
2021 shipments of 321.6 million tonnes (Rio Tinto share 267.9 million tonnes)
included 36.6 million tonnes of lower grade SP10 products, 11% of shipments,
on a 100% basis (2020: 3%). As growth and replacement mines ramp up through
the first half of 2022, we expect to see a gradual decrease in SP10 over the
medium term.
We continue to increase our iron ore portside sales in China, with a total of
14.0 million tonnes in 2021 (2020: 5.5 million tonnes). We experienced
increased inventory levels of Pilbara product at the port at December (2021:
8.8 million tonnes, 2020: 1.7 million tonnes), due to higher volumes of SP10
and constrained availability of high grade blending stocks in the fourth
quarter. Our portside operation handles product from the Pilbara and Canada as
well as third-party product, and provides blending and screening capabilities.
Approximately 81% of portside sales in 2021 were either blended or screened in
Chinese ports.
Our principal projects and growth options
Commissioning and ramp-up of Pilbara growth and brownfield mine replacement
projects have been impacted by ongoing COVID-19 restrictions, including labour
access and supply chain quality issues. The latter have been exacerbated by an
inability to conduct pre-delivery quality assurance and control at
international steel and equipment manufacturers due to limitations on travel.
Mining and operational readiness activities are progressing at the $2.6
billion(1) Gudai-Darri mine and the railway is operational. The first train
was loaded from the mobile crushing and screening facilities in December and
first production from the main plant is now expected in the second quarter of
2022, subject to the continuing impacts of COVID-19. This new production hub
will be our most technologically advanced, incorporating a processing plant
and infrastructure including an airport, camp and a 166-kilometre rail line
connecting the mine to our existing network. Once fully commissioned, this
first phase will have an annual capacity of 43 million tonnes, replacing
depleting orebodies and providing some incremental capacity.
Our $0.8 billion(1) investment in the Western Turner Syncline phase 2 mine,
part of Greater Tom Price operations, will facilitate mining of new deposits
and includes construction of a new crusher and a 13-kilometre conveyor. The
project achieved first ore in October, following commissioning of the
autonomous mining truck fleet. Some residual brownfield plant works are due to
be complete during mid-year shutdowns.
We are also investing $1.7 billion(1) with our joint venture partners, Mitsui
and Nippon Steel Corporation (our 53% share is $0.9 billion), at the Robe
Valley and West Angelas operations. First ore at West Angelas C and D was
achieved in June, and the mines are now commissioned. At Robe Valley (Mesa B,
C, H), the autonomous mining truck fleet has been commissioned. Since
achieving first ore in August, ongoing Mesa A wet plant construction and
commissioning challenges have impacted production ramp-up. New wet plant
components are on order and production will operate at a reduced capacity
until repairs are completed.
1. Potential for capital cost to rise by around 15% due to ongoing
COVID-19 restrictions on commissioning and ramp-up of Pilbara growth and
brownfield mine replacement projects, including labour access and supply chain
quality issues. The latter has been exacerbated by an inability to conduct
pre-delivery quality assurance and control at international steel and
equipment manufacturers due to limitations on travel.
Aluminium
2021 year-end results 2021 2020 Change
Bauxite production (000 tonnes - Rio Tinto share) 54.3 56.1 (3) %
Alumina production (000 tonnes - Rio Tinto share) 7.9 8.0 (2) %
Aluminium production (000 tonnes - Rio Tinto share) 3.2 3.2 (1) %
Gross product sales (US$ millions) 12,695 9,314 36 %
Average realised aluminium price (US$ per tonne) 2,899.0 1,946.0 49 %
Underlying EBITDA (US$ millions) 4,382 2,152 104 %
Underlying EBITDA margin (integrated operations) 38 % 26 %
Underlying earnings (US$ millions)(1) 2,468 471 424 %
Net cash generated from operating activities (US$ millions) 3,606 1,930 87 %
Capital expenditure - excluding EAUs (US$ millions)(2) (1,300) (1,009) 29 %
Free cash flow (US$ millions) 2,272 892 155 %
Underlying return on capital employed(3) 16 % 3 %
1. Underlying earnings includes a $0.2 billion benefit for the recognition
of previously written down deferred tax assets in Australia (2020: $0.2
billion charge for the partial de-recognition of deferred tax assets in
Australia).
2. Capital expenditure is the net cash outflow on purchases less sales of
property, plant and equipment, capitalised evaluation costs and purchases less
sales of other intangible assets. It excludes equity accounted units (EAUs).
3. Underlying return on capital employed (ROCE) is defined as underlying
earnings excluding net interest divided by average capital employed.
Financial performance
In 2021, aluminium prices rallied to multi-year highs, following a firm
recovery in global demand and extensive power-related supply disruptions in
China, which led to a global market deficit. This rebound in sales prices,
together with increased demand for value-added product (VAP), were the key
drivers for our aluminium business to more than double underlying EBITDA and
deliver a substantial increase in cash flow.
Underlying EBITDA of $4.4 billion, which was 104% higher than 2020, benefited
from the stronger pricing environment, in particular for primary metal and
alumina, and higher product premiums for primary metal. This was only partly
offset by the impact of stronger local currencies, lower bauxite and alumina
shipments and cyclical cost inflation for coke, pitch and alloys. This
increased our industry-leading underlying EBITDA margin to 38%.
We achieved an average realised aluminium price of $2,899 per tonne, 49%
higher than 2020 ($1,946 per tonne). This comprised the LME price, a market
premium and a product (VAP) premium. The cash LME price averaged $2,480 per
tonne, 46% higher than 2020, while in our key US market, the midwest premium
duty paid increased by 119% to $584 per tonne (2020: $267 per tonne). Our VAP
sales represented 50% of the primary metal we sold (2020: 43%) and generated
product premiums averaging $230 per tonne of VAP sold (2020: $213 per tonne).
We generated $3.6 billion in net cash from operating activities, reflective of
the higher underlying EBITDA achieved, net of a $0.5 billion build in working
capital, driven by the higher pricing environment and supply chain
constraints. Free cash flow increased by 155% to $2.3 billion.
Review of operations
Bauxite production of 54.3 million tonnes was 3% lower than 2020 due to severe
wet weather in the first quarter impacting system stability throughout the
year, equipment reliability issues and overruns on planned shutdowns at our
Pacific operations.
We shipped 37.6 million tonnes of bauxite to third parties in 2021, 4% lower
than the same period of 2020 due to the major weather events in the first
quarter causing shipment delays. In 2021, gross product sales for bauxite
declined 4% to $2.2 billion: this includes freight revenue of $462 million
(2020: $423 million).
Alumina production of 7.9 million tonnes was 2% lower than 2020, as a result
of outages during the year at the Yarwun refinery in Queensland, Australia and
at Vaudreuil refinery in Quebec, Canada. Production at the Queensland refinery
remained stable year on year.
Aluminium production of 3.2 million tonnes was 1% lower than 2020 due to
reduced capacity at our Kitimat smelter in British Columbia following a strike
which commenced in July. Agreement was reached with the labour union and
employees in October, with a gradual restart in 2022 and full capacity
expected to be reached by December 2022. The reduced capacity was partly
offset by a robust performance across the remaining smelting portfolio.
Our principal projects and growth options
At the Kemano project in Kitimat, British Columbia, where we are constructing
a second tunnel to de-risk our 100% owned hydropower facility, the tunnel
boring machine is being dismantled and removed following breakthrough in
October. Although COVID-19 continues to affect the workforce, completion
remains on schedule for the second half of 2022. Total approved capital stands
at $0.8 billion.
In December 2021, we opened
(https://www.riotinto.com/news/releases/2021/Rio-Tinto-and-LNG-Canada-open-new-wharf-in-port-of-Kitimat)
a newly extended wharf that will increase the capacity of our port facilities
in Kitimat and support economic diversification in Northern British Columbia.
The new wharf will be used for imports of alumina, anodes and other supplies,
and for exports of low-carbon aluminium made at our BC Works smelter in
Kitimat. As the wharf was built and paid for by LNG Canada, when we gained
control over it in December we recognised a $336 million gain, which has been
excluded from underlying earnings on the grounds of materiality and linkage to
the impairment recognised in 2021.
ELYSIS, our joint venture with Alcoa, supported by Apple and the Governments
of Canada and Quebec, is developing a breakthrough technology that eliminates
all direct greenhouse gases from the aluminium smelting process. In 2021,
ELYSIS successfully produced aluminium at its Industrial Research and
Development Center in the Saguenay, Quebec. Construction of the first
commercial-scale prototype cells of ELYSIS(TM) inert anode technology has now
begun at our Alma smelter. These prototype cells are expected to become
operational in 2023. ELYSIS aims to have its technology available for
installation from 2024 and production of larger volumes of carbon-free
aluminium approximately two years later.
We announced
(https://www.riotinto.com/news/releases/2021/Rio-Tinto-invests-to-increase-low-carbon-AP60-aluminium-production-in-Canada)
an $87 million investment to increase aluminium production with 16 new
smelting cells at our AP60 smelter, in the Saguenay. Production will rise by
around 45%, or 26,500 tonnes of primary aluminium per year, to a capacity of
86,500 metric tonnes.
We announced a number of investments to sustain our assets in the Saguenay,
including C$92 million to refurbish
(https://www.riotinto.com/news/releases/2021/Rio-Tinto-invests-a-further-92-million-in-Isle-Maligne-power-plant)
the Isle-Maligne hydroelectric power station, the oldest in our network,
commissioned 95 years ago, and C$105 million to modernise
(https://www.riotinto.com/news/releases/2021/Rio-Tinto-modernises-Saguenay-port-facilities-for-safer-and-more-efficient-operations)
the Port-Alfred port facilities.
At our Weipa bauxite mine in northern Queensland, construction of a new 4MW
solar farm and 4MW/4MWh battery storage commenced
(https://www.riotinto.com/news/releases/2021/Rio-Tinto-to-triple-Weipa-solar-capacity-and-add-battery-storage-to-help-power-operations)
, which will triple the local electricity network's solar generation capacity.
The new facility will be built, owned and operated by EDL and will complement
the existing 1.6MW solar farm at Weipa, which was completed in 2015.
We partnered
(https://www.riotinto.com/news/releases/2021/Rio-Tinto-and-ARENA-to-study-using-hydrogen-to-reduce-carbon-emissions-in-alumina-refining)
with the Australian Renewable Energy Agency to research the potential for
using clean hydrogen to replace natural gas in the calcination process of
alumina refining at Yarwun. We are also partnering
(https://www.riotinto.com/news/releases/2021/Rio-Tinto-and-Sumitomo-to-assess-hydrogen-pilot-plant-at-Gladstones-Yarwun-alumina-refinery)
with Sumitomo Corporation to study the construction of a pilot plant at
Yarwun, which could produce hydrogen for the Gladstone Hydrogen Ecosystem.
Copper
Adjusted(5)
2021 year-end results 2021 2020 Change
Mined copper production (000 tonnes - Rio Tinto share) 494 528 (7) %
Refined copper production (000 tonnes - Rio Tinto share) 202 155 30 %
Gross product sales (US$ millions) 7,827 4,969 58 %
Average realised copper price (US cents per pound)(1) 424 283 50 %
Underlying EBITDA (US$ millions) 3,969 2,084 90 %
Underlying EBITDA margin (product group operations) 59 % 50 %
Underlying earnings (US$ millions) 1,579 754 109 %
Net cash generated from operating activities (US$ millions)(2) 2,634 982 168 %
Capital expenditure - excluding EAUs(3) (US$ millions) (1,328) (1,659) (20) %
Free cash flow (US$ millions) 1,295 (687) 289 %
Underlying return on capital employed (product group operations)(4) 14 % 8 %
1. Average realised price for all units sold. Realised price does not
include the impact of the provisional pricing adjustments, which positively
impacted revenues by $246 million (2020: $182 million).
2. Net cash generated from operating activities excludes the operating
cash flows of equity accounted units (EAUs) but includes dividends from EAUs
(Escondida).
3. Capital expenditure is the net cash outflow on purchases less sales of
property, plant and equipment, capitalised evaluation costs and purchases less
sales of other intangible assets. It excludes EAUs.
4. Underlying return on capital employed (ROCE) is defined as underlying
earnings (product group operations) excluding net interest divided by average
capital employed.
5. Following a reorganisation of the management team in 2021, the Diamonds
business is reported within Minerals and the Simandou iron ore project in
Guinea is reported within Copper. 2020 comparatives have been adjusted
accordingly.
Financial performance
The improvement in our financial performance was primarily attributable to
strong market conditions, with the copper price driven higher by renewed
speculative interest, declining LME stocks, a weaker US dollar and COVID-19
related supply constraints. We also benefited from higher sales volumes of
refined metal at Kennecott in the US and temporarily higher gold grades at Oyu
Tolgoi in Mongolia. These compensated for lower volumes at Escondida in Chile,
where ongoing preventive measures in response to COVID-19 continued to impact
workforce availability. As a result, underlying EBITDA was up 90% to $4.0
billion, with margins rising to 59%.
Price movements for all products benefited underlying EBITDA by $2.2 billion
for the full year. Our average realised copper price increased by 50% to 424
US cents per pound, even before taking into account the provisional pricing
benefit to revenues of $246 million in 2021, while the benchmark gold price
rose just 2% to $1,799 per ounce. We incurred additional costs related to our
response to COVID-19, higher energy costs, notably in the US driven by higher
diesel costs, and higher unit costs at Escondida due to lower concentrator
throughput. These were offset by an improvement in volumes at Oyu Tolgoi and
higher refined copper volumes at Kennecott, despite a furnace failure in
September 2021, which was followed by safe restart in October. Downtime in
2020 was more significant, due to an earthquake and a major smelter
maintenance shutdown.
Our copper unit costs, at 82 cents per pound in 2021, were 26% lower than in
2020, but marginally above guidance of 75 to 80 cents per pound. Lower
throughput and grades at Escondida and higher royalties, in line with stronger
prices, at Kennecott and Oyu Tolgoi were offset by higher production of copper
and, in particular, gold at Oyu Tolgoi, driven by higher grades.
We continue to advance our future evaluation projects, in particular at
Resolution Copper in Arizona, at Winu in Western Australia and at the Simandou
iron ore project in Guinea.
We generated $2.6 billion in net cash from our operating activities, a 168%
increase on 2020, from the same drivers as underlying EBITDA and a $0.8
billion increase in dividends from our 30% equity holding in Escondida to $1.4
billion, partly offset by a $0.4 billion tax payment in Mongolia. Free cash
flow of $1.3 billion reflected the higher operating cash flow and high level
of capital investment ($1.3 billion), mainly relating to the ongoing
development of the Oyu Tolgoi underground project, where we have a 34%
effective interest but fully consolidate on the basis of management control.
Review of operations
Mined copper, at 494 thousand tonnes, was 7% lower than 2020, due to lower
recoveries and throughput at Escondida as a result of the prolonged impact of
COVID-19, partly offset by higher recoveries and grades at Oyu Tolgoi and
Kennecott.
Kennecott's mined copper production was 14% higher than 2020, with higher
grades and recovery but less than expected production due to a slope failure
in May. The transition to the south wall is complete, with copper head grade
exceeding 0.5% in the second half. Refined copper production was 69% higher
than 2020 as a result of improved performance through most of the year
relative to 2020, despite the furnace failure in September 2021. The smelter
was safely restarted in late October and has been stable since. In 2020, there
was significant downtime following an earthquake and major maintenance.
Escondida's mined copper production was 17% lower than 2020, mainly due to 10%
lower grade in ore feed to the concentrators, 4% lower throughput and 31%
lower recoverable copper in ore stacked for leaching, mostly caused by
continuous COVID-19 restrictions in 2021 which impacted mine development due
to lower workforce availability.
Oyu Tolgoi's mined copper production from the open pit was 9% higher than 2020
with improved performance, a temporary increase in grades and increased mill
feed following geotechnical issues in the first half, partly offset by lower
staffing levels due to COVID-19.
Our principal projects and growth options - Oyu Tolgoi underground project
The Oyu Tolgoi underground project in Mongolia is expected to produce 500,000
tonnes of copper per year on average, from 2028 to 2036, from the open pit and
underground and an average of around 350,000 tonnes for a further five years
(from 2037 to 2041)(1), compared to 163,000 tonnes from the open pit in 2021.
The underground Ore Reserve has an average copper grade of 1.52%, which is
more than three times higher than the open pit Ore Reserve, and contains 0.31
grammes of gold per tonne.(2)
By 2030, Oyu Tolgoi is expected to be the fourth-largest copper mine in the
world. It is a complex greenfield project comprising an underground block cave
mine and copper concentrator as well as an open pit mine which has been
successfully operating for ten years. It is also one of the most modern, safe,
sustainable and water-efficient operations globally, with a workforce which is
more than 96% Mongolian. Since 2010, Oyu Tolgoi has spent a total of $13.4
billion in-country, including $3.6 billion of taxes, fees and other payments
to Mongolian national and local governments. The size and quality of this Tier
1 asset provides additional options, which could see production sustained for
many decades.
In December 2021, the updated Resources and Reserves were registered in
Mongolia in accordance with Mongolian regulations, and approval from the
Mongolian authorities of the 2022 Annual Mine Plan was received.
A comprehensive agreement was reached
(https://www.riotinto.com/news/releases/2022/Oyu-Tolgoi-partners-reach-comprehensive-agreement-and-approve-commencement-of-underground-mining-operations)
with all partners on 25 January 2022, resetting the relationship between the
partners, increasing the value the project delivers for Mongolia, and allowing
underground operations to commence.
As part of a comprehensive package, Turquoise Hill Resources (TRQ) agreed to
waive in full, funding balances arising from a carry account loan with Erdenes
Oyu Tolgoi (EOT) of $2.4 billion, comprising the amount of common share
investments in Oyu Tolgoi LLC funded by TRQ on behalf of EOT to build the
project to date, plus accrued interest.
The Parliament of Mongolia has approved a resolution (Resolution 103) that
substantially resolves the outstanding issues that have been subject to
negotiations with the Government of Mongolia over the last two years in
relation to addressing Parliament Resolution 92 (December 2019).
An updated funding plan has been agreed to address the current estimated
funding requirement for the project. Until sustainable underground production
is achieved, Oyu Tolgoi will be funded by cash on hand and rescheduling of
existing debt repayments, together with a pre-paid copper concentrate sales
agreement with TRQ. This is in line with restrictions on debt financing
contained in Resolution 103, passed by the Parliament of Mongolia on 30
December 2021.
Rio Tinto and TRQ have amended the Heads of Agreement signed in April 2021 to
ensure they appropriately fund Oyu Tolgoi, including seeking to reschedule
existing project finance repayments and raising additional supplemental debt
on terms acceptable to all the parties, as well as a loan facility from Rio
Tinto and up to $1.5 billion of equity offerings by TRQ, with an initial
offering of at least $650 million in 2022. The capital forecast stands at
$6.925 billion, including $175 million of estimated COVID-19 impacts to the
end of 20213, with sustainable production expected in the first half of 2023.
A reforecast will be undertaken in the first half of 2022 to determine a
revised cost and schedule estimate that will reflect any further COVID-19
impacts; any additional time-based impacts and market price escalation arising
from resequencing due to 2021 budget constraints (as a result of the Oyu
Tolgoi Board not approving the capital budget uplift at the time the
Definitive Estimate was finalised); and updated risk ranging reflecting the
latest project execution risks.
The Oyu Tolgoi Board has also approved the signing of an electricity supply
agreement to provide Oyu Tolgoi with a long-term source of power from the
Mongolian grid, under terms already agreed with the Government of Mongolia. In
meeting Oyu Tolgoi's commitment to sourcing power domestically, we will work
with the Government to support long-term renewable energy generation in
support of the Mongolian grid. The Government of Mongolia and Oyu Tolgoi are
in constructive discussions with the Inner Mongolia Power International
Cooperation Company (IMPIC) for an extension of current power import
arrangements beyond the current agreement of July 2023. IMPIC has indicated
its support for an extension and commercial terms are being finalised.
Other principal projects and growth options
The $0.9 billion investment in phase one of the south wall pushback project at
Kennecott, extending mine life to 2026, is complete and we are gradually
accessing higher grades. The $1.5 billion phase two investment will further
extend pre-stripping and support additional infrastructure development,
allowing mining to continue into a new area of the ore body between 2026 and
2032, generating attractive returns. Pre-feasibility studies are also being
progressed to extend open-pit mining beyond 2032, with a further pushback of
the north wall. In July, we announced
(https://www.riotinto.com/news/releases/2021/Rio-Tinto-progresses-studies-for-potential-underground-mining-at-Kennecott-copper)
the approval of a $108 million investment to support an underground mine below
the existing open pit, with studies due to be complete by 2024. Potential
underground mining would occur concurrently with open pit operations and
result in increased copper output.
At the Resolution Copper project in Arizona, the US Forest Service (USFS)
published the Final Environmental Impact Statement (FEIS) in January 2021, six
months behind the target date in its original project schedule set in 2015 by
the Obama Administration. In March 2021, the US Department of Agriculture
directed the USFS to rescind the FEIS to allow the agency to undertake further
review and consultation. Resolution Copper has used this time to deepen
dialogue and partnerships with local communities and Native American tribes,
building on the significant consultation undertaken over the past decade.
There are five different Native American groups, the O'odham, Hopi, Pueblo of
Zuni, Western Apache, and Yavapai, who traditionally used and occupied this
land, each with unique histories and interactions, cultural traditions, and
perspectives on the way of life. The O'odham, Hopi and Zuni have ties to this
land dating back thousands of years. From these five groups, there are 11
federally recognised tribes which establishes them as domestic dependent
nations within the US with inherent sovereign authority who are part of the
formal consultation process, all of whom have different views around this
project. We are already progressing partnerships with over half of these
tribes and our aim is to have a mutual dialogue with all tribes. For example,
in the second quarter of 2021 the USFS, in partnership with Resolution Copper
and Western Apache Tribal elders began a restoration effort for Emory Oak
trees, guided by Indigenous Traditional and Ecological Knowledge. The project
has advanced restoration activities at a dozen priority Emory Oak Groves
identified by Western Apache elders on Arizona National Forests, White
Mountain Apache Tribal lands and Resolution Copper private property.
In 2021, we also hosted tribal leaders and elders in our business and local
community to share the importance of their culture and acknowledge their
ancestral ties to Arizona's landscape. Throughout the year, we continued to
support fieldwork by Native American tribal monitors who use traditional
knowledge to identify ancestral sites, seeps, springs and medicinal plants on
Resolution Copper private lands and partner with us on preservation and
co-management approaches.
At the Winu copper-gold project in the Paterson Province of Western Australia,
we continue to actively engage with the Traditional Owners and have begun
discussions on the initial scope and mine design with Western Australia's
Environmental Protection Authority. We have taken particular care to build
transparent, credible and trusting relationships with the Traditional Owners
and continue to prioritise building these partnerships moving forward.
Drilling, fieldwork and development activities continue to progress to
schedule. Timelines to sanction and first production will be disclosed on
completion of relevant agreements and permitting processes.
At the Simandou iron ore project(4) in Guinea, technical optimisation work
continued in 2021 with the support of China-based institutions and partners.
Progress continued on updating and implementing our 2012 Social and
Environmental Impact Assessment, alongside a new drilling programme that
commenced in the fourth quarter. We established a new office in Conakry to
accommodate our expanding in-country team and have issued expressions of
interest for construction and early development works and in-country
activities to be carried out in 2022.
We continued to engage with the Guinean authorities on potential mechanisms
for collaboration on infrastructure development, while seeking mutual and
sustainable benefits by developing our projects in line with international
social and environmental standards and practices. We have continued to work
closely with local communities, supporting them through the COVID-19 pandemic.
We remain committed to the development of Simandou, one of the world's largest
and richest iron ore deposits, demand for which is increasing as steelmakers
look to reduce carbon emissions, while delivering benefits to our partners,
local communities and the people of Guinea.
1. The 500ktpa target (stated as recovered metal) for the Oyu Tolgoi
underground and open pit mines is underpinned 17% by Proved Ore Reserves and
83% by Probable Ore Reserves for the years 2028-2036. The 350ktpa production
target for the following five years is underpinned 18% by Proved Ore Reserves
and 82% by Probable Ore Reserves. These production targets have been scheduled
from current mine designs by Competent Persons in accordance with the
requirements of the Australasian Code for Reporting of Exploration Results,
Minerals Resources and Ore Reserves, 2012 Edition (the JORC code).
2. This information in relation to the underground Ore Reserves was
previously reported in the release to the ASX dated 16 December 2020. The
Competent Persons responsible for reporting the Ore Reserves were Ferrin
Prince and Mark Bixley, Competent Persons, who are a Member and Fellow
respectively of The Australasian Institute of Mining and Metallurgy. Rio Tinto
is not aware of any new information or data that materially affect these Ore
Reserve estimates and confirms that all material assumptions and technical
parameters underpinning the estimates continue to apply and have not
materially changed. The form and context in which the Competent Persons'
findings are presented have not been materially modified from the release
dated 16 December 2020.
3. These estimates exclude any impacts of delays to work schedules caused
by restricted approved budgets since the start of 2021. This, together with
any ongoing COVID-19 impacts, will be assessed following the commencement of
underground operations with further updates provided to the market in due
course. Panels 1 and 2 studies will be ongoing throughout 2022. Further study
work is also under way to assess the extraction methodology and ultimate
recovery of the Panel 0 recoverable pillars.
4. Operating under the Simfer joint venture where the government of Guinea
holds 15% and Simfer Jersey holds 85%. Simfer Jersey is owned by Chalco Iron
Ore Holdings (CIOH) (47%) and Rio Tinto (53%). CIOH is owned by Chinalco
(75%), Baosteel Resources (20%), China Civil Engineering Construction
Corporation (CCECC) (2.5%) and China Harbour Engineering Company (CHEC)
(2.5%). This structure has been in place since 2017.
Minerals
Adjusted(5)
2021 year-end results 2021 2020 Change
Iron ore pellets and concentrates production(1) (million tonnes - Rio Tinto 9.7 10.4 (6) %
share)
Titanium dioxide slag production (000 tonnes - Rio Tinto share) 1,014 1,120 (9) %
Borates production (000 tonnes - Rio Tinto share) 488 480 2 %
Diamonds production (000 carats - Rio Tinto share)(2) 3,847 14,676 (74) %
Gross product sales (US$ millions) 6,481 5,170 25 %
Underlying EBITDA (US$ millions) 2,603 1,710 52 %
Underlying EBITDA margin (product group operations) 43 % 35 %
Underlying earnings (US$ millions) 888 580 53 %
Net cash generated from operating activities (US$ millions) 1,433 1,122 28 %
Capital expenditure (US$ millions)(3) (644) (455) 42 %
Free cash flow (US$ millions) 762 642 19 %
Underlying return on capital employed (product group operations)(4) 21 % 14 %
1. Iron Ore Company of Canada continues to be reported within Minerals.
2. Diamonds production for 2021 solely relates to Diavik Diamond Mine,
following the closure of Argyle in 2020. On 17 November 2021, Rio Tinto's
interest in Diavik increased from 60% to 100%. Production and financials
reflect this from 1 November 2021.
3. Capital expenditure is the net cash outflow on purchases less sales of
property, plant and equipment, capitalised evaluation costs and purchases less
sales of other intangible assets.
4. Underlying return on capital employed (ROCE) is defined as underlying
earnings (product group operations) excluding net interest divided by average
capital employed.
5. Following a reorganisation of the management team in 2021, the Diamonds
business is reported within Minerals and the Simandou iron ore project in
Guinea is reported within Copper. 2020 comparatives have been adjusted
accordingly.
Our colleague Nico Swart was tragically killed in a shooting incident while
driving to work at Richards Bay Minerals (RBM) in South Africa on 24 May. Our
sympathies are with Nico's family and we continue to offer support to his
family, friends and colleagues.
Financial performance
In 2021, we benefited from strong market conditions in particular for iron ore
pellets and concentrate, but also for titanium dioxide pigment and borates,
driven by global economic growth and underpinned by a robust construction
market. We also saw a recovery in diamond prices following a pandemic-related
build-up of demand and low inventory levels.
The business continued to comply with government-imposed COVID-19
restrictions, notably in Canada, the US and South Africa. At our titanium
dioxide business we experienced 9% lower production, as a result of community
disruptions and subsequent curtailment of operations at Richards Bay Minerals
(RBM) in South Africa for around three months coupled with an extended ramp-up
period, as well as unplanned maintenance and equipment reliability issues at
Rio Tinto Fer et Titane (RTFT) in Canada.
Underlying EBITDA of $2.6 billion was 52% higher than 2020, primarily due to
the strong pricing environment which more than offset the impact of lower
volumes, which in turn drove up cash unit costs due to fixed cost
inefficiencies.
We generated net cash of $1.4 billion from our operating activities, and $0.8
billion of free cash flow, 28% and 19% higher than 2020, respectively,
reflecting the strong pricing environment and higher dividends paid to holders
of non-controlling interests at Iron Ore Company of Canada.
Review of operations
Iron Ore Company of Canada (IOC)
Iron ore production was 6% lower than 2020 due to prolonged labour and
equipment availability issues impacting product feed and various other
operational challenges throughout the year.
Iron & Titanium
Titanium dioxide production of 1.0 million tonnes was 9% lower than 2020 as a
result of community disruptions and subsequent curtailment of operations at
RBM and unplanned maintenance and equipment reliability issues at RTFT. On 24
August, RBM resumed operations following stabilisation of the security
situation, supported by the national and provincial government, as well as
engagement with host communities and their traditional authorities.
Borates
Borates production was in line with 2020 and benefited from improved refinery
operating rates following the successful implementation of productivity
initiatives supporting system stability.
Diamonds
On 18 November, we announced
(https://www.riotinto.com/news/releases/2021/Rio-Tinto-becomes-sole-owner-of-Diavik-Diamond-Mine)
we had become the sole owner of Diavik Diamond Mine in the Northwest
Territories of Canada, continuing its leading role in the Canadian diamond
industry. Carats recovered at Diavik were 3% higher than in 2020, due to the
increased share of production from November, which offset lower ore grade. The
74% decline in diamond production reflects the closure of the Argyle mine on 3
November 2020.
Our principal projects and growth options
The $463 million Zulti South project at RBM remains on full suspension.
On 27 July, the Board committed
(https://www.riotinto.com/news/releases/2021/Rio-Tinto-commits-funding-for-Jadar-lithium-project)
$2.4 billion of funding for the Jadar lithium-borates project in Serbia,
subject to receiving all relevant approvals, permits and licences. In January
2022, the Government of Serbia cancelled the Spatial Plan for the Jadar
project and required all related permits to be revoked. We are disappointed by
this announcement and are committed to exploring all options and are reviewing
the legal basis of the decision and the implications for our activities and
people in Serbia.
In December, we entered
(https://www.riotinto.com/news/releases/2021/Rio-Tinto-to-acquire-Rincon-Mining-lithium-project)
into a binding agreement to acquire the Rincon lithium project in Argentina,
demonstrating our commitment to build our battery materials business and
strengthen our portfolio for the global energy transition. Located in the
heart of the lithium triangle in Salta Province, Rincon is a long-life,
scaleable resource capable of producing battery-grade lithium carbonate. It
also has the potential to have one of the lowest carbon footprints in the
industry that can help deliver on our commitment to decarbonise our portfolio.
The transaction is expected to be complete in the first half of 2022, subject
to approval by Australia's Foreign Investment Review Board.
At our Boron operations in California, US, we have successfully produced
battery-grade lithium from waste rock at our lithium demonstration plant as
part of continued research, development, testing and experimentation of our
proprietary technology in this space. The demonstration plant has a design
capacity of ten tonnes per year. We are progressing with a feasibility study
to evaluate options to expand to a 5,000 tonne per annum capacity.
Price and exchange rate sensitivities
The following sensitivities give the estimated effect on underlying EBITDA,
assuming that each price or exchange rate moved in isolation. The relationship
between currencies and commodity prices is a complex one; movements in
exchange rates can affect movements in commodity prices and vice versa. The
exchange rate sensitivities quoted here include the effect on operating costs
of movements in exchange rates, but do not include the effect of the
revaluation of foreign currency working capital. Please use them with care.
Average published US$ million impact on
price/exchange rate for full year 2021
2021 underlying EBITDA
of a 10% change
in prices/exchange rates
Aluminium - US$ per tonne 2,480 813
Copper - US$ per pound 4.22 543
Gold - US$ per troy ounce 1,799 120
Iron ore realised price (62% Fe CFR freight-adjusted) - US$ per dry metric 143.8 3,605
tonne
Australian dollar against the US dollar 0.75 736
Canadian dollar against the US dollar 0.80 285
Oil (Brent) - US per barrel $70/bbl 111
The impact of a $100 per tonne change in each of the input costs below is
expected to have the following impact on our Canadian(1) aluminium smelting
unit cash cost(2) of $1,373 per tonne in 2021:
US$/t
Alumina (FOB) 191
Green petroleum coke (FOB) 25
Calcined petroleum coke (FOB) 36
Coal tar pitch (FOB) 8
1. Canadian smelters include all fully-owned smelters in Canada (Alma,
AP60, Arvida, Grande-Baie, Kitimat and Laterrière), as well as our share of
the Becancour and Alouette smelters.
2. The smelting unit cash cost refers to all costs which have been
incurred before casting, excluding depreciation but including corporate
allocations and with alumina at market price, to produce one metric tonne of
primary aluminium.
Capital projects
Projects Total approved Approved capital remaining to be Status/Milestones
(Rio Tinto 100% capital cost spent from
owned unless (100% unless 1 January 2022
otherwise stated) otherwise stated)
Completed in 2021
Investment in the Greater Tom Price operations (Western Turner Syncline phase $0.8bn - Approved in November 2019, the investment will enable us to sustain production
2) to sustain iron ore production capacity in the Pilbara region of Western of our Pilbara Blend™ and facilitate mining of existing and new deposits
Australia. The investment includes construction of a new crusher and a around Tom Price. The project achieved first ore in October, in line with
13-kilometre conveyor. previous guidance.
Investment in the south wall pushback, to extend mine life at Kennecott, Utah, $0.9bn - Funding for the continuation of open pit mining via the push back of the south
US, from 2019 to 2026. wall: the transition to the south wall is complete, with copper head grade
exceeding 0.5% in the second half of 2021.
Ongoing and approved
Iron Ore
Investment in the Robe River Joint Venture (West Angelas C and D and Mesa B, C $0.9bn $0.1bn Approved in October 2018, the investments will enable us to sustain production
and H at Robe Valley) in the Pilbara to sustain production capacity.
of our Pilbara Blend™ and Robe Valley products. First ore at West Angelas (C
(Rio Tinto share) (Rio Tinto share) and D) was achieved in June 2021. At Robe Valley, the autonomous mining truck
fleet has been commissioned: since achieving first ore in August, ongoing wet
plant construction and commissioning challenges have impacted production
ramp-up(1).
Investment in Gudai-Darri, a new production hub in the Pilbara region of $2.6bn $0.4bn Approved in November 2018. Labour shortages have impacted both steel
Western Australia. The investment incorporates a processing plant and fabrication and site construction activities in 2021. The railway is
infrastructure including a 166-kilometre rail line connecting the mine to our operational with the first train loaded from the mobile crushing and screening
existing network. Once complete, the mine will have an initial annual capacity facilities in December. First production from the main plant is now expected
of 43 million tonnes. in the second quarter of 2022, subject to the continuing impacts of
COVID-19(1).
Aluminium
Investment in a second tunnel at the 1000MW Kemano hydropower facility at $0.8bn $0.1bn The project was first approved in 2017, with $155 million of additional
Kitimat, British Columbia, Canada, which will ensure the long-term reliability capital approved in 2020 and a further $132 million approved in July 2021.
of the power supply to the Kitimat smelter. Works resumed at full capacity in 2021 first half and tunnel boring excavation
is now complete. The project is scheduled to complete in the second half of
2022, subject to there being no further COVID-19 delays.
Projects Total approved Approved capital remaining to be Status/Milestones
(Rio Tinto 100% capital cost spent from
owned unless (100% unless 1 January 2022
otherwise stated) otherwise stated)
Ongoing and approved
Copper
Phase two of the south wall pushback to extend mine life at Kennecott by a $1.5bn $1.3bn Approved in December 2019, the investment will further extend strip waste rock
further six years. mining and support additional infrastructure development. This will allow
mining to continue into a new area of the orebody between 2026 and 2032.
Development of the Oyu Tolgoi underground copper/gold mine in Mongolia (Rio $6.925bn(3) $1.8bn The project was originally approved in May 2016 for $5.3 billion, with an
Tinto 34%), which is expected to produce (from the open pit and underground) additional $1.45 billion approved by the Rio Tinto Board in December 2020,
an average of ~500,000 tonnes(2) of copper per year from 2028 to 2036 and an following completion of the Definitive Estimate. It now includes $175 million
average of ~350,000 tonnes(2) of copper per year for a further five years, of estimated COVID-19 impacts to the end of 2021(3). First sustainable
compared with 163,000 tonnes in 2021 (open pit). production is expected in the first half of 2023, following the comprehensive
agreement between the Oyu Tolgoi partners announced in January 2022.
Minerals
Development of the Zulti South project at Richards Bay Minerals (RBM) in South $0.5bn $0.3bn Approved in April 2019 to underpin RBM's supply of zircon and ilmenite over
Africa (Rio Tinto 74%). the life of the mine. The project remains on full suspension.
Development of the greenfield Jadar lithium-borates project in Serbia. The $2.4bn $2.4bn The Board committed the funding in July 2021, subject to receiving all
development will include an underground mine with associated infrastructure relevant approvals, permits and licences. First saleable production was
and equipment, including electric haul trucks, as well as a beneficiation expected in 2027 with ramp-up to full production of 58,000 tonnes of
chemical processing plant. battery-grade lithium carbonate, 160,000 tonnes of boric acid (B(2)O(3) units)
and 255,000 tonnes of sodium sulphate per year.(4) In January 2022, the
Government of Serbia cancelled the Spatial Plan for the Jadar project and
required all related permits to be revoked. We are disappointed by this
announcement and are committed to exploring all options and are reviewing the
legal basis of the decision and the implications for our activities and people
in Serbia.
1. Potential for capital cost to rise by around 15% due to ongoing
COVID-19 restrictions on commissioning and ramp-up of Pilbara growth and
brownfield mine replacement projects, including labour access and supply chain
quality issues. The latter has been exacerbated by an inability to conduct
pre-delivery quality assurance and control at international steel and
equipment manufacturers due to limitations on travel.
2. The 500ktpa target (stated as recovered metal) for the Oyu Tolgoi
underground and open pit mines is underpinned 17% by Proved Ore Reserves and
83% by Probable Ore Reserves for the years 2028-2036. The 350ktpa production
target for the following five years is underpinned 18% by Proved Ore Reserves
and 82% by Probable Ore Reserves. These production targets have been scheduled
from current mine designs by Competent Persons in accordance with the
requirements of the Australasian Code for Reporting of Exploration Results,
Minerals Resources and Ore Reserves, 2012 Edition (the JORC code).
3. These estimates exclude any impacts of delays to work schedules
caused by restricted approved budgets since the start of 2021. This, together
with any ongoing COVID-19 impacts, will be assessed following the commencement
of underground operations with further updates provided to the market in due
course. Panels 1 and 2 studies will be ongoing throughout 2022. Further study
work is also underway to assess the extraction methodology and ultimate
recovery of the Panel 0 recoverable pillars.
4. These production targets are reported in a release to the
Australian Securities Exchange (ASX) dated 23 February 2022, "Rio Tinto
updates Ore Reserves and Mineral Resources at Jadar". All material assumptions
underpinning the production targets continue to apply and have not materially
changed.
Group income statement
Years ended 31 December
2021 2020
US$m US$m
Consolidated operations
Consolidated sales revenue 63,495 44,611
Net operating costs (excluding items shown separately) (32,690) (26,254)
Impairment charges net of reversals((a)) (269) (904)
Exploration and evaluation costs (726) (625)
Profit relating to interests in undeveloped projects 7 1
Operating profit 29,817 16,829
Share of profit after tax of equity accounted units 1,042 652
Impairment of investments in equity accounted units - (339)
Profit before finance items and taxation 30,859 17,142
Finance items
Net exchange gains/(losses) on net external and intragroup debt balances 802 (1,124)
Net losses on derivatives not qualifying for hedge accounting (231) (123)
Finance income 64 141
Finance costs((b)) (243) (268)
Amortisation of discount on provisions (418) (377)
(26) (1,751)
Profit before taxation 30,833 15,391
Taxation((c)) (8,258) (4,991)
Profit after tax for the year 22,575 10,400
- attributable to owners of Rio Tinto (net earnings) 21,094 9,769
- attributable to non-controlling interests 1,481 631
Basic earnings per share((d)) 1,303.4c 604.0c
Diluted earnings per share((d)) 1,295.0c 599.8c
(a) Refer to Impairment charges note on pages 50 to 53.
(b) Finance costs in the income statement are net of amounts capitalised of
US$358 million (2020: US$340 million). In 2021, we completed a bond buy-back
programme of US$1.2 billion (nominal value) and incurred a loss on the early
redemption of the bond of US$69m. We did not undertake a bond buy-back
programme in 2020.
(c) Refer to Taxation note on page 54.
(d) For the purpose of calculating basic earnings per share, the weighted
average number of Rio Tinto plc and Rio Tinto Limited shares outstanding
during the year was 1,618.4 million (2020: 1,617.4 million). The weighted
average number of shares is calculated as the average number of Rio Tinto plc
shares outstanding not held as treasury shares of 1,247.4 million (2020:
1,246.5 million) plus the average number of Rio Tinto Limited shares
outstanding of 371.0 million (2020: 370.9 million) over the relevant period.
There were no cross holdings of shares between Rio Tinto Limited and Rio Tinto
plc in either periods presented. The income statement figures used in the
calculation of basic and diluted earnings per share are based on the profits
for the year attributable to owners of Rio Tinto.
For the purposes of calculating diluted earnings per share, the effect of
dilutive securities of 10.5 million shares in 2021 (2020: 11.2 million) is
added to the weighted average number of shares described above. The effect is
calculated under the treasury stock method.
Status of financial information
The full year financial information contained in this announcement, which does
not constitute statutory accounts as defined in Section 434 of the Companies
Act 2006, has been derived from the statutory accounts for the year ended
31 December 2021. These statutory accounts have been audited, were approved
by the Board on 23 February 2022, and will be filed with the Registrar of
Companies in the United Kingdom and the Australian Securities and Investments
Commission in due course. Statutory accounts for the year ended 31 December
2020 have been filed with the Registrar of Companies.
Unless stated otherwise, financial information for the years ended
31 December 2021 and 31 December 2020 has been extracted from the full
financial statements for that year prepared under the historical cost
convention, as modified by the revaluation of certain derivative contracts and
financial assets, the impact of fair value hedge accounting on the hedged
items and the accounting for post-retirement assets and obligations.
The Auditors' reports on the full financial statements for the years ended
31 December 2021 and 31 December 2020 were both unqualified and, in relation
to Rio Tinto plc, did not contain a statement under section 498 (2) (regarding
adequacy of accounting records and returns), or under section 498 (3)
(regarding provision of necessary information and explanations) of the United
Kingdom Companies Act 2006, and in relation to Rio Tinto Limited, contained
a statement that the financial report is in accordance with the Corporations
Act 2001 as amended by the ASIC Order dated 16 July 2021.
Group statement of comprehensive income
Years ended 31 December
2021 2020
US$m US$m
Profit after tax for the year 22,575 10,400
Other comprehensive (loss)/income
Items that will not be reclassified to the income statement:
Re-measurement gains/(losses) on pension and post-retirement healthcare plans 1,026 (474)
Changes in the fair value of equity investments held at fair value through 5 10
other comprehensive income (FVOCI)
Tax relating to these components of other comprehensive income (305) 112
Share of other comprehensive income/(losses) of equity accounted units, net of 12 (6)
tax
738 (358)
Items that have been/may be subsequently reclassified to the income statement:
Currency translation adjustment((a)) (1,843) 2,967
Fair value movements:
- Cash flow hedge (losses)/gains (211) 24
- Cash flow hedge losses/(gains) transferred to the income statement 14 (63)
Net change in costs of hedging reserve (18) 7
Tax relating to these components of other comprehensive loss/(income) 62 3
Share of other comprehensive (losses)/income of equity accounted units, net of (12) 4
tax
Other comprehensive (loss)/income for the year, net of tax (1,270) 2,584
Total comprehensive income for the year 21,305 12,984
- attributable to owners of Rio Tinto 19,896 12,201
- attributable to non-controlling interests 1,409 783
(a) Excludes a currency translation charge of US$211 million (2020: gain of
US$333 million) arising on Rio Tinto Limited's share capital for the year
ended 31 December 2021, which is recognised in the Group statement of changes
in equity. Refer to the Group statement of changes in equity on page 41.
Group cash flow statement
Years ended 31 December
2021 2020
US$m US$m
Cash flows from consolidated operations((a)) 33,936 21,822
Dividends from equity accounted units 1,431 594
Cash flows from operations 35,367 22,416
Net interest paid (438) (569)
Dividends paid to holders of non-controlling interests in subsidiaries (1,090) (683)
Tax paid (8,494) (5,289)
Net cash generated from operating activities 25,345 15,875
Cash flows from investing activities
Purchases of property, plant and equipment and intangible assets (7,384) (6,189)
Disposals of subsidiaries, joint ventures, unincorporated joint operations and 4 10
associates
Purchases of financial assets (45) (5)
Sales of financial assets((b)) 114 63
Sales of property, plant and equipment and intangible assets 61 45
Net receipts/(funding) from/of equity accounted units 6 (43)
Other investing cash flows((c)) 85 (437)
Net cash used in investing activities (7,159) (6,556)
Cash flows before financing activities 18,186 9,319
Cash flows from financing activities
Equity dividends paid to owners of Rio Tinto (15,357) (6,132)
Proceeds from additional borrowings((d)) 1,488 125
Repayment of borrowings and associated derivatives((e)(f)) (1,707) (721)
Lease principal payments (358) (324)
Proceeds from issue of equity to non-controlling interests 66 129
Own shares purchased from owners of Rio Tinto - (208)
Other financing cash flows 6 1
Net cash flows used in financing activities (15,862) (7,130)
Effects of exchange rates on cash and cash equivalents 100 165
Net increase in cash and cash equivalents 2,424 2,354
Opening cash and cash equivalents less overdrafts 10,381 8,027
Closing cash and cash equivalents less overdrafts((g)) 12,805 10,381
(a) Cash flows from consolidated operations
Profit after tax for the year 22,575 10,400
Adjustments for:
- Taxation 8,258 4,991
- Finance items 26 1,751
- Share of profit after tax of equity accounted units (1,042) (652)
- Impairment charges of investments in equity accounted units after tax - 339
- Impairment charges net of reversals 269 904
- Depreciation and amortisation 4,697 4,279
- Provisions (including exchange differences on provisions) 1,903 894
- Pension settlement (291) -
Utilisation of provision for post-retirement benefits (129) (192)
Utilisation of provisions (771) (582)
Change in inventories (1,397) (281)
Change in receivables and other assets((h)) (367) (562)
Change in trade and other payables 685 558
Other items((i)) (480) (25)
33,936 21,822
Group cash flow statement (continued)
(b) In 2021, the Group received net proceeds of US$107 million (2020: net
proceeds of US$58 million) from its sales and purchases of investments within
a separately managed portfolio of fixed income instruments. Purchases and
sales of these securities are reported on a net cash flow basis.
(c) In 2021, other investing cash flows include inflows relating to net
settlement upon completion of a transaction increasing the Group's 60% share
in the Diavik Diamond Mine to sole ownership. In 2020, other investing cash
flows included US$299 million cash outflow relating to payments made by Energy
Resources Australia into a trust fund controlled by the Government of
Australia. At 31 December 2021 the total amount held in the trust fund was
US$388 million (31 December 2020: US$410 million).
(d) On 28 October 2021, we issued US$1.25 billion 30-years fixed rate
SEC-registered debt securities with a coupon of 2.75%. We received the funds
net of issuance fees and discount. The proceeds of the new issuance were used
to fund the early redemption and extinguishment of the company's
US$1.20 billion 3.75% bonds due to mature in June 2025, refer to the below
footnote.
(e) During the last quarter of 2021, we completed a US$1.20 billion
(nominal value) bond buy-back programme. The notes purchased and redeemed have
been cancelled. The net cash outflow of US$1.27 billion represents the
repayment of the bond at a premium offset by the monetisation of the gain from
the derivatives that hedged the bond.
(f) During 2020, we repaid our €402 million (nominal value) Rio Tinto
Finance plc Euro Bonds on their maturity. The total cash outflow of US$526
million included the cash outflow of the bond and the realised loss from the
derivatives that hedged the bonds.
(g) Closing cash and cash equivalents less overdrafts for the purposes of
the cash flow statement differs from cash and cash equivalents on the Group
balance sheet as per the following reconciliation:
Closing cash and cash equivalents less overdrafts 31 December 31 December
2021
2020
US$m US$m
Balance per Group balance sheet 12,807 10,381
Bank overdrafts repayable on demand (unsecured) (2) -
Balance per Group cash flow statement 12,805 10,381
(h) In 2021, the Mongolian Tax Authority required payment by Oyu Tolgoi of
US$356 million in relation to disputed tax matters. Oyu Tolgoi continues to
dispute the matters and has classified amounts subject to international
arbitration as prepayments pending resolution.
(i) At 31 December 2021, other items include US$336 million related to a
gain on recognition of a new wharf at Kitimat, Canada with no associated cash
flow.
Group balance sheet
At 31 December
2021 2020
US$m US$m
Non-current assets
Goodwill 879 946
Intangible assets 2,832 2,755
Property, plant and equipment 64,927 62,882
Investments in equity accounted units 3,504 3,764
Inventories 196 174
Deferred tax assets 3,375 3,385
Receivables and other assets 2,194 1,796
Tax recoverable 29 4
Other financial assets 528 829
78,464 76,535
Current assets
Inventories 5,436 3,917
Receivables and other assets 3,574 3,644
Tax recoverable 72 62
Other financial assets 2,543 2,851
Cash and cash equivalents 12,807 10,381
24,432 20,855
Total assets 102,896 97,390
Current liabilities
Borrowings and other financial liabilities (1,381) (607)
Trade and other payables (7,733) (7,421)
Tax payable (1,407) (1,850)
Provisions including post-retirement benefits (2,106) (1,729)
(12,627) (11,607)
Non-current liabilities
Borrowings and other financial liabilities (12,788) (13,408)
Trade and other payables (798) (820)
Tax payable (660) (477)
Deferred tax liabilities (3,503) (3,239)
Provisions including post-retirement benefits (15,930) (15,936)
(33,679) (33,880)
Total liabilities (46,306) (45,487)
Net assets 56,590 51,903
Capital and reserves
Share capital((a))
- Rio Tinto plc 207 207
- Rio Tinto Limited 3,570 3,781
Share premium account 4,320 4,314
Other reserves 9,998 11,960
Retained earnings 33,337 26,792
Equity attributable to owners of Rio Tinto 51,432 47,054
Attributable to non-controlling interests 5,158 4,849
Total equity 56,590 51,903
Group balance sheet (continued)
(a) At 31 December 2021, Rio Tinto plc had 1,248.1 million ordinary shares
in issue and held by the public, and Rio Tinto Limited had 371.2 million
shares in issue and held by the public. There were no cross holdings of shares
between Rio Tinto Limited and Rio Tinto plc in either periods presented. As
required to be disclosed under the ASX Listing Rules, the net tangible assets
per share amounted to US$29.47 (31 December 2020: US$26.79).
Group statement of changes in equity
Year ended 31 December 2021 Attributable to owners of Rio Tinto
Share capital Share premium Other reserves Retained earnings Total Non-controlling Total
US$m account US$m US$m US$m interests equity
US$m US$m US$m
Opening balance 3,988 4,314 11,960 26,792 47,054 4,849 51,903
Total comprehensive income for the year((a)) - - (1,916) 21,812 19,896 1,409 21,305
Currency translation arising on Rio Tinto Limited's share capital (211) - - - (211) - (211)
Dividends((b)) - - - (15,385) (15,385) (1,090) (16,475)
Own shares purchased from Rio Tinto shareholders to satisfy share awards to - - (95) (18) (113) - (113)
employees((c))
Change in equity interest held by Rio Tinto((d)) - - - 76 76 (76) -
Treasury shares reissued and other movements - 6 - - 6 - 6
Equity issued to holders of non-controlling interests - - - - - 66 66
Employee share awards charged to the income statement - - 49 60 109 - 109
Closing balance 3,777 4,320 9,998 33,337 51,432 5,158 56,590
Year ended 31 December 2020 Attributable to owners of Rio Tinto
Share capital Share premium Other reserves Retained earnings Total Non-controlling Total
US$m account US$m US$m US$m interests equity
US$m US$m US$m
Opening balance 3,655 4,313 9,177 23,387 40,532 4,710 45,242
Total comprehensive income for the year((a)) - - 2,798 9,403 12,201 783 12,984
Currency translation arising on Rio Tinto Limited's share capital 333 - - - 333 - 333
Dividends((b)) - - - (6,132) (6,132) (689) (6,821)
Share buy-back((e)) - - - (1) (1) - (1)
Own shares purchased from Rio Tinto shareholders to satisfy share awards to - - (76) (31) (107) - (107)
employees((c))
Change in equity interest held by Rio Tinto((d)) - - - 84 84 (84) -
Treasury shares reissued and other movements - 1 - - 1 - 1
Equity issued to holders of non-controlling interests - - - - - 129 129
Employee share awards charged to the income statement - - 61 82 143 - 143
Closing balance 3,988 4,314 11,960 26,792 47,054 4,849 51,903
Group statement of changes in equity (continued)
(a) Refer to Group statement of comprehensive income for further details.
Adjustments to other reserves include currency translation attributable to
owners of Rio Tinto, other than that arising on Rio Tinto Limited's share
capital.
(b) The dividends paid in 2021 are based on the following US cents per share
amounts: 2020 final - 309.0 cents, 2020 final special - 93.0 cents, 2021
interim - 376.0 cents, 2021 interim special - 185.0 cents (2020 dividends
paid: 2019 final - 231.0 cents, 2020 interim - 155.0 cents). Dividends
declared in the announcement of the results for 2021 represent the 2021 final
ordinary dividend of 417.0 cents per share and a special dividend of 62.0
cents per share.
(c) Net of contributions received from employees for share awards.
(d) Includes accrual of interest on funding balances with holders of
non-controlling interests in Oyu Tolgoi. On 25 January 2022, Turquoise Hill
agreed to waive the full amount of funding balances and interest; refer to
page 73.
(e) In 2020, the amount of US$1 million together with the amounts paid
during the year in respect of an irrevocable contract in place at the end of
2019 to cover the share buy-back programme, totalled US$208 million, as
reported in the cash flow statement.
Accounting Policies
The condensed consolidated financial statements included in this report have
been prepared on a going concern basis in accordance with the Companies Act
2006 applicable to companies reporting under International Financial Reporting
Standards and in accordance with applicable UK law, applicable Australian law
as amended by the Australian Securities and Investments Commission Order dated
16 July 2021, Article 4 of the European Union IAS regulation and also with:
- International Financial Reporting Standards as issued by the International
Accounting Standards Board (IASB) and interpretations issued from time to time
by the IFRS Interpretations Committee (IFRS IC) which are mandatory at
31 December 2021.
The above accounting standards and interpretations are collectively referred
to as "IFRS" in this report. While the financial information included in this
report has been prepared in accordance with IFRS the report does not contain
all the information required to comply with IFRS. The Group will publish full
financial statements that comply with IFRS on 23 February 2022.
The Group has not early adopted any amendments, standards or interpretations
that have been issued but are not yet mandatory.
The Group's financial statements have been prepared on the basis of accounting
policies consistent with those applied in the financial statements for the
year ended 31 December 2020, except for the accounting requirements set out
below, effective as at 1 January 2021, which did not have a significant impact
on the Group's financial statements.
The Group adopted Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) at 1 January 2021. The amendments
address the financial reporting impact from reform of the London Interbank
Offered Rate (LIBOR) and other benchmark interest rates (collectively "IBOR
reform"). The Group applied the Phase 2 amendments retrospectively. However,
in accordance with the exceptions permitted in the Phase 2 amendments, it has
elected not to restate comparatives for the prior periods to reflect the
application of these amendments. Since the Group had no transactions for which
the benchmark rate had been replaced with an alternative benchmark rate as at
31 December 2020, there is no impact on opening equity balances as a result of
retrospective application.
On 5 March 2021 LIBOR's administrator, ICE Benchmarks Administration (IBA) and
its supervisor, the UK Financial Conduct Authority (FCA), issued statements
which provide the dates that all LIBOR settings will either cease to be
provided by any administrator or will no longer be representative. This will
occur: immediately after 31 December 2021, for all GBP, Euro, CHF and JPY
LIBOR settings, and for 1-week and 2-month USD LIBOR settings; and immediately
after 30 June 2023, for the remaining USD LIBOR settings. The Group has taken
relevant Phase 2 practical reliefs from certain requirements in IFRS 9, IFRS
7, IFRS 4 and IFRS 16 relating to changes in the basis for determining
contractual cash flows of financial assets, financial liabilities and hedge
accounting.
Accounting Policies (continued)
Our hedging arrangements impacted by the reform of US LIBOR are part of the
International Swaps and Derivatives Association (ISDA) Fallbacks Protocol,
which provides a global standardised mechanism for replacement of the current
benchmark. At 31 December 2021, the Group has interest rate risk exposure
including US$6.1 billion nominal values of fixed-rate borrowings swapped to US
dollar rates in fair value hedge relationships impacted by the reform. We
expect the application of the Phase 2 reliefs to result in continuation of the
Group's pre-existing hedge accounting upon amendment of designated
arrangements in response to the replacement of IBOR with new benchmarks.
In addition, the Group has a number of arrangements which reference IBOR
benchmarks and extend beyond 2021. These include third-party borrowings
relating to the Oyu Tolgoi LLC project finance, other secured loans, a number
of intragroup balances and certain commercial contracts. Other arrangements,
which currently reference IBOR benchmarks include shareholder loan facilities.
Phase 2 amendments will require the Group to account for a change in the basis
for determining the cash flows of a financial asset or a financial liability
measured at amortised cost, by updating their respective effective interest
rates as required by IBOR reform. As a result of the Phase 2 relief the Group
expects that no material gain or loss will arise from these updates. Most
intragroup balances transitioned to alternative benchmarks by 31 December
2021.
Proceeds before Intended Use (Amendments to IAS 16 "Property, Plant and
Equipment", mandatory in 2022 and not yet endorsed by the UK)
The amendments prohibit the deduction, from the cost of major project
construction work in progress, of proceeds (net of additional processing
costs) from selling items before the related item of property, plant and
equipment is available for use. Under the amendment such proceeds are
recognised in the income statement together with the costs of producing those
items. The amendments will result in higher reported revenue, operating costs,
inventory and property plant and equipment balances (capital works in
progress) relating to major development projects completed after 1 January
2020. IAS 2 "Inventories" will apply to the measurement of pre-production
inventory and identifying the related cost may require significant estimation
and judgment in the selection of an appropriate method for allocating
development expenditure to such inventory. During 2021, the Group completed a
review of the impact of these amendments and concluded that adjustments to
Group retained earnings at 1 January 2020, and restatement of the 2020 and
2021 Group Income Statement and Balance Sheet upon adoption of the amendments
in 2022 in respect of such projects are not material.
Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37
"Provisions, Contingent Liabilities and Contingent Assets"), mandatory in 2022
and not yet endorsed by the UK)
The amendments specify which costs an entity includes in determining the cost
of fulfilling a contract for the purpose of assessing whether the contract is
onerous. Under the amendment the cost of fulfilling a contract comprises all
directly related costs, including both incremental amounts and an allocation
of other directly related expenditure. The Group currently makes provision for
onerous contracts when the assets dedicated to the contract are fully impaired
or the contract becomes stranded as a result of a business decision. From
2022, the Group will record a provision if a contract is found to be
loss-making on a stand-alone basis following allocation of all directly
related costs as required by the amendments to IAS 37. As required by the
transition arrangements, the Group will apply the amendments in its 2022
Financial Statements without restatement. During 2021, the Group completed a
review of the impact of these amendments and concluded that adjustments to
retained earnings at 1 January 2022 are not material.
Accounting Policies (continued)
Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12 Income Taxes, mandatory in 2023 and not yet
endorsed by the UK)
Narrow-scope amendments to IAS 12 introduce an exception to the initial
recognition exemption for transactions that give rise to equal taxable and
deductible temporary differences. The most significant impact from
implementing these amendments is expected to be from temporary differences
related to the Group's provisions for close-down, restoration, environmental
and lease obligations and corresponding capitalised closure costs and
right-of-use assets.
Our existing accounting policy states that "where the recognition of an asset
and liability from a single transaction gives rise to equal and offsetting
temporary differences, Rio Tinto applies the Initial Recognition Exemption
allowed by IAS 12, and consequently recognises neither a deferred tax asset
nor a deferred tax liability in respect of these temporary differences".
Under the amendment, deferred tax assets and liabilities will be required to
be recognised in respect of such temporary differences. Upon transition in
2023, the Group anticipates material adjustments (prior to required offsetting
within the same tax jurisdiction) as at 1 January 2021 to deferred tax assets
and deferred tax liabilities with the net difference recorded in reserves.
Work is ongoing to quantify the impact, including appropriate offsets against
existing deferred tax liabilities or assets in various jurisdictions. There
will be no impact on tax cash flows or balance sheet tax recoverable or
payable as a result of implementing these amendments and the unwind of the
newly recognised deferred tax is not expected to materially impact annual
profits and losses.
The Group continues to evaluate the impact of adopting other new standards and
amendments mandatory in 2023 and 2024. These include, IFRS 17 "Insurance
Contracts", and "Amendments to IAS 1 - Presentation of financial statements"
on the classification of liabilities as current or non-current.
More detailed information on new accounting pronouncements will be included in
the Group's 2021 full financial statements.
COVID-19 Impact
The Group has demonstrated resilience in dealing with ongoing COVID-19
challenges with continued prioritisation of the safety of our people and
communities. Rio Tinto continues to proactively manage COVID-19 impacts and
prioritises work across critical projects, as challenges associated with
interstate and international border access continue, impacting the
availability and movement of people, most notably in Australia and Mongolia.
Plans to mitigate labour shortages are in place.
Despite this, we progressed a number of our projects, including the Pilbara
replacement mines. Mining and operational readiness activities are progressing
at the Gudai-Darri mine and the railway is operational. Production from the
new greenfield mine at Gudai-Darri and the Robe Valley brownfield mine
replacement project is delayed due to the tight labour market in Western
Australia. First production from the main plant at Gudai-Darri is now expected
in the second quarter of 2022, subject to the continuing impacts of COVID-19.
The Oyu Tolgoi underground project in Mongolia was technically and
operationally ready for undercut, which commenced in January 2022, despite
continued COVID-19 constraints in Mongolia. The delay to the commissioning of
shafts 3 and 4 is still expected to be approximately nine months based on
known COVID-19 impacts to date, contributing to delays in first sustainable
production expected in the first half of 2023.
Accounting Policies (continued)
In addition, Escondida's mined copper production was lower than 2020 mostly as
a result of the prolonged impact of COVID-19. The Group continues to monitor
government-imposed restrictions related to COVID-19, and any other potential
COVID-19 related disruptions, such as shipment delays. Recognising the broad
and complex impacts of the pandemic on our markets, operations and financial
performance, we have chosen not to segregate COVID-19 related costs from our
underlying performance metrics.
Going concern
Management has prepared detailed cash flow forecasts for the next 12 months
and has updated life-of-mine plan models with longer-term cash flow
projections. These forecasts demonstrate that the Group has sufficient cash,
other liquid resources and undrawn credit facilities to enable it to meet its
obligations as they fall due. As such, the directors considered it appropriate
to adopt the going concern basis of accounting in preparing the full-year
financial information.
Climate change
We have put the net zero transition at the heart of our business strategy:
combining investments in commodities that enable the energy transition with
actions to decarbonise our operations and value chains. As a result of this,
our strategy and approach to climate change are supported by strong
governance, processes and capabilities. In 2021, we updated our Scope 1 and 2
emissions targets and now aim to reduce emissions by 15% in 2025, by 50% in
2030 (relative to our 2018 equity baseline) and to achieve net zero emissions
by 2050.These targets are aligned with efforts to limit global warming to
1.5°C, which is aligned with the stretch goal of the Paris Agreement. The
goals of the Paris Agreement are set out in Article 2, which includes holding
the increase in global average temperature to well below 2°C above
pre-industrial levels and pursuing efforts to limit the temperature increase
to 1.5°C.
We frame the strategic context for the Group through the lens of three
scenarios, developed by the Strategy and Economics teams, structured around
our analysis of the interplay of three global forces: geopolitics, society and
technology.
- In a geopolitics-led scenario, strong nationalistic tendencies hold back
global action on climate change, carbon prices remain low (in the range
US$0-30/t CO(2)e) and warming exceeds 3°C by 2100.
- In a society-led scenario, strong global co-ordination of climate policies,
supported by high and rising carbon prices (reaching US$130/t CO(2)e in 2050),
accelerates the energy transition and we believe achieves the goal of the
Paris Agreement by limiting warming to well below 2°C by 2100.
- In a technology-led scenario, innovation boosts economic productivity and
decarbonisation efforts; however, carbon prices remain modest (ranging US$10
to US$75/t CO(2)e by 2030) and action to limit emissions is insufficient, so
warming exceeds 2°C by 2100.
We recognise that the pace of decarbonisation across the global economy is
uncertain and that current climate policies in many countries are not yet
aligned with stated ambitions. These policy uncertainties are captured in our
scenario analysis, which in turn informs the central case carbon price
assumptions. We continue to monitor alternative scenarios including ones that
limit warming to 1.5°C. For example, the IEA NZE50 assumes higher carbon
prices and a much faster energy transition than our scenarios; they also
require a higher level of co-ordination in climate policies across sectors and
countries. The IEA's scenario also assumes stronger demand for commodities
such as copper or battery minerals that are critical to the accelerated
deployment of solar and wind renewables or electric vehicles.
Accounting Policies (continued)
Portfolio strategy
Our scenarios above inform our portfolio strategy, the internal commodity
price setting process and strongly influence our critical accounting
judgements and estimates. Through our strategy process we test the resilience
of our portfolio against each of these three scenarios and conclude that
overall, our portfolio is expected to perform more strongly in scenarios with
proactive climate action, particularly in relation to aluminium and copper.
Our strategy to focus our growth capital expenditure on materials that enable
the energy transition is informed by these scenarios. Our ambition is to
increase our growth capital expenditure to up to US$3 billion per year in 2023
and 2024, developing new options and finding innovative ways of bringing
projects on-stream faster. This includes investment in lithium production at
Rincon and Jadar, copper at Oyu Tolgoi and Winu, as well as high-grade iron
ore from Simandou.
Accounting judgements
The forecast commodity prices (including carbon prices) are informed by a
blend of our three scenarios and are used pervasively in our financial
processes from budgeting, forecasting, capital allocation and project
evaluation to the determination of ore reserves. In turn, these prices are
used to derive critical accounting estimates including as inputs to impairment
testing, estimation of remaining economic life for units of production
depreciation and discounting closure and rehabilitation provisions. As only
one of our scenarios represents the Group's view of the goals of the Paris
Agreement, and because of the policy uncertainties described above, our
commodity price assumptions are not consistent with the expectation of climate
policies required to accelerate the global transition to meet these goals.
In addition to prices, given the significant investment we are making to abate
our carbon emissions, we have also considered the potential for asset
obsolescence, with a particular focus on our Pilbara operations where we are
prioritising investment in renewables to switch away from natural gas power
generation, but no material changes to accounting estimates have been
necessary. The closure date and cost of closure is also sensitive to climate
assumptions but no material changes have been made in the year specific to
climate change.
The Group has identified impairment triggers during the year for
cash-generating units in the aluminium and copper segments. The Group
considers the long-term pricing outlook for aluminium and copper is positive
as these metals are critical to the global transition to a low-carbon future.
The outlook for iron ore pricing is less certain and depends on the
development of low-emissions steel technology. However, considering the high
return on capital generated by our existing iron ore asset base, none of our
three scenarios would give rise to an impairment today. When measuring the
recoverable amount for these cash-generating units, a blend of the three
strategic scenarios has been used to forecast the cash flows. As only one of
the strategic scenarios represents the Group's view of the goals of the Paris
Agreement, the impairment outcome cannot be described as Paris-aligned.
However, in these circumstances, we have also disclosed sensitivity
information based on cash flows flexed for sales prices and carbon taxes in
the society-led scenario, which has a well below 2°C outcome. These
sensitivities indicate that higher recoverable amounts would have been
determined if the accounting was aligned with the society-led scenario.
Using a carbon price to accelerate our mitigation action
We are committed to align our future capital expenditure with our 2025 and
2030 Scope 1 and 2 emissions reduction targets. As noted above, we conclude
that our targets are aligned with efforts to limit warming to 1.5°C and the
stretch goal of the Paris Agreement. To deliver our climate targets, the Group
Accounting Policies (continued)
expects to make incremental capital investment of US$7.5 billion over the
period to 2030 (approximately US$1.5 billion over the period 2022 to 2024). We
also expect our incremental operating expenditure to support the Climate
Action Plan to be in the order of US$200 million per year, including research
and development initiatives.
For internal approval purposes, a notional carbon price of US$75/t CO(2)e is
now used to drive improvements in energy efficiency across our assets, help to
identify new abatement projects as well as incentivise and accelerate the
delivery of capital investment in abatement projects and operational
improvements. The US$75/t CO(2)e price is derived from our analysis of carbon
mitigation options across our assets (summarised in our Marginal Abatement
Cost Curve) - it is unrelated to the prices in our scenarios.
Alternative performance measures
The Group presents certain alternative performance measures (APMs), including
underlying earnings, which are reconciled to directly comparable IFRS
financial measures on pages 78 to 86 of this report. These APMs are used by
management to assess the performance of the business and may therefore be
useful to investors. They are not a substitute for the IFRS measures and
should be considered supplementary to those measures.
Reconciliation with Australian Accounting Standards
The Group's financial statements have been prepared in accordance with IFRS,
as defined in the accounting policies section of this report, which differs in
certain respects from the version of International Financial Reporting
Standards that is applicable in Australia, referred to as Australian
Accounting Standards (AAS).
Prior to 1 January 2004, the Group's financial statements were prepared in
accordance with UK GAAP. Under IFRS, goodwill on acquisitions prior to 1998,
which was eliminated directly against equity in the Group's UK GAAP financial
statements, has not been reinstated. This was permitted under the rules
governing the transition to IFRS set out in IFRS 1. The equivalent Australian
Standard, AASB 1, does not provide for the netting of goodwill against equity.
As a consequence, shareholders' funds under AAS include the residue of such
goodwill, which amounted to US$377 million at 31 December 2021 (2020: US$374
million). Save for the exception described above, the Group's financial
statements drawn up in accordance with IFRS are consistent with the
requirements of AAS.
Geographical analysis (by destination)
Years ended 31 December
Consolidated sales revenue by destination((a)) 2021 2020 2021 2020
% % US$m US$m
China 57.2 58.1 36,308 25,940
United States of America 12.6 10.9 8,012 4,867
Asia (excluding China and Japan) 9.4 10.2 5,985 4,536
Japan 7.9 7.5 5,012 3,354
Europe (excluding UK) 5.2 5.9 3,271 2,623
Canada 2.6 2.9 1,677 1,289
Australia 1.8 1.7 1,122 745
UK 0.4 0.5 243 242
Other countries 2.9 2.3 1,865 1,015
Consolidated sales revenue 100 100 63,495 44,611
(a) Consolidated sales revenue by geographical destination is based on the
ultimate country of the product's destination, if known. Where the ultimate
destination is not known, we have defaulted to the shipping address of the
customer. Rio Tinto is domiciled in both the UK and Australia.
Product analysis (by revenue type)
Revenue from Other Consolidated Revenue from contracts Other Consolidated sales revenue
contracts revenue((a)) sales revenue with customers revenue((a)) 2020
with 2021 2021 2020 2020 US$m
customers US$m US$m US$m US$m
2021
US$m
Iron ore 42,992 (796) 42,196 28,202 1,000 29,202
Aluminium, alumina and bauxite 12,336 103 12,439 9,092 54 9,146
Copper 3,229 96 3,325 1,721 64 1,785
Industrial minerals (comprising titanium dioxide slag, borates and salt) 2,114 3 2,117 2,054 (3) 2,051
Gold 1,075 2 1,077 471 6 477
Diamonds 501 - 501 459 - 459
Other products((b)) 1,837 3 1,840 1,493 (2) 1,491
Consolidated sales revenue 64,084 (589) 63,495 43,492 1,119 44,611
(a) Certain of the Group's products may be provisionally priced at the date
revenue is recognised. The change in value of the provisionally priced
receivables is based on relevant forward market prices and is included in
"Other revenue" above.
(b) "Other products" includes metallic co-products, molybdenum, silver and
other commodities. This category also now includes uranium sales of US$229
million (2020: US$299 million) that were previously disclosed separately.
Impairment charges net of reversals
Pre-tax Taxation Non-controlling Net Pre-tax
amount 2021 interest amount amount
2021 US$m 2021 2021 2020
US$m US$m US$m US$m
Aluminium - Kitimat (269) 72 - (197) -
Aluminium - Pacific Aluminium - - - - (489)
Aluminium - Sohar - - - - (220)
Aluminium - ISAL - - - - (93)
Minerals - Diavik - - - - (441)
Total impairment charges net of reversals (269) 72 - (197) (1,243)
Comprising:
Impairment charges of consolidated balances (269) (904)
Impairment charges related to EAUs (pre-tax) - (368)
Total impairment charges in the financial information by business unit (page (269) (1,272)
74)
Taxation (including related to EAUs) 72 157
Non-controlling interests - -
Total impairment charges net of reversals in the income statement (197) (1,115)
2021
Aluminium - Kitimat, Canada
On 3 December 2021, we announced completion of the newly-constructed wharf at
Kitimat. Construction spend was incurred by LNG Canada and therefore a gain of
US$336 million representing the estimated fair value of the cost of
construction has been recorded and the carrying value of the Kitimat
cash-generating unit (CGU) increased accordingly. Output from the smelter was
reduced to 25% as a result of a workforce strike in mid-2021 and ramp-up to
full capacity will extend through 2022. As a previously impaired CGU, and
therefore carrying limited headroom, these factors were identified as
conditions that could indicate that the uplifted carrying value may not be
supportable and therefore the CGU was tested for impairment.
The recoverable amount for the Kitimat CGU has been calculated based on the
IAS 36 "Impairment" fair value less cost of disposal (FVLCD) methodology by
reference to the net present value of post-tax cash flows, expressed in
real-terms and discounted at 6.6%. The recoverable amount of US$3,126 million
is less than the carrying value of US$3,323 million, resulting in a post-tax
impairment charge of US$197 million, equivalent to US$269 million pre-tax. The
overall adjustment to the carrying value of the property, plant and equipment
at Kitimat from the gain on recognition of the wharf less the impairment
charge is an increase of US$67 million.
The pricing data used to calculate net present value of cash flows is based on
a blend of the three strategic pricing scenarios described in the climate
change section on page 46 to 48. While keeping all other inputs constant, we
have flexed the cash flows to reflect the carbon and commodity prices
generated by the one scenario that we believe is consistent with the goals of
the Paris Agreement. The net present value of post-tax cash flows would have
been US$58 million greater under this interpretation of Paris-aligned
accounting.
Impairment charges net of reversals (continued)
To illustrate the sensitivity of the recoverable amount, an increase in the
discount rate by 50 basis points to 7.1% (post-tax real terms rate) would
reduce the recoverable amount by US$180 million with all other valuation
inputs remaining constant.
Copper - Oyu Tolgoi, Mongolia
Development of the Oyu Tolgoi underground progressed through 2021 at a slower
pace than anticipated due to COVID-19 affecting staffing levels. Initiation of
the caving process, known as the undercut, was expected to occur during 2021,
however at 31 December 2021 the non-technical criteria for approval, including
negotiations with the Government of Mongolia, remained ongoing and therefore
this aspect of the construction was paused. On 30 December 2021, the
Mongolian parliament approved Resolution 103 which indicated support for
concessions offered by Rio Tinto during these negotiations, but introduced new
funding constraints on the shareholders of Oyu Tolgoi LLC until first
sustainable production. As a critical milestone in the development of the
mine, we identified the delay to the undercut and consequential delay to
production from the underground operations as being an impairment trigger and
therefore assessed the recoverable amount of the project as at 31 December
2021.
The recoverable amount of the Oyu Tolgoi CGU has been prepared in accordance
with the FVLCD methodology. It is based on forecast post-tax future cash flows
over the life of mine of the open pit and underground reserves of Hugo North
Lift 1 (HNL1) together with an estimate of future expansion potential to
extract mineral resources from further underground developments and enlarged
open pit. Mining of these mineral resources is subject to future investment
decisions and comprises approximately 20% of the total value. These cash
flows, expressed in real terms, have been discounted to present value using a
project specific post-tax discount rate of 8%.
The development of HNL1 underground comprises three continuous sections. The
initial development in 'Panel 0' is in the central section of the orebody with
Panel 1 to the north and Panel 2 located to the south. Evaluation of mine
plans for Panels 1 and 2 remain under study and are linked to the lateral
development of project. To reflect the risk inherent in these aspects of the
mine plan that are currently at the pre-feasibility study level of confidence,
a risk adjustment factor of 10% has been applied to the net cash flows
associated with years of the development of those sections of the underground
mine.
At 31 December 2021, the non-technical criteria for the undercut had not been
satisfied and therefore, an adjustment to the underlying cash flows of the
valuation model was made to weight the timing of the undercut between an
immediate approval and the potential for a six-month delay.
In finalising the determination of a recoverable amount for the
cash-generating unit, we considered the likely impact of elevated uncertainty
on a market participant's perspective at the balance sheet date, in particular
that arising from the incomplete status of negotiations and financing
arrangements. Considerations included immediate funding requirements and the
restrictions placed thereon in Resolution 103. To represent this uncertainty,
a further judgmental reduction has been applied to the total net present value
of cash flows from mining operations. After taking all of the above
adjustments into account, the resulting recoverable amount almost equals the
carrying value for the cash-generating unit of US$11.8 billion. Accordingly,
management has determined that neither an impairment charge nor an impairment
reversal is required.
Impairment charges net of reversals (continued)
As described in the subsequent event section, on 25 January 2022, Rio Tinto,
Turquoise Hill Resources and the Government of Mongolia reached agreement to
unanimously approve the commencement of underground operations. Through this
agreement, the non-technical criteria for the undercut have been satisfied,
including agreement over the pathway to funding the project to sustainable
production. Underground mining operations have subsequently commenced. No
hindsight has been applied in determining the appropriate valuation
assumptions at 31 December 2021, however the timing and substance of the
agreement reached was within the range of plausible outcomes considered in
making this determination.
The pricing data used to calculate the net present value of cash flows is
based on a blend of the three strategic pricing scenarios described in the
climate change section above. While keeping all other inputs constant, we
have flexed the cash flows to reflect carbon and commodity prices under this
one scenario that we believe is consistent with achieving the goals of the
Paris Agreement. The net present value of post-tax cash flows would have been
US$1.9 billion greater under this interpretation of Paris-aligned accounting,
assuming no changes to the ore mined (ie alternative economic grade cut-off is
impractical to estimate, but higher prices could potentially result in more
ore being mined and sold).
To further illustrate the sensitivity of the recoverable amount, an increase
in the discount rate by 50 basis points to 8.5% (post-tax real terms rate)
would reduce the recoverable amount by US$0.8 billion with all other
valuation inputs remaining constant.
The funding of equity contributions to the project on behalf of Erdenes Oyu
Tolgoi (Erdenes) by way of a carry account loan has been accounted for in
accordance with the accounting policy and additional information regarding
these funding balances owing from Erdenes to Turquoise Hill and the impact on
non-controlling interests is provided on page 70. On 25 January 2022, as part
of a comprehensive package negotiated with the Government of Mongolia in order
to approve commencement of underground operations, Turquoise Hill agreed to
waive the full amount of funding balances and interest owing from Erdenes to
Turquoise Hill. The waiver does not have an impact on the Group's assessment
of impairment for either 2021 or 2022; refer to the subsequent events note on
page 73.
2020
Aluminium - Pacific Aluminium, Australia and New Zealand
On 9 July 2020, we announced the conclusion of the NZAS strategic review and
gave Meridian Energy 14 months' notice for the termination of the power
contract. As a result of the decision to wind-down operations an impairment
trigger was identified. The net present value of post-tax cash flows over the
remaining life for this CGU was negative and therefore the non-current assets
of the smelter were fully impaired.
High operating costs and challenging outlook for the aluminium industry also
resulted in impairment triggers being identified at the Bell Bay aluminium
smelter in Tasmania, Australia and at Boyne Smelter in Queensland, Australia
at 30 June 2020. The forecast net present value of cash flows over the period
to anticipated expiry in 2025 of a power contract with Hydro Tasmania was
negative taking into account market conditions at the time. The property,
plant and equipment of the Bell Bay smelter was therefore fully impaired. We
determined the recoverable amount for our share of the Boyne Smelter CGU.
which also includes the Gladstone Power Station. as US$273 million based on
post-tax cash flows expressed in real terms and discounted at 6.6%.
Accordingly our share of impairment after tax in the equity accounted unit was
US$119 million (US$148 million pre-tax) related to the smelter and US$26
million (US$36 million pre-tax) related to the power station.
Impairment charges net of reversals (continued)
Aluminium - Sohar
In 2020, the challenging outlook for the Middle Eastern aluminium industry was
identified as an impairment trigger at the Sohar aluminium smelter in Oman, an
equity accounted unit of the Group.
At 30 September 2020, we determined the recoverable amount for our share of
the Sohar CGU to be US$258 million based on post-tax cash flows expressed in
real terms and discounted at 7.6%. Accordingly, our share of impairment after
tax in the equity accounted unit was US$220 million.
Aluminium - ISAL smelter, Iceland
Our announcement in February 2020 of a strategic review of the ISAL smelter in
Iceland, combined with challenging market conditions, was identified as an
impairment trigger at 30 June 2020. Subsequent restoration of smelter
competitiveness resulting from improved power delivery terms represented an
indicator of partial impairment reversal at 31 December 2020. We calculated a
post-tax recoverable amount for the CGU of US$139 million at 31 December 2020
based on FVLCD, discounted using a post-tax rate of 6.6%. As a consequence,
with full impairment of the CGU and a pre-tax impairment charge of US$204
million in the first half of 2020 followed by reversal of US$111 million to
previously recorded pre-tax impairment in the second half of 2020, the full
year results for the year ended 31 December 2020 included a net pre-tax
impairment charge of US$93 million.
Minerals (previously under Copper & Diamonds) - Diavik, Canada
The COVID-19 pandemic significantly disrupted global demand for diamonds, and
in April 2020 our then joint venture partner in the Diavik 'Diamond Mine'
filed for creditor protection and defaulted on cash calls. These circumstances
were identified as an impairment trigger. The net present value of post-tax
cash flows projected over the remaining life of the Diavik 'Diamond Mine' to
2025 did not support retaining any carrying value, resulting in the Group's
60% interest in plant and equipment and intangible assets of the CGU being
fully impaired at 30 June 2020.
Prima facie tax reconciliation
Years ended 31 December
2021 2020
US$m US$m
Profit before taxation 30,833 15,391
Deduct: share of profit after tax of equity accounted units((a)) (1,042) (652)
Add: impairment after tax of investments in equity accounted units ((a)) - 339
Parent companies' and subsidiaries' profit before tax 29,791 15,078
Prima facie tax payable at UK rate of 19% (2020:19%)((b)) 5,660 2,865
Higher rate of taxation of 30% on Australian underlying earnings (2020: 30%) 2,693 1,779
Other tax rates applicable outside the UK and Australia on underlying earnings 110 (80)
Impact of items excluded in arriving at underlying earnings((c)):
- Impairment charges((d)) (21) 44
- Exchange and gains/losses on derivatives (126) 260
- Losses from increases to closure estimates (non-operating and fully impaired 84 (24)
sites)
- Utilisation of capital losses on the gain from the recognition of the wharf (64) -
at Kitimat, Canada
Resource depletion and other depreciation allowances (52) (34)
Recognition of previously unrecognised deferred tax assets((e)) (212) (182)
Write-down of previously recognised deferred tax assets((f)) - 173
Amounts under/(over) provided in prior years 63 9
Other items((g)) 123 181
Total taxation charge((a)) 8,258 4,991
(a) This tax reconciliation relates to the Group's parent companies,
subsidiaries and joint operations, and excludes equity accounted units. The
Group's share of profit of equity accounted units is net of tax charges of
US$659 million (2020: US$363 million). Impairment after tax of investments in
equity accounted units is net of tax credits of US$nil (2020: US$29 million).
(b) As a UK headquartered and listed Group, the reconciliation of expected
tax on accounting profit to tax charge uses the UK corporation tax rate to
calculate the prima facie tax payable. Rio Tinto is also listed in Australia,
and the reconciliation includes the impact of the higher tax rate in Australia
where a significant proportion of the Group's profits are currently earned.
The impact of other tax rates applicable outside the UK and Australia is also
included. The weighted average statutory corporation tax rate on profit before
tax is approximately 29% (2020: 30%).
(c) The impact for each item includes the effect of tax rates applicable
outside the UK.
(d) The tax impact of impairments relates to a tax rate differential between
the Canadian and UK rates on the Kitimat impairment. In the comparative period
to 31 December 2020 the tax impact of impairments includes the write-down of
deferred tax assets at ISAL and NZAS and non-recognition of deferred tax on
those impairments. The tax impact also includes recognition at local tax rates
of deferred tax assets arising on the impairments of Bell Bay, Gladstone Power
Station and Diavik. Refer to the impairment charges described on page 50 to
53.
(e) The recognition of previously unrecognised deferred tax assets relates
to the recognition of prior year deferred tax assets at Oyu Tolgoi and in our
Australian Aluminium business due to improved deferred tax asset recovery
expectations. In the comparative period to 31 December 2020 the recognition of
previously unrecognised deferred tax assets relates to the recognition of
prior year deferred tax assets on losses and on impaired assets at Oyu Tolgoi
due to improved deferred tax asset recovery expectations.
Prima facie tax reconciliation(continued)
(f) In the comparative period to 31 December 2020 the write down of
previously recognised deferred tax assets relates primarily to the partial
de-recognition of deferred tax assets in our Australian Aluminium business.
(g) Other items include non-deductible costs and withholding taxes, and
various adjustments to provisions for taxation, the most significant of which
relate to transfer pricing matters, including issues under discussion with the
Australian Tax Office.
Consolidated net cash/(debt)
Financing liabilities Other assets
Year ended 31 December 2021 Borrowings Lease liabilities((b)) Net-debt related derivatives (included in Other financial Cash and cash equivalents including overdrafts Other investments((d)) Net cash/(debt)
assets/liabilities)((c))
US$m
excluding overdrafts((a)) US$m
US$m US$m
US$m
US$m
Analysis of changes in consolidated net cash/(debt)
Opening balance (12,653) (1,178) 248 10,381 2,538 (664)
Foreign exchange adjustment 67 30 (45) 100 - 152
Cash movements excluding exchange movements 270 358 (51) 2,324 (107) 2,794
Other non-cash movements 150 (573) (253) - (30) (706)
Closing balance (12,166) (1,363) (101) 12,805 2,401 1,576
Year ended 31 December 2020 Financing liabilities Other assets
Borrowings Lease liabilities((b)) Net-Debt related derivatives (included in Other financial Cash and cash equivalents including overdrafts Other investments((d)) Net debt
excluding overdrafts((a)) US$m assets/ liabilities)((c)) US$m US$m US$m
US$m US$m
Analysis of changes in consolidated net debt
Opening balance (12,806) (1,309) (147) 8,027 2,584 (3,651)
Foreign exchange adjustment (83) (47) 39 165 - 74
Cash movements excluding exchange movements 505 324 91 2,189 (58) 3,051
Other non-cash movements (269) (146) 265 - 12 (138)
Closing balance (12,653) (1,178) 248 10,381 2,538 (664)
(a) Borrowings excluding overdrafts and including lease liabilities at
31 December 2021 of US$13,529 million (2020: US$13,831 million) differ from
total borrowings and other financial liabilities of US$14,169 million (2020:
US$14,015 million) on the balance sheet as they exclude other current
financial liabilities of US$245 million (2020: US$23 million), other
non-current financial liabilities of US$393 million (2020: US$161 million) and
bank overdraft of US$2 million (2020: US$nil).
(b) Other movements in lease liabilities include the net impact of
additions, modifications and terminations during the year.
Consolidated net cash/(debt) (continued)
(c) Included within "Net debt-related derivatives" are interest rate and
cross currency interest rate swaps that are in hedge relationships with the
Group's debt. In 2021, we have also included currency forwards that we use to
mitigate the foreign exchange exposure on our non-US dollar separately managed
funds. These forwards are not in a hedge relationship but are included within
the Group's net debt definition.
(d) Other investments comprise US$2,401 million (2020: US$2,538 million) of
highly liquid financial assets held in managed investment funds classified as
held for trading. During the year we entered into non-US dollar denominated
managed investment funds.
Provisions and post-retirement benefits
Pensions Other Close-down Other Total Total
and employee and US$m 2021 2020
post-retirement entitlements((b)) restoration/ US$m US$m
healthcare US$m environmental((c))
US$m US$m
At 1 January 3,055 419 13,335 856 17,665 15,103
Adjustment on currency translation (11) (23) (483) (29) (546) 890
Adjustments to mining properties/right of use assets:
- increases to existing and new provisions - - 518 3 521 141
- change in discount rate - - - - - 816
Charged/(credited) to profit:
- increases to existing and new provisions 161 112 1,475 382 2,130 1,074
- change in discount rate - - - - - 140
- unused amounts reversed - (21) (192) (37) (250) (299)
- exchange losses on provisions - - 23 - 23 (22)
- amortisation of discount - - 415 3 418 377
Utilised in year (129) (102) (541) (128) (900) (774)
Re-measurement (gains)/losses recognised in other comprehensive income (687) - - - (687) 250
Transfers and other movements((a)) (291) 9 (8) (48) (338) (31)
At 31 December 2,098 394 14,542 1,002 18,036 17,665
Balance sheet analysis:
Current 66 317 1,023 700 2,106 1,729
Non-current 2,032 77 13,519 302 15,930 15,936
Total 2,098 394 14,542 1,002 18,036 17,665
Projected cash spend for the undiscounted close-down and
restoration/environmental clean up provision
Undiscounted close-down and environmental restoration cash flows <1yr 1-3 yrs 3-5 yrs > 5 yrs Total
US$m US$m US$m US$m US$m
At 31 December 2021 1,023 1,652 1,680 14,420 18,775
At 31 December 2020 776 1,203 1,433 13,988 17,400
(a) During the year ended 31 December 2021, the Group entered into an
agreement to transfer its partially funded pension obligations in France to an
external insurer. The insurance premium was paid by the transfer of the
existing pension assets valued at US$89 million plus an additional cash
payment of €247 million (US$294 million), of which US$3 million was taken
to the income statement. The Group has no further legal or constructive
obligation relating to the insured pensions and has reflected this transaction
as a settlement.
(b) The provision for other employee entitlements includes a provision for
long service leave of US$272 million (2020: US$283 million), based on the
relevant entitlements in certain Group operations and includes US$60
million (2020: US$62 million) of provision for redundancy and severance
payments.
Provisions and post-retirement benefits (continued)
(c) Close-down and restoration costs are a normal consequence of mining, and
the majority of close-down and restoration expenditure is incurred in the
years following closure of the mine, refinery or smelter. Non-current
provisions for close-down, restoration and environmental expenditure include
amounts relating to environmental clean-up of US$645 million (2020: US$468
million) expected to take place between one and five years from the balance
sheet date, and US$1,059 million (2020: US$937 million) expected to take
place later than five years after the balance sheet date.
Close-down, restoration and environmental liabilities at 31 December 2021
have not been adjusted for closure related receivables amounting to
US$410 million (2020: US$574 million) due from the ERA trust fund and other
financial assets held for the purposes of meeting closure obligations. These
are included within "Receivables and other assets" on the balance sheet.
Analysis of close-down and restoration/environmental clean-up provisions
As at 31 December 2021 2020
US$m US$m
Undiscounted close-down and environmental restoration obligations 18,775 17,400
Impact of discounting (4,233) (4,065)
Present closure obligation 14,542 13,335
Attributable to:
Operating sites 10,727 10,736
Non-operating sites 3,815 2,599
Total 14,542 13,335
Remaining lives of operations and infrastructure range from one to over 50
years with an average for all sites, weighted by present closure obligation,
of around 16 years (2020: 17 years). Although the ultimate cost to be incurred
is uncertain, the Group's businesses estimate their respective costs based on
current restoration standards, techniques and expected climate conditions.
Provisions of US$14,542 million (2020: US$13,335 million) for close-down and
restoration costs and environmental clean-up obligations are based on
risk-adjusted cash flows. The Group re-assessed the closure discount rate in
the current year and continues to consider that real rate of 1.5%, applied
prospectively since 30 September 2020, is the most appropriate rate to use.
This assumption is based on the currency in which we plan to fund the closures
and our expectation of long-term interest rate and exchange rate parity at the
locations of our operations. Prior to 30 September 2020 and in recent years,
the close-down and restoration costs and environmental clean-up obligations
were discounted at a real rate of 2.0%. To illustrate the sensitivity of the
provision to discounting, if the discount rate at 31 December 2021 were
decreased to 1.0% then the provision would be US$1.3 billion higher, of which
approximately US$1.2 billion would be capitalised within "Property, plant and
equipment" at operating sites and US$0.1 billion would be charged to the
income statement for non-operating and fully impaired sites. If the discount
rate were increased to 3.0% then the provision would be US$2.8 billion lower,
of which approximately US$2.5 billion would result in a decrease within
"Property, plant and equipment" at operating sites and US$0.3 billion would be
credited to the income statement for non-operating and fully impaired sites.
Provisions and post-retirement benefits (continued)
Closure cost composition as at 31 December 2021 2020
US$m US$m
Decommissioning, decontamination and demolition 3,343 3,131
Closure and rehabilitation earthworks ((a)) 4,125 4,223
Long-term water management costs ((b)) 967 966
Post closure monitoring and maintenance 1,676 1,318
Indirect costs, owners' costs and contingency ((c)) 4,431 3,697
Total 14,542 13,335
The underlying costs for closure have been estimated with varying degrees of
accuracy based on a function of the age of the underlying asset and proximity
to closure. For assets within ten years of closure, closure plans and cost
estimates are supported by detailed studies which are refined as the closure
date approaches. These closure studies consider climate change and plan for
resilience to expected climate conditions with a particular focus on
precipitation rates. For new developments, consideration of climate change and
ultimate closure conditions are an important part of the approval process. For
longer-lived assets, closure provisions are typically based on conceptual
level studies that are refreshed at least every five years; these are evolving
to incorporate greater consideration of forecast climate conditions at
closure.
(a) A key component of earthworks rehabilitation involves re-landscaping the
area disturbed by mining activities utilising the largely diesel powered heavy
mobile equipment. In developing low-carbon solutions for our mobile fleet,
this may include electrification of the vehicles during the mine life. The
forecast cash flows for the heavy mobile equipment in the closure cost
estimate are based on existing fuel sources. The cost incurred during closure
could reduce if these activities are powered by renewable energy.
(b) Long-term water management relates to the post-closure treatment of
water due to acid rock drainage and other environmental commitments and is an
area of research and development focus for our Closure team. The cost of this
water processing can continue for many years after the bulk earthworks and
demolition activities have completed and are therefore exposed to long-term
climate change. This could materially affect rates of precipitation and
therefore change the volume of water requiring processing. It is not currently
possible to forecast accurately the impact this could have on the closure
provision as some of our locations could experience drier conditions whereas
others could experience greater rainfall. A further consideration relates to
the alternative commercial use for the processed water, which could support
ultimate transfer of these costs to a third party.
(c) Indirect costs, owners' costs and contingency include adjustments to the
underlying cash flows to align the closure provision with a central-case
estimate. This excludes allowances for quantitative estimation uncertainties,
which are allocated to the underlying cost driver and presented within the
respective cost categories above.
Provisions and post-retirement benefits (continued)
Geographic composition as at 31 December 2021 2020
US$m US$m
Australia 7,605 7,076
USA 4,057 3,819
Canada 1,662 1,482
Rest of World 1,218 958
Total 14,542 13,335
The geographic composition of the closure provision shows that our closure
obligations are largely in countries with established levels of regulation in
respect of mine and site closure.
Financial Instruments disclosures
Except where stated, the information relates to the financial instruments of
the parent companies and their subsidiaries and joint operations, and excludes
those of equity accounted units.
Fair values disclosure of financial instruments
The following table shows the carrying amounts and fair values of our
borrowings including those which are not carried at an amount which
approximates their fair value at 31 December 2021 and 31 December 2020. The
fair values of our cash equivalents, loans to equity accounted units and other
financial liabilities approximate their carrying values because of their short
maturity, or because they carry floating rates of interest.
31 December 2021 31 December 2020
Carrying Fair Carrying Fair
value value value value
US$m US$m US$m US$m
Borrowings (including overdrafts) 12,168 13,904 12,653 15,076
Total borrowings with a carrying value of US$7.3 billion (2020: US$7.6
billion) relate to listed bonds with a fair value of US$8.7 billion (2020:
US$9.5 billion) and are categorised as level 1 in the fair value hierarchy.
Borrowings with a carrying value of US$4.2 billion (2020: US$4.2 billion)
relate to project finance drawn down by Oyu Tolgoi, with a fair value of
US$4.4 billion (2020: US$4.7 billion) and are categorised as level 3 in the
fair value hierarchy. We use different valuation inputs for the pre-and
post-completion phases to reflect Rio Tinto's completion support guarantee
during the pre-completion phase. To measure the fair value of the project
finance pre-completion our valuation input includes market yield over the
pre-completion period, the variability of which we consider a reasonable
indicator of fair value movements on amounts outstanding under the project
finance facility. Post-completion, we estimate the fair value with reference
to the annual interest rate on each tranche of the facility, and after
considering factors that could indicate a change in the credit assessment of
Oyu Tolgoi LLC as a counterparty to project finance. These factors include
in-country risk relating to the Oyu Tolgoi project, and the assumed date of
transition from pre-completion to post-completion. These valuation inputs are
considered to be level 3. Transition from pre-completion to post-completion is
determined by a set of tests for both completion of physical infrastructure
and the ability to extract and process ore of defined grades over a defined
period.
Our remaining borrowings have a fair value measured by discounting estimated
cash flows with an applicable market quoted yield, and are categorised as
level 2 in the fair value hierarchy.
New interest rate swaps and debt maturity
On 28 October 2021, the Group issued US$1.25 billion of 30-year fixed rate
debt with a coupon of 2.75%. On settlement of the bond, we entered into
interest rate swaps to convert the interest payable on these bonds from fixed
to floating rates rate for the next seven years. The bond and the swaps are in
a fair value hedge relationship. The proceeds of the new issuance were used to
fund the early redemption and extinguishment of the company's US$1.20 billion
3.75% bonds due to mature in June 2025.
Financial Instruments disclosures (continued)
We enter into interest rate swaps to hedge the interest rate exposure from our
fixed rate borrowings, and review these positions on a regular basis. The
tenor of the interest rate swaps is sometimes shorter than the tenor of the
bond which means, we remain exposed to long term fixed rate funding. In 2020
we entered into US$1.5 billion of interest rate swaps with a tenor of five
years to hedge the Alcan bonds which had been historically held at fixed
rates. In 2021, we issued a 30-year US$1.25 billion bond which was swapped to
floating rates for a tenor of seven years. As interest rate swaps mature, new
medium dated swaps are generally transacted to maintain this floating rate
exposure. The economic characteristics of the interest rate swaps are shown in
the table below.
The fair value of interest rate and cross currency interest rate swaps at
31 December 2021 was US$139 million (2020: US$388 million) asset and US$240
million (2020: US$140 million) liability, respectively. These are included
within "Other financial assets" and "Other financial liabilities" in the
balance sheet.
On 16 November 2021, Rio Tinto Finance plc and Rio Tinto Finance Limited
completed the renewal of our US$7.5 billion multi-currency revolving credit
facility with a syndicate of banks. The facility is guaranteed by Rio Tinto
plc and Rio Tinto Limited and has a five-year term, that now matures in
November 2026. Other features include: two consecutive one-year extension
options and a US$6.2 billion denominated same day access swing-line facility.
The new facility replaced the US$7.5 billion dual tranche revolving credit
facility dated 15 November 2013, last amended in November 2020. The facility
remained undrawn throughout the year.
The effective interest rates of our borrowings, impacted by swaps, are
summarised below. All nominal values are fully hedged unless otherwise stated:
Borrowings in a hedge relationship Nominal value Nominal value Weighted average Swap maturity Carrying value Carrying value
2020
2020
2021
US$m interest rate 2021
US$m
US$m after swaps US$m
Rio Tinto Finance plc Euro Bonds 2.875% due 2024 546 546 3 month LIBOR +1.64% 2024 497 555
Rio Tinto Finance (USA) Limited Bonds 3.75% 2025 - 1,200 3 month LIBOR +1.39% 2025 - 1,299
Rio Tinto Finance (USA) Limited Bonds 7.125% 2028 750 750 3 month LIBOR +3.27% 2028 934 1,005
Alcan Inc. Debentures 7.25% due 2028 100 100 3 month LIBOR +5.43% 2024 105 109
Rio Tinto Finance plc Sterling Bonds 4.0% due 2029 807 807 3 month LIBOR +2.65% 2024 682 717
Alcan Inc. Debentures 7.25% due 2031 400 400 3 month LIBOR +5.72% 2025 420 438
Alcan Inc. Global Notes 6.125% due 2033 750 750 3 month LIBOR +5.67% 2025 722 744
Alcan Inc. Global Notes 5.75% due 2035 300 300 3 month LIBOR +5.18% 2025 283 292
Rio Tinto Finance (USA) Limited Bonds 5.2% 2040 1,150 1,150 3 month LIBOR +3.79% 2022 1,156 1,173
Rio Tinto Finance (USA) plc Bonds 4.75% 2042 500 500 3 month LIBOR +3.42% 2023 495 501
Rio Tinto Finance (USA) plc Bonds 4.125% 2042 750 750 3 month LIBOR +2.83% 2023 735 743
Rio Tinto Finance (USA) Limited Bonds 2.75% 2051 1,250 - 6 month SOFR + 1.57% 2028 1,225 -
Financial Instruments disclosures (continued)
Valuation hierarchy of financial instruments carried at fair value on a
recurring basis
The tables below show the financial instruments by fair value measurement
method in accordance with IFRS 13 at 31 December 2021 and 31 December 2020.
Held at fair value
At 31 December 2021 Total Level 1((a)) Level 2((b)) Level 3((c)) Held at
US$m US$m US$m US$m amortised cost
US$m
Assets
Cash and cash equivalents((d)) 12,807 4,138 - - 8,669
Investments in equity shares and funds 117 64 - 53 -
Other investments, including loans((e)) 2,682 2,422 - 238 22
Trade and other financial receivables((f)) 2,762 1 1,163 - 1,598
Derivatives (net)
Forward contracts and option contracts: designated as hedges((g)) (125) - - (125) -
Forward contracts and option contracts, not designated as hedges((g)) (120) - (131) 11 -
Derivatives related to net debt((h)) (101) - (101) - -
Liabilities
Trade and other financial payables (6,356) - (67) - (6,289)
Total 11,666 6,625 864 177 4,000
Held at fair value
At 31 December 2020 Total Level 1((a)) Level 2((b)) Level 3((c)) Held at
US$m US$m US$m US$m amortised costs
US$m
Assets
Cash and cash equivalents((d)) 10,381 6,411 - - 3,970
Investments in equity shares and funds 75 35 - 40 -
Other investments, including loans((e)) 2,899 2,563 - 198 138
Trade and other financial receivables((f)) 3,286 5 1,802 - 1,479
Derivatives (net)
Forward contracts and option contracts: designated as hedges((g)) 53 - 7 46 -
Forward contracts and option contracts, not designated as hedges((g)) 180 - 69 111 -
Derivatives related to net debt((h)) 248 - 248 - -
Liabilities
Trade and other financial payables (5,847) - (30) - (5,817)
Total 11,275 9,014 2,096 395 (230)
Financial Instruments disclosures (continued)
(a) Valuation is based on unadjusted quoted prices in active markets for
identical financial instruments. This category includes listed equity shares
and other quoted funds.
(b) Valuation is based on inputs that are observable for the financial
instruments, which include quoted prices for similar instruments or identical
instruments in markets which are not considered to be active, or inputs,
either directly or indirectly based on observable market data.
(c) Valuation is based on inputs that are not based on observable market
data (unobservable inputs).
(d) Cash and cash equivalents include money market funds which are treated
as fair value through profit or loss (FVPL) under IFRS 9 with the fair value
movements going into finance income.
(e) Other investments, including loans, comprise: cash deposits in
rehabilitation funds, government bonds, managed investment funds and royalty
receivables. The royalty receivables are valued based on future expected
output as well as forward commodity prices.
(f) Trade receivables include provisionally priced invoices. The related
revenue is initially based on forward market selling prices for the quotation
periods stipulated in the contracts with changes between the provisional price
and the final price recorded separately within "Other revenue". The selling
price can be measured reliably for the Group's products, as it operates in
active and freely traded commodity markets. At 31 December 2021, US$1,114
million (2020: US$1,671 million) of provisionally priced receivables were
recognised.
(g) Level 3 derivatives consist of derivatives embedded in electricity
purchase contracts linked to the LME with terms expiring between 2025 and 2036
(2020: 2025 and 2029). The embedded derivatives are measured using discounted
cash flows and option model valuation techniques.
(h) Interest rate and currency interest rate swaps are valued using
applicable market quoted swap yield curves adjusted for relevant basis and
credit default spreads. Currency interest rate swap valuations also use market
quoted foreign exchange rates. A discounted cash flow approach is used to
derive fair value from these inputs to the underlying cash flows.
Financial Instruments disclosures (continued)
Level 3 Financial instruments
The table below shows the summary of changes in the fair value of the Group's
level 3 financial assets and financial liabilities.
2021 2020
Level 3 Level 3
financial assets financial assets
and financial and financial
liabilities liabilities
US$m US$m
Opening balance 395 383
Currency translation adjustments (6) 16
Total realised gains/(losses) included in:
- consolidated sales revenue 27 11
- net operating costs (50) (39)
Total unrealised gains included in:
- net operating costs 68 24
Total unrealised (losses)/gains transferred into other comprehensive income (212) 26
through cash flow hedges
Additions to (financial liabilities)/assets (21) 1
Disposals/maturity of financial instruments (6) (27)
Transfers (18) -
Closing balance 177 395
Net gains for the year included in the income statement for assets and 20 -
liabilities held at year end((a))
(a) In 2020 gains and losses included in the income statement offset each
other to the extent that the net result is less than US$1 million.
Sensitivity analysis in respect of level 3 financial instruments
Forward contracts and options whose fair value is determined using
unobservable inputs are calculated using appropriate discounted cash flow and
option model valuation techniques.
To value the long-term aluminium embedded derivatives, we use unobservable
inputs when the term of the derivative extends beyond observable market
prices. In 2021 and 2020, changing the level 3 inputs to reasonably possible
alternative assumptions does not change the fair value significantly, taking
into account the expected remaining term of contracts. The fair value of our
level 3 aluminium embedded derivatives is US$146 million at 31 December 2021
(2020: US$126 million).
We also have receivables, with a carrying value of US$136 million (2020:
US$113 million), that relate to royalties arising from the sale of coal from
our previously divested businesses. These are classified as "Other
investments", including loans within "Other financial assets". The fair values
are determined using level 3 unobservable inputs. This royalty receivable
includes US$53 million from forecast production beyond 2030. This has not
been adjusted for potential changes in production rates that could occur due
to climate change targets impacting the operator.
Financial Instruments disclosures (continued)
The main unobservable input is the long-term coal price used over the life of
the royalty receivable. A 15% increase in the coal spot price would result in
a US$63 million increase (2020: US$198 million increase) in the carrying
value. A 15% decrease in the coal spot price would result in a US$53 million
decrease (2020: US$46 million decrease) in the carrying value. We have used a
15% assumption to calculate our exposure as it represents the annual coal
price movement that we deem to be reasonably probable (on an annual basis over
the long run).
Other disclosures
Capital commitments at 31 December 2021
Capital commitments, excluding the Group's share of joint venture capital
commitments, were US$2,551 million (2020: US$3,152 million). Our capital
commitments include open purchase orders for managed operations and
expenditure on major projects already authorised by our Investment Committee
for non-managed operations. It does not include the estimated incremental
capital expenditure relating to decarbonisation projects referred to in the
climate section earlier. On a legally enforceable basis, capital commitments
would be approximately US$1.1 billion (2020: US$1.5 billion) as many of the
contracts relating to the Group's projects have various cancellation clauses.
The Group's share of joint venture capital commitments was US$11 million at
31 December 2021(2020: US$9 million).
Other Commitments
On 21 December 2021, the Group entered into a binding agreement to acquire the
Rincon lithium project in Argentina for US$825 million. The transaction will
be treated as an asset purchase. Completion, expected in 2022, is subject to
regulatory approval in Australia.
Contingent liabilities (subsidiaries and joint operations)
Contingent liabilities, indemnities and other performance guarantees were
US$441 million at 31 December 2021 (2020: US$146 million).
Contingent liabilities, indemnities and other performance guarantees represent
the potential outflow of funds from the Group for the satisfaction of
obligations including those under contractual arrangements (for example
undertakings related to supplier agreements) not provided for in the balance
sheet, where the likelihood of the contingent liabilities, guarantees or
indemnities being called is assessed as possible rather than probable or
remote.
There were no material contingent liabilities arising in relation to the
Group's joint ventures and associates.The Group has not established provisions
for certain additional legal claims in cases where we have assessed that a
payment is either not probable or cannot be reliably estimated. A number of
Group companies are, and will likely continue to be, subject to various legal
proceedings and investigations that arise from time to time. As a result, the
Group may become subject to substantial liabilities that could affect our
business, financial position and reputation. Litigation is inherently
unpredictable and large judgments may at times occur. The Group may incur, in
the future, judgments or enter into settlements of claims that could lead to
material cash outflows. We do not believe that any of these proceedings will
have a materially adverse effect on our financial position.
Other disclosures (continued)
Contingent liabilities - not quantifiable
The current status of the following contingent liabilities means it is not
practicable to provide a reliable estimate of possible financial exposure:
Litigation disputes
In October 2017, Rio Tinto announced that it had been notified by the U.S.
Securities and Exchange Commission (SEC) that the SEC had filed a complaint in
relation to Rio Tinto's disclosures and timing of the impairment of Rio Tinto
Coal Mozambique (RTCM). The impairment was reflected in Rio Tinto's 2012
year-end accounts. The SEC alleges that Rio Tinto, a former chief executive,
Tom Albanese, and a former chief financial officer, Guy Elliott, committed
violations of the antifraud, reporting, books and records and internal control
provisions of the federal securities law by not accurately disclosing the
value of RTCM and not impairing it when Rio Tinto published its 2011 year-end
accounts in February 2012 or its 2012 interim results in August 2012. In June
2019, the trial court dismissed an associated US class action on behalf of
securities holders. In August 2020, the appeals court partially overturned the
court's dismissal and the case is with the trial court for further
consideration.
In March 2018, the Australian Securities and Investments Commission (ASIC)
filed civil proceedings in the NSW District Registry of the Federal Court of
Australia against Rio Tinto Limited, Albanese, and Elliott. On 1 May 2018,
ASIC expanded its proceedings. ASIC alleges that Rio Tinto committed
violations of the disclosure, accounting, and misleading or deceptive conduct
provisions of the Corporations Act by making misleading or deceptive
statements related to RTCM in its 2011 Annual Report and its 2012 interim
financial statements, not complying with accounting standards in respect of
its 2012 interim financial statements, and not disclosing an impairment of
RTCM in its 2012 interim financial statements. ASIC further alleges Albanese
and Elliott breached their duties as directors or officers, and failed to take
all reasonable steps to comply with relevant accounting requirements.
Rio Tinto believes that the SEC case and the ASIC proceedings are unwarranted
and will defend the allegations vigorously. Hence, no provisions have been
recognised for these cases.
Rio Tinto continues to co-operate fully with relevant authorities in
connection with their investigations in relation to contractual payments
totalling US$10.5 million made to a consultant who had provided advisory
services in 2011 on the Simandou project in Guinea. In August 2018, the court
dismissed a related US class action commenced on behalf of securities holders.
No provision has been recognised for this case.
At 31 December 2021, the outcomes of these matters remained uncertain, but
they could ultimately expose the Group to material financial cost. The Board
is giving these matters its full and proper attention and a dedicated Board
committee continues to monitor the progress of these matters, as appropriate.
Other contingent liabilities
The Group is in the process of modernising agreements with Traditional Owner
groups as outlined in our response to the Juukan Gorge incident. We have
provided for our best estimate of historical claims; however, the process is
incomplete and it is possible that further claims could arise relating to past
events.
Other disclosures (continued)
Close-down and restoration provisions are not recognised for those operations
that have no known restrictions on their lives as the date of closure cannot
be reliably estimated. This applies primarily to Canadian aluminium smelters
which are not dependent upon a specific orebody and have access to
indefinite-lived power from owned hydro-power stations with water rights
permitted by local governments. In these instances a closure obligation may
exist at the reporting date; however, due to the indefinite nature of asset
lives it is not possible to arrive at a sufficiently reliable estimate for the
purposes of recognising a provision. Close-down and restoration provisions are
recognised at these operations for separately identifiable closure activities
which can be reasonably estimated, such as the demolition and removal of fixed
structures after a pre-determined period. Any contingent liability for these
assets will crystallise into a closure provision if and when a decision is
taken to cease operations.
Related party matters
Transactions and balances with equity accounted units are summarised below.
Purchases, trade and other receivables, and trade and other payables relate
largely to amounts charged by equity accounted units for toll processing of
alumina and purchasing of bauxite and aluminium. Sales relate largely to sales
of alumina to equity accounted units for smelting into aluminium.
Details of the Group's principal equity accounted units are given in the 2021
Annual Report.
2021 2020
US$m US$m
Income statement items
Purchases from equity accounted units (1,167) (960)
Sales to equity accounted units 432 271
Cash flow statement items
Dividends from equity accounted units 1,431 594
Net receipts/(funding) from/of equity accounted units 6 (43)
Balance sheet items
Investments in equity accounted units((a)) 3,504 3,764
Loans to equity accounted units - 41
Trade and other receivables: amounts due from equity accounted units((b)) 251 251
Trade and other payables: amounts due to equity accounted units (253) (241)
(a) Investments in equity accounted units include quasi equity loans.
(b) This includes prepayments of tolling charges.
Rio Tinto plc has provided a number of guarantees in relation to various
pension funds. Subject to certain conditions, Rio Tinto plc would pay any
contributions due from Group companies participating in these funds in the
event that the companies fail to meet their contribution requirements.
Other disclosures (continued)
Acquisitions and Disposals
On 18 November 2021, we announced completion of a transaction to acquire the
40% share in the Diavik Diamond Mine in the Northwest Territories of Canada
held by Dominion Diamond Mines, becoming sole owner as a result. The
transaction did not meet the definition of a business combination and
therefore the incremental assets and liabilities were treated as an asset
purchase. Prior to purchase the Group recognised its existing 60% share of
assets, revenues and expenses, with liabilities recognised according to its
contractual obligations, and a corresponding 40% receivable or contingent
asset representing the co-owner's share where applicable. Receivables relating
to the co-owner's share were de-recognised and treated as part of the net
purchase consideration on completion.
On 21 December 2021, the Group entered into a binding agreement to acquire the
Rincon lithium project in Argentina for US$825 million. The Rincon lithium
project does not meet the definition of a business as defined by IFRS 3
"Business Combinations" and the transaction will be treated as an asset
purchase; completion is subject to regulatory approval in Australia.
Other disclosures (continued)
Summary financial information for subsidiaries that have non-controlling
interests that are material to the Group
This summarised financial information is shown on a 100% basis. It represents
the amounts shown in the subsidiaries' financial statements prepared in
accordance with IFRS under Group accounting policies, including fair value
adjustments, and before intercompany eliminations.
Income statement summary for the year ended 31 December Iron Ore Iron Ore Turquoise Turquoise
Company of Company of Hill((a)(b)) Hill((a)(b))
Canada Canada 2021 2020
2021 2020 US$m US$m
US$m US$m
Revenue 3,308 2,269 1,971 1,078
Profit after tax 1,193 611 893 357
- attributable to non-controlling interests 493 252 496 130
- attributable to Rio Tinto 700 359 397 227
Other comprehensive income 39 56 3 2
Total comprehensive income 1,232 667 896 359
Balance sheet summary as at 31 December 2021 2020 2021 2020
US$m US$m US$m US$m
Non-current assets 2,974 2,733 12,250 10,930
Current assets 599 670 1,129 1,496
Current liabilities (581) (462) (954) (540)
Non-current liabilities (1,020) (993) (4,085) (4,404)
Net assets 1,972 1,948 8,340 7,482
- attributable to non-controlling interests 818 804 2,846 2,424
- attributable to Rio Tinto 1,154 1,144 5,494 5,058
Cash flow statement summary for the year ended 31 December 2021 2020 2021 2020
US$m US$m US$m US$m
Cash flow from operations 2,119 1,027 825 380
Dividends paid to non-controlling interests (495) (180) - -
(a) Turquoise Hill Resources Ltd holds a controlling interest in Oyu Tolgoi
LLC. Under the terms of the project finance facility held by Oyu Tolgoi LLC,
there are certain restrictions on the ability of Oyu Tolgoi LLC to make
shareholder distributions.
(b) Since 2011, Turquoise Hill has funded common share investments in Oyu
Tolgoi LLC on behalf of Erdenes Oyu Tolgoi LLC ("Erdenes"). In accordance with
the Amended and Restated Shareholders Agreement dated 8 June 2011, such funded
amounts earn interest at an effective annual rate of LIBOR plus 6.5% and are
repayable to them via a pledge over Erdenes' share of future OT common share
dividends. Erdenes also has the right to reduce the outstanding balance by
making payments directly to Turquoise Hill. Common share investments funded on
behalf of Erdenes, including accrued interest, are recorded as a reduction to
the net carrying value of their component of non-controlling interests. As at
31 December 2021, the cumulative amount of such funding was US$1,399 million
(2020: US$1,378 million), excluding accrued interest of US$953 million (2020:
US$804 million) relating to this funding. On 25 January 2022, Turquoise Hill
agreed to waive in full amount of funding balances and interest; refer to page
73.
Other disclosures (continued)
Summary financial information for subsidiaries that have non-controlling
interests that are material to the Group (continued)
Income statement summary for the year ended 31 December Robe River Mining Co Pty Robe River Mining Co Pty Other companies and eliminations((c)) Other companies and eliminations((c)) Robe River Robe River
2021 2020 2021 2020 2021 2020
US$m US$m US$m US$m US$m US$m
Revenue 2,454 1,738 2,863 2,028 5,317 3,766
Profit after tax 1,352 939 1,518 1,019 2,870 1,958
- attributable to non-controlling interests 541 376 - - 541 376
- attributable to Rio Tinto 811 563 1,518 1,019 2,329 1,582
Other comprehensive (loss)/income (183) 294 (97) 136 (280) 430
Total comprehensive income 1,169 1,233 1,421 1,155 2,590 2,388
Balance sheet summary as at 31 December 2021 2021 2021
US$m 2020 US$m 2020 US$m 2020
US$m US$m US$m
Non-current assets 3,472 3,452 4,166 4,247 7,638 7,699
Current assets 495 865 2,118 2,239 2,613 3,104
Current liabilities (371) (380) (329) (414) (700) (794)
Non-current liabilities (421) (255) (4,378) (4,752) (4,799) (5,007)
Net assets 3,175 3,682 1,577 1,320 4,752 5,002
- attributable to non-controlling interests 1,268 1,397 - - 1,268 1,397
- attributable to Rio Tinto 1,907 2,285 1,577 1,320 3,484 3,605
Cash flow statement summary for the year ended 31 December 2021 ( ) 2021 2021
US$m 2020 US$m 2020 US$m 2020
US$m US$m US$m
Cash flow from operations 2,130 1,491 2,512 1,771 4,642 3,262
Dividends paid to non-controlling interests (589) (332) - (165) (589) (497)
(c) "Other companies and eliminations" includes North Mining Limited (a
wholly-owned subsidiary of the Group which accounts for its interest in Robe
River) and goodwill of US$362 million (2020: US$383 million) that arose on the
Group's acquisition of its interest in Robe River.
Other disclosures (continued)
Summary information for joint ventures that are material to the Group
This summarised financial information is shown on a 100% basis. It represents
the amounts shown in the joint ventures' financial statements prepared in
accordance with IFRS under Group accounting policies, including fair value
adjustments and amounts due to and from Rio Tinto.
Minera Escondida Ltda((a)) Minera Escondida Ltda((a)) Sohar Aluminum Co.L.L.C.((b)) Sohar Aluminum Co.L.L.C.((b))
2021 2020 2021 2020
US$m US$m US$m US$m
Revenue 9,783 7,650 900 640
Depreciation and amortisation (1,160) (1,427) (115) (115)
Impairment charges (see pages 50 to 53) - - - (1,100)
Other operating costs (3,066) (2,756) (510) (430)
Operating profit/(loss) 5,557 3,467 275 (1,005)
Finance expense (134) (137) (30) (20)
Income tax (2,133) (1,197) (35) (15)
Profit/(loss) after tax 3,290 2,133 210 (1,040)
Other comprehensive profit/(loss) 40 (40) - -
Total comprehensive income/(loss) 3,330 2,093 210 (1,040)
Non-current assets 11,490 11,833 1,765 1,850
Current assets 2,857 3,107 360 270
Current liabilities (2,017) (1,813) (175) (675)
Non-current liabilities (4,633) (4,560) (730) (200)
Net assets 7,697 8,567 1,220 1,245
Assets and liabilities above include:
- cash and cash equivalents 857 1,103 45 30
- current financial liabilities (550) (790) (40) (565)
- non-current financial liabilities (2,660) (2,560) (560) (30)
Dividends received from joint venture (Rio Tinto share) 1,374 585 47 -
Reconciliation of the above amounts to the investment recognised in the Group
balance sheet
Group interest 30 % 30 % 20 % 20 %
Net assets 7,697 8,567 1,220 1,245
Group's ownership interest 2,309 2,570 244 249
Carrying value of Group's interest 2,309 2,570 244 249
(a) In addition to its "Investment in equity accounted units", the Group
recognises deferred tax liabilities of US$322 million (2020: US$358 million)
relating to tax on unremitted earnings of equity accounted units.
(b) As part of the project financing agreements, there are certain
restrictions on the ability of Sohar Aluminium Co. L.L.C to make shareholder
distributions.
Events after the balance sheet date
Oyu Tolgoi: approval for commencement of underground operations
On 25 January 2022, Rio Tinto, Turquoise Hill Resources Ltd (Turquoise Hill)
and the Government of Mongolia announced their agreement, and unanimous
approval by the Board of Oyu Tolgoi, to commencement of underground
operations.
As part of a comprehensive project budget and funding package undertaken
between the parties in reaching this agreement, Turquoise Hill agreed to waive
in full, funding balances arising from a carry account loan with Erdenes Oyu
Tolgoi (Erdenes) of US$2.4 billion, comprising the amount of common share
investments in Oyu Tolgoi LLC funded by Turquoise Hill on behalf of Erdenes to
build the project to date, plus US$1.0 billion of accrued interest. The waiver
took effect on 25 January 2022. Rio Tinto and Turquoise Hill have also agreed
a plan to deliver the funding required until sustainable underground
production is reached.
Prior to the waiver agreement, the funding balances owing from Erdenes to
Turquoise Hill were expected to be repaid via a pledge over Erdenes' share of
future Oyu Tolgoi common share dividends. For this reason, and because the
arrangement is between Turquoise Hill and Erdenes rather than with Oyu Tolgoi
LLC itself, both the principal and interest are treated as transactions with
owners acting in their capacity as owners. Consequently, at 31 December 2021,
related amounts are recorded as a reduction in the share of equity
attributable to non-controlling interests, resulting in an increase to the
effective interest in Oyu Tolgoi attributable to owners of Rio Tinto.
Funding balances owing from Erdenes to Turquoise Hill are not classified as
loan receivables in the Group Balance Sheet, and there is no interest income
shown in the Group Income Statement. Accumulation of interest on the funding
balances increases the share of retained earnings attributable to Rio Tinto as
it is accrued.
Waiving the funding balances owing from Erdenes to Turquoise Hill increases
Erdenes' economic share arising through entitlement to cash flows from future
dividends of Oyu Tolgoi. In the 2022 Group results, there will be no Income
Statement charge for loan forgiveness or write-off as a result of the waiver,
and net assets and liabilities for Oyu Tolgoi included in the Group Balance
sheet remained unchanged. There is no exchange of cash or other financial
assets between parties and there will be no change to the underlying free cash
flows of the Oyu Tolgoi operations and development project. The waiver does
not have an impact on the Group's assessment of impairment indicators for
either 2021 or 2022, since it relates to the project shareholders' funding
arrangements rather than the economic capability of the Cash Generating Unit
itself. A reallocation of the net asset value allocation between the owners of
Oyu Tolgoi will be recorded in the Group Statement of Changes in Equity for
2022 reporting periods by reducing equity attributable to owners of Rio Tinto
and increasing equity attributable to non-controlling interests:
Retained earnings Non-controlling interests
US$m US$m
Change in equity interest held by Rio Tinto (490) 490
Equity issued to owners of non-controlling interests (711) 711
There were no other significant events after the balance sheet date requiring
disclosure.
Rio Tinto financial information by business unit
Gross product sales((a)) Underlying EBITDA((b)) Underlying earnings((c))
for the year ended for the year ended for the year ended
31 December 31 December 31 December
Adjusted Adjusted Adjusted
Rio Tinto 2021 2020 2021 2020 2021 2020
interest US$m US$m US$m US$m US$m US$m
%
Iron Ore
Pilbara (d) 39,111 27,027 27,837 18,896 17,544 11,551
Dampier Salt 68.4 298 252 39 43 10 12
Evaluation projects/other (e) 2,147 657 (81) (32) (79) (112)
Intra-segment (e) (1,974) (428) (203) (70) (152) (53)
Total Iron Ore 39,582 27,508 27,592 18,837 17,323 11,398
Aluminium
Bauxite 2,203 2,302 619 943 174 434
Alumina 2,743 2,233 569 262 306 92
Primary Metal 6,706 4,489 2,592 904 1,454 169
Pacific Aluminium 2,947 1,944 693 112 426 (6)
Intra-segment and other (2,718) (2,510) 14 6 192 (159)
Integrated operations 11,881 8,458 4,487 2,227 2,552 530
Other product group items 814 856 26 7 17 (5)
Product group operations 12,695 9,314 4,513 2,234 2,569 525
Evaluation projects/other - - (131) (82) (101) (54)
Total Aluminium 12,695 9,314 4,382 2,152 2,468 471
Copper
Kennecott 100.0 2,528 1,529 1,142 588 513 149
Escondida 30.0 2,935 2,296 2,013 1,462 1,003 650
Oyu Tolgoi and Turquoise Hill (f) 1,971 1,078 1,213 390 325 160
Product group operations 7,434 4,903 4,368 2,440 1,841 959
Simandou iron ore project (g) - - (58) (14) (43) (6)
Evaluation projects/other 393 66 (341) (342) (219) (199)
Total Copper 7,827 4,969 3,969 2,084 1,579 754
Minerals
Iron Ore Company of Canada 58.7 3,526 2,444 2,026 1,130 734 383
Rio Tinto Iron & Titanium (h) 1,791 1,651 470 476 176 216
Rio Tinto Borates 100.0 592 564 89 126 32 65
Diamonds (i) 501 459 180 83 99 9
Product group operations 6,410 5,118 2,765 1,815 1,041 673
Evaluation projects/other 71 52 (162) (105) (153) (93)
Total Minerals 6,481 5,170 2,603 1,710 888 580
Other operations (j) 251 321 (28) 24 (84) (48)
Inter-segment transactions (268) (264) 42 (94) 19 (32)
Product group total 66,568 47,018 38,560 24,713 22,193 13,123
Central pension costs, share-based payments, insurance and derivatives 110 117 133 118
Restructuring, project and one-off costs (80) (133) (51) (108)
Central costs (k) (613) (545) (585) (455)
Central exploration and evaluation (257) (250) (215) (216)
Net interest (95) (14)
Underlying EBITDA/earnings 37,720 23,902 21,380 12,448
Items excluded from underlying EBITDA/earnings (811) (395) (286) (2,679)
Reconciliation to Group income statement
Share of equity accounted unit sales and intra-subsidiary/equity accounted (3,073) (2,407)
unit sales
Impairment charges net of reversals (269) (1,272)
Depreciation and amortisation in subsidiaries excluding capitalised (4,525) (4,074)
depreciation
Depreciation and amortisation in equity accounted units (497) (576)
Taxation and finance items in equity accounted units (759) (443)
Finance items (26) (1,751)
Consolidated sales revenue/profit before taxation/net earnings 63,495 44,611 30,833 15,391 21,094 9,769
Rio Tinto financial information by business unit (continued)
Capital expenditure((l)) Depreciation and amortisation Operating assets((m)) Employees for the year
for the year for the year as at 31 December ended 31 December
ended 31 December ended 31 December
Adjusted Adjusted Adjusted Adjusted
Rio Tinto 2021 2020 2021 2020 2021 2020 2021 2020
interest US$m US$m US$m US$m US$m US$m
%
Iron Ore
Pilbara (d) 3,928 2,919 2,003 1,819 16,850 16,253 12,810 11,522
Dampier Salt 68.4 19 22 20 19 159 163 388 351
Evaluation projects/other (e) - - - - 1,283 338 16 10
Intra-segment (e) - - - - (255) (104) - -
Total Iron Ore 3,947 2,941 2,023 1,838 18,037 16,650 13,214 11,883
Aluminium
Bauxite 180 142 328 290 2,542 2,593 2,972 2,853
Alumina 362 228 165 138 2,258 2,294 2,463 2,383
Primary Metal 698 602 694 643 9,734 9,361 6,280 6,282
Pacific Aluminium 133 114 103 119 228 455 2,450 2,469
Intra-segment and other (1) (1) (1) 1 839 662 185 141
Total Aluminium 1,372 1,085 1,289 1,191 15,601 15,365 14,350 14,128
Copper
Kennecott 100.0 411 618 538 472 2,404 2,317 2,051 2,171
Escondida 30.0 220 178 348 428 2,515 2,726 1,166 1,124
Oyu Tolgoi and Turquoise Hill (f) 911 1,038 213 189 8,998 8,111 3,508 3,450
Product group operations 1,542 1,834 1,099 1,089 13,917 13,154 6,725 6,745
Simandou iron ore project (g) - (2) - - 13 16 101 69
Evaluation projects/other 6 5 4 4 210 192 228 159
Total Copper 1,548 1,837 1,103 1,093 14,140 13,362 7,054 6,973
Minerals
Iron Ore Company of Canada 58.7 377 243 197 170 1,077 1,009 2,877 2,716
Rio Tinto Iron & Titanium (h) 184 144 213 173 3,369 3,390 4,129 4,151
Rio Tinto Borates 100.0 43 42 51 49 487 502 978 966
Diamonds (i) 25 25 12 60 (19) (7) 646 885
Product group operations 629 454 473 452 4,914 4,894 8,630 8,718
Evaluation projects/other 15 1 1 - 43 33 136 77
Total Minerals 644 455 474 452 4,957 4,927 8,766 8,795
Other operations (j) (11) 2 199 199 (1,533) (550) 297 488
Inter-segment transactions (12) 129
Product group total 7,500 6,320 5,088 4,773 51,190 49,883 43,681 42,267
Other items 117 79 106 82 (1,334) (2,165) 5,664 5,207
Less: equity accounted units (294) (255) (497) (576)
Total 7,323 6,144 4,697 4,279 49,856 47,718 49,345 47,474
Add back: Proceeds from disposal of property, plant and equipment 61 45
Total capital expenditure per cash flow statement 7,384 6,189
Add: Net cash/(debt) 1,576 (664)
Equity attributable to owners of Rio Tinto 51,432 47,054
Notes to financial information by business unit
Business units are classified according to the Group's management structure.
The financial information by business unit has been recast in accordance with
the organisational restructure announced on 28 January 2021 and to improve the
grouping of central costs according to their nature. The main impacts are as
follows: Simandou has moved from the previous Energy & Minerals product
group to the Copper product group; Uranium has moved from the previous Energy
& Minerals product group to Other Operations; Diamonds has moved from the
previous Copper & Diamonds product group to the Minerals product group;
the Minerals product group retains the Argyle residual operations and from 1
January 2021, Argyle closure has moved to Other Operations. Argyle Residual
operations includes activity relating to the sale of remaining diamond
inventory and property held. Argyle closure includes activity relating to the
management and execution of the Argyle mine closure obligations and management
of entities with interests in state and traditional owner agreements and
licences. As a result of these changes, the Copper & Diamonds segment is
renamed Copper and the Energy & Minerals segment is renamed Minerals from
2021.
The disclosures in this note include certain alternative performance measures
(APMs). For more information on the APMs used by the Group, including
definitions and calculations, please refer to pages 78 to 86.
(a) Gross product sales include the sales revenue of equity accounted units
on a proportionately consolidated basis (after adjusting for sales to
subsidiaries) in addition to consolidated sales. Consolidated sales revenue
includes subsidiary sales to equity accounted units, which are not included in
gross product sales.
(b) Underlying EBITDA of subsidiaries, joint operations and the Group's
share relating to equity accounted units represents profit before: tax, net
finance items, depreciation and amortisation charged to the income statement
in the period. Underlying EBITDA excludes the EBITDA impact of the same items
that are excluded from underlying earnings.
(c) Underlying earnings represent net earnings attributable to the owners of
Rio Tinto, adjusted to exclude items which do not reflect the underlying
performance of the Group's operations. Business unit earnings are stated
before finance items, but after the amortisation of discount related to
provisions. Earnings attributed to business units do not include amounts that
are excluded in arriving at underlying earnings.
(d) Pilbara represents the Group's 100% holding in Hamersley, 50% holding in
Hope Downs Joint Venture and 65% holding in Robe River Iron Associates. The
Group's net beneficial interest in Robe River Iron Associates is 53%, as 30%
is held through a 60% owned subsidiary and 35% is held through a 100% owned
subsidiary.
(e) Gross product sales, Underlying EBITDA, Net Earnings and Operating
assets within Evaluation projects/other include activities relating to the
shipment and blending of Pilbara and Iron Ore Company of Canada (IOC) iron ore
inventories held at portside in China and sold to domestic customers.
Transactions between Pilbara and our portside trading business are eliminated
through the Iron Ore "intra-segment" line and transactions between IOC and the
portside trading business are eliminated through "inter-segment transactions".
Notes to financial information by business unit (continued)
(f) Our interest in Oyu Tolgoi is held indirectly through our 50.8%
investment in Turquoise Hill Resources Ltd (TRQ), where TRQ's principal asset
is its 66% investment in Oyu Tolgoi LLC, which owns the Oyu Tolgoi copper-gold
mine.
(g) Simfer Jersey Limited, a company incorporated in Jersey, in which the
Group has a 53% interest, has an 85% interest in Simfer S.A., the company that
manages the Simandou project in Guinea. The Group therefore has a 45.05%
indirect interest in Simfer S.A. These entities are consolidated as
subsidiaries and together referred to as the Simandou iron ore project.
(h) Includes our interests in Rio Tinto Fer et Titane (100%), QIT Madagascar
Minerals (QMM, 80%) and Richards Bay Minerals (attributable interest of 74%).
(i) Includes our interests in Argyle (100%) residual operations which
relates to the sale of remaining inventory and Diavik. Until 18 November we
recognised our 60% share of assets, revenue and expenses relating to the
Diavik joint venture. Liabilities were recognised according to Diavik Diamond
Mine Inc's contractual obligations at 100%, with a corresponding 40%
receivable or contingent asset representing the co-owner's share where
applicable. Post acquisition, we now consolidate (100%) of the Diavik Diamond
Mine. From 1 June 2021, management responsibility for rehabilitation of the
Argyle site moved from Minerals to Rio Tinto Closure (RTC), hence, Argyle
closure is reported in Other operations effective from 1 January 2021. Refer
to (j) below.
(j) Other operations include our 100% interest in the Gove alumina
refinery (under rehabilitation), Rio Tinto Marine, and the remaining legacy
liabilities of Rio Tinto Coal Australia. These include provisions for onerous
contracts, in relation to rail infrastructure capacity, partly offset by
financial assets and receivables relating to contingent royalties and disposal
proceeds. From 1 January 2021, Uranium moved from Minerals to Other
operations. From 1 January 2021, Argyle closure is reported as part of Other
Operations.
(k) Mark-to-market movements on commodity derivatives entered into with the
commercial objective of achieving spot pricing for the underlying transaction
at the date of settlement have been reclassified from Central costs and are
now included in Central pensions, share based payments, insurance &
derivatives, in order to provide a better understanding of Central costs. The
impact of this change on the reported comparatives is insignificant, and
therefore the comparatives have not been restated.
(l) Capital expenditure is the net cash outflow on purchases less sales of
property, plant and equipment, capitalised evaluation costs and purchases less
sales of other intangible assets. The details provided include 100% of
subsidiaries' capital expenditure and Rio Tinto's share of the capital
expenditure of joint operations and equity accounted units.
(m) Operating assets of the Group represents equity attributable to
Rio Tinto adding back net cash/(debt). Operating assets of subsidiaries, joint
operations and the Group's share relating to equity accounted units are
comprised of net assets excluding net cash/(debt) and post-retirement assets
and liabilities, net of tax. Operating assets are stated after the deduction
of non-controlling interests, these are calculated by reference to the net
assets of the relevant companies (i.e. inclusive of such companies' debt and
amounts due to or from Rio Tinto Group companies).
Alternative performance measures
The Group presents certain alternative performance measures (APMs) which are
reconciled to directly comparable IFRS financial measures below. These APMs
are used by management to assess the performance of the business and provide
additional information, which investors may find useful. APMs are presented in
order to give further insight into the underlying business performance of the
Group's operations.
APMs are not consistently defined and calculated by all companies, including
those in the Group's industry. Accordingly, these measures used by the Group
may not be comparable with similarly titled measures and disclosures made by
other companies. Consequently, these APMs should not be regarded as a
substitute for the IFRS measures and should be considered supplementary to
those measures.
The following tables present the Group's key financial measures not defined
according to IFRS and a reconciliation between those APMs and their nearest
respective IFRS measures.
APMs derived from the income statement
The following income statement measures are used by the Group to provide
greater understanding of the underlying business performance of its operations
and to enhance comparability of reporting periods. They indicate the
underlying commercial and operating performance of our assets including
revenue generation, productivity and cost management.
Gross product sales
Gross product sales include consolidated sales revenue plus the equivalent
sales revenue of equity accounted units in proportion to our equity interest
(after adjusting for sales to/from subsidiaries).
Gross product sales measures revenue on a basis that is comparable to our
Underlying EBITDA metric.
2021 2020
US$m US$m
Consolidated sales revenue 63,495 44,611
Share of equity accounted unit sales and inter-subsidiary/equity accounted 3,073 2,407
unit sales
Gross product sales 66,568 47,018
Alternative performance measures (continued)
Underlying EBITDA
Underlying EBITDA represents earnings attributable to owners of Rio Tinto
before tax, net finance items, depreciation and amortisation excluding the
EBITDA impact of the same items that are excluded in arriving at underlying
earnings (as defined on page 81).
2021 2020
US$m US$m
Profit after tax 22,575 10,400
Depreciation and amortisation in subsidiaries excluding capitalised 4,525 4,074
depreciation
Depreciation and amortisation in equity accounted units 497 576
Finance items in subsidiaries 26 1,751
Taxation in subsidiaries 8,258 4,991
Taxation and finance items in equity accounted units 759 443
Impairment charges net of reversals 269 1,272
Gain on recognition of a new wharf at Kitimat, Canada (336) -
Losses/(gains) on embedded commodity derivatives not qualifying for hedge 51 (6)
accounting (including exchange)
Change in closure estimates (non-operating and fully impaired sites) 1,096 401
Underlying EBITDA 37,720 23,902
Underlying EBITDA margin
Underlying EBITDA margin is defined as Group underlying EBITDA divided by
gross product sales.
2021 2020
US$m US$m
Underlying EBITDA 37,720 23,902
Gross product sales 66,568 47,018
Underlying EBITDA margin 57 % 51 %
Pilbara underlying FOB EBITDA margin
The Pilbara underlying free on board (FOB) EBITDA margin is defined as Pilbara
underlying EBITDA divided by Pilbara gross product sales, excluding freight
revenue.
2021 2020
US$m US$m
Pilbara
Underlying EBITDA 27,837 18,896
Pilbara gross product sales 39,111 27,027
Less: Freight revenue (2,707) (1,487)
Pilbara gross product sales, excluding freight revenue 36,404 25,540
Pilbara underlying FOB EBITDA margin 76 % 74 %
Alternative performance measures (continued)
Underlying EBITDA margin from Aluminium integrated operations
Underlying EBITDA margin from integrated operations is defined as underlying
EBITDA divided by gross product sales.
2021 2020
US$m US$m
Aluminium
Underlying EBITDA - integrated operations 4,487 2,227
Gross product sales - integrated operations 11,881 8,458
Underlying EBITDA margin from integrated operations 38 % 26 %
Underlying EBITDA margin (product group operations)
Underlying EBITDA margin (product group operations) is defined as underlying
EBITDA divided by gross product sales.
Adjusted((a))
2021 2020
US$m US$m
Copper
Underlying EBITDA - product group operations 4,368 2,440
Gross product sales - product group operations 7,434 4,903
Underlying EBITDA margin - product group operations 59 % 50 %
Adjusted((a))
2021 2020
US$m US$m
Minerals
Underlying EBITDA - product group operations 2,765 1,815
Gross product sales - product group operations 6,410 5,118
Underlying EBITDA margin - product group operations 43 % 35 %
(a) The comparatives have been recast in accordance with the organisational
restructure announced on 28 January 2021. Refer to page 76 for further
details.
Alternative performance measures (continued)
Underlying earnings
Underlying earnings represent net earnings attributable to the owners of Rio
Tinto, adjusted to exclude items, which do not reflect the underlying
performance of the Group's operations.
Exclusions from underlying earnings are those gains and losses, that
individually, or in aggregate with similar items, are of a nature and size to
require exclusion in order to provide additional insight into underlying
business performance.
The following items are excluded from net earnings in arriving at underlying
earnings in each period irrespective of materiality:
- Net gains/(losses) on disposal of interests in businesses.
- Impairment charges and reversals.
- Profit/(loss) after tax from discontinued operations.
- Exchange and derivative gains and losses. This exclusion includes
exchange gains/(losses) on external net debt and intragroup balances,
unrealised gains/(losses) on currency and interest rate derivatives not
qualifying for hedge accounting, unrealised gains/(losses) on certain
commodity derivatives not qualifying for hedge accounting, and unrealised
gains/(losses) on embedded derivatives not qualifying for hedge accounting.
- Adjustments to closure provisions where the adjustment is associated
to an impairment charge, for legacy sites where the disturbance or
environmental contamination relates to the pre-acquisition period.
The reconciliation of underlying earnings to net earnings can be found on page
85 to 86.
Basic underlying earnings per share
Basic underlying earnings per share is calculated as underlying earnings
divided by the weighted average number of shares outstanding during the year.
On a per share basis, this allows the comparability of underlying financial
performance adjusted to exclude items, which do not reflect the underlying
performance of the Group's operations.
2021 2020
(cents) (cents)
Basic earnings per ordinary share 1,303.4 604.0
Items excluded from underlying earnings per share 17.7 165.6
Basic underlying earnings per ordinary share 1,321.1 769.6
Alternative performance measures (continued)
Interest cover
Interest cover is a financial metric used when managing our risk. It
represents the number of times finance income and finance costs (including
amounts capitalised) is covered by profit before taxation before finance
income, finance costs, share of profit after tax of equity accounted units and
items excluded from underlying earnings, plus dividends from equity accounted
units.
2021 2020
US$m US$m
Profit before taxation 30,833 15,391
Add back
Finance income (64) (141)
Finance costs 243 268
Share of profit after tax of equity accounted units (1,042) (652)
Items excluded from underlying earnings 508 2,891
Add: Dividends from equity accounted units 1,431 594
Calculated earnings 31,909 18,351
Finance income 64 141
Finance costs (243) (268)
Add: Amounts capitalised (358) (340)
Total Finance income/costs before capitalisation (537) (467)
Interest cover 59 39
Payout ratio
The payout ratio is used by us to guide the dividend policy we implemented in
2016, with which we have sought to return 40-60% of underlying earnings, on
average through the cycle to shareholders as dividends. It is calculated as
total equity dividends per share to owners of Rio Tinto declared in respect of
the financial year divided by underlying earnings per share (as defined
above). Dividends declared usually include an interim dividend paid in the
year, and a final dividend paid after the end of the year. Any special
dividends declared in respect of the financial year are also included.
2021 2020
(cents) (cents)
Interim dividend declared per share 376.0 155.0
Interim special dividend declared per share 185.0 -
Final dividend declared per share 417.0 309.0
Final special dividend declared per share 62.0 93.0
Total dividend declared per share for the year 1,040.0 557.0
Underlying earnings per share 1,321.1 769.6
Payout ratio 79 % 72 %
Alternative performance measures (continued)
APMs derived from cash flow statement
Capital expenditure
Capital expenditure comprises the net sustaining and development expenditure
on property, plant and equipment, and on intangible assets. This is equivalent
to "Purchases of property, plant and equipment and intangible assets" in the
cash flow statement less "Sales of property, plant and equipment and
intangible assets".
This measure is used to support management's objective of effective and
efficient capital allocation as we need to invest in existing assets in order
to maintain and improve productive capacity, and in new assets to grow the
business.
Free cash flow
Free cash flow is defined as net cash generated from operating activities
minus purchases of property, plant and equipment and intangibles and payments
of lease principal, plus proceeds from the sale of property, plant and
equipment and intangible assets.
This measures the net cash returned by the business after the expenditure of
sustaining and development capital. This cash can be used for shareholder
returns, reducing debt and other investing/financing activities.
2021 2020
US$m US$m
Net cash generated from operating activities 25,345 15,875
Less: Purchase of property, plant and equipment and intangible assets (7,384) (6,189)
Less: Lease principal payments (358) (324)
Add: Sales of property, plant and equipment and intangible assets 61 45
Free cash flow 17,664 9,407
APMs derived from the balance sheet
Net cash/(debt)
Net cash/(debt) is total borrowings plus lease liabilities less cash and cash
equivalents and other liquid investments, adjusted for derivatives related to
net debt.
Net cash/(debt) measures how we are managing our balance sheet and capital
structure. Refer to Consolidated net cash/(debt) on page 55 for the
reconciliation.
Alternative performance measures (continued)
Net gearing ratio
Net gearing ratio is defined as net (cash)/debt divided by the sum of net debt
and total equity at the end of each period. It demonstrates the degree to
which the Group's operations are funded by debt versus equity.
2021 2020
US$m US$m
Net (cash)/debt (1,576) 664
Net (cash)/debt (1,576) 664
Total equity 56,590 51,903
Net (cash)/debt plus total equity 55,014 52,567
Net gearing ratio (3%) 1%
Underlying return on capital employed
Underlying return on capital employed ("ROCE") is defined as underlying
earnings excluding net interest divided by average capital employed (operating
assets).
Underlying ROCE measures how efficiently we generate profits from investment
in our portfolio of assets.
2021 2020
US$m US$m
Profit after tax attributable to owners of Rio Tinto (net earnings) 21,094 9,769
Items added back to derive underlying earnings (refer to page 85) 286 2,679
Underlying earnings 21,380 12,448
Add/(deduct):
Finance income per the income statement (64) (141)
Finance costs per the income statement 243 268
Tax on finance cost (52) (38)
Non-controlling interest share of net finance costs (64) (107)
Net interest cost in equity accounted units (Rio Tinto share) 32 32
Net interest 95 14
Adjusted underlying earnings 21,475 12,462
Equity attributable to owners of Rio Tinto - beginning of the period 47,054 40,532
Net debt - beginning of the period 664 3,651
Capital employed - beginning of the period 47,718 44,183
Equity attributable to owners of Rio Tinto - end of the period 51,432 47,054
Net (cash)/debt - end of the period (1,576) 664
Capital employed - end of the period 49,856 47,718
Average capital employed 48,787 45,951
Underlying return on capital employed 44 % 27 %
Alternative performance measures (continued)
Reconciliation of underlying earnings to net earnings
Underlying earnings are reported by Rio Tinto to provide greater understanding
of the underlying business performance of its operations. Underlying earnings
and net earnings both represent amounts attributable to owners of Rio Tinto.
Exclusions from underlying earnings relating to equity accounted units are
stated after tax and included in the column "Pre-tax". Items (a) to (f) below
are excluded from net earnings in arriving at underlying earnings.
Pre-tax Taxation Non-controlling Net amount Net amount
2021 2021 interests 2021 2020
US$m US$m 2021 US$m US$m
US$m
Underlying earnings 31,341 (8,482) (1,479) 21,380 12,448
Items excluded from underlying earnings
Impairment charges net of reversals((a)) (269) 72 - (197) (1,115)
Exchange and derivative gains/(losses):
- Exchange gains/(losses) on net external debt, intragroup balances and 800 (78) 4 726 (1,125)
derivatives((b))
- Losses on currency and interest rate derivatives not qualifying for hedge (211) 88 (4) (127) (157)
accounting((c))
- (Losses)/Gains on embedded commodity derivatives not qualifying for hedge (68) 17 (2) (53) 18
accounting((d))
Net losses from movements to closure estimates (non-operating and fully (1,096) 125 - (971) (300)
impaired sites)((e))
Gain on recognition of a new wharf at Kitimat, Canada((f)) 336 - - 336 -
Total excluded from underlying earnings (508) 224 (2) (286) (2,679)
Net earnings 30,833 (8,258) (1,481) 21,094 9,769
(a) Refer to Impairment charges note on pages 50 to 53.
(b) Exchange gains/(losses) on external net debt and intragroup balances
comprise post-tax foreign exchange losses on net debt of US$187 million offset
by post-tax gains of US$913 million on intragroup balances, primarily as a
result of the Australian dollar weakening against the US dollar. In 2020,
exchange losses on external net debt and intragroup balances comprise post-tax
foreign exchange losses on intragroup balances of US$1,330 million partially
offset by post-tax gains of US$205 million on external net debt, primarily as
a result of strengthening of the Australian dollar against the US dollar.
(c) Valuation changes on currency and interest rate derivatives, which are
ineligible for hedge accounting, other than those embedded in commercial
contracts, and the currency revaluation of embedded US dollar derivatives
contained in contracts held by entities whose functional currency is not the
US dollar.
(d) Valuation changes on derivatives, embedded in commercial contracts, that
are ineligible for hedge accounting, but for which there will be an offsetting
change in future Group earnings. Mark-to-market movements on commodity
derivatives entered into with the commercial objective of achieving spot
pricing for the underlying transaction at the date of settlement are included
in underlying earnings.
Alternative performance measures (continued)
Reconciliation of underlying earnings to net earnings (continued)
(e) On 2 February 2022, Energy Resources of Australia released preliminary
findings from its reforecast of the total undiscounted cost schedule for the
Ranger rehabilitation project. Information available from this study resulted
in the Group recording an increase to the closure provision of US$510 million
at 31 December 2021. Other increases to closure estimates charged to the
income statement in 2021 relate to Diavik, Gove refinery, and a number of the
Group's legacy sites where the environmental damage preceded ownership by Rio
Tinto. The adjustments at Energy Resources Australia and Gove refinery have
been recognised in the income statement as these are non-operating sites, and
excluded from underlying earnings due to the magnitude of the individual
updates and materiality when aggregated. In 2020 we recognised an increase in
the Diavik closure provision based on preliminary Pre-Feasibility Study
findings. On completion of the study in 2021 a true up was recorded in the
income statement and excluded from underlying earnings in line with the
treatment of the initial increase in 2020, which was excluded from underlying
earnings as Diavik was fully impaired during the year. Other closure costs
excluded in 2020 were the increase in the Gove refinery closure provision
offset by a decrease in the Argyle mine closure provision on completion of
Pre-Feasibility Studies at each site. The 2020 comparative also included the
net earnings impact (US$138 million loss) in respect of increases to Closure
provisions in legacy and non-operating sites following a reduction to the
closure discount rate to 1.5%. When further funding is required, no allocation
is made to the non-controlling interests of partially owned legacy sites until
the funding is received.
(f) On 3 December 2021 we gained control over a new wharf at Kitimat, Canada
that was built and paid for by LNG Canada. The gain on recognition has been
excluded from underlying earnings on the grounds of individual magnitude and
consistency with the associated impairment charge. Refer to the impairment
note on pages 50 to 53.
Summary financial data in Australian dollars, sterling and US dollars
2021 2020 2021 2020 2021 2020
A$m A$m £m £m US$m US$m
84,488 64,577 46,151 34,749 Consolidated sales revenue 63,495 44,611
88,577 68,061 48,385 36,624 Gross product sales 66,568 47,018
41,027 22,279 22,411 11,989 Profit before tax from continuing operations 30,833 15,391
30,039 15,055 16,409 8,101 Profit for the year from continuing operations 22,575 10,400
28,068 14,141 15,332 7,609 Net earnings attributable to Rio Tinto shareholders 21,094 9,769
50,191 34,599 27,417 18,618 Underlying EBITDA 37,720 23,902
28,449 18,019 15,540 9,696 Underlying earnings((a)) 21,380 12,448
1734.3c 874.3c 947.4p 470.5p Basic earnings per ordinary share((b)) 1303.4c 604.0c
1757.8c 1114.1c 960.2p 599.5p Basic underlying earnings per ordinary share((a)(b)) 1321.1c 769.6c
Dividends per share to Rio Tinto shareholders((c))
906.90c 566.21c 492.70p 297.21p - paid - ordinary dividend 685.0c 386.0c
370.27c - 200.03p - - paid - special dividend 278.0c -
577.04c 397.48c 306.72c 221.86p - proposed - ordinary dividend 417.0c 309.0c
85.80c 119.63c 45.60c 66.77p - proposed - special dividend 62.0c 93.0c
24,199 13,490 13,218 7,259 Cash flow before financing activities 18,186 9,319
2,173 (864) 1,168 (488) Net cash/(debt) 1,576 (664)
70,906 61,252 38,108 34,592 Equity attributable to Rio Tinto shareholders 51,432 47,054
(a) Underlying earnings exclude impairments and other charges of US$286
million (2020: US$2,679 million), which are analysed on pages 85 and 86.
(b) Basic earnings per ordinary share and basic underlying earnings per
ordinary share do not recognise the dilution resulting from share options on
issue.
(c) The Australian dollar and sterling amounts are based on the US dollar
amounts, retranslated at average or closing rates as appropriate, except for
the dividends which are the actual amounts.
Metal prices and exchange rates
2021 2020 Increase/ (Decrease)
Metal prices - average for the year
Copper - US cents/lb 422 281 50 %
Aluminium - US$/tonne 2,480 1,704 46 %
Gold - US$/troy oz 1,799 1,770 2 %
Full-year average Year-end
Exchange rates against the US dollar 2021 2020 Increase/ (Decrease) 2021 2020 Increase/ (Decrease)
Pound sterling 1.38 1.28 8 % 1.35 1.36 (1) %
Australian dollar 0.75 0.69 9 % 0.73 0.77 (5) %
Canadian dollar 0.80 0.75 7 % 0.78 0.78 - %
Euro 1.18 1.14 4 % 1.13 1.23 (8) %
South African rand 0.068 0.061 11 % 0.063 0.068 (7) %
Forward-looking statements
This report includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements other than
statements of historical facts included in this report, including, without
limitation, those regarding Rio Tinto's financial position, business strategy,
plans and objectives of management for future operations (including
development plans and objectives relating to Rio Tinto's products, production
forecasts and reserve and resource positions), are forward-looking statements.
The words "intend", "aim", "project", "anticipate", "estimate", "plan",
"believes", "expects", "may", "should", "will", "target", "set to" or similar
expressions, commonly identify such forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of Rio Tinto, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such forward-looking statements are based on
numerous assumptions regarding Rio Tinto's present and future business
strategies and the environment in which Rio Tinto will operate in the future.
Among the important factors that could cause Rio Tinto's actual results,
performance or achievements to differ materially from those in the
forward-looking statements include, but are not limited to: an inability to
live up to Rio Tinto's values and any resultant damage to its reputation; the
impacts of geopolitics on trade and investment; the impacts of climate change
and the transition to a low-carbon future; an inability to successfully
execute and/or realise value from acquisitions and divestments; the level of
new ore resources, including the results of exploration programmes and/or
acquisitions; disruption to strategic partnerships that play a material role
in delivering growth, production, cash or market positioning; damage to Rio
Tinto's relationships with communities and governments; an inability to
attract and retain requisite skilled people; declines in commodity prices and
adverse exchange rate movements; an inability to raise sufficient funds for
capital investment; inadequate estimates of ore resources and reserves; delays
or overruns of large and complex projects; changes in tax regulation; safety
incidents or major hazard events; cyber breaches; physical impacts from
climate change; the impacts of water scarcity; natural disasters; an
inability to successfully manage the closure, reclamation and rehabilitation
of sites; the impacts of civil unrest; the impacts of the Covid-19 pandemic;
breaches of Rio Tinto's policies, standard and procedures, laws or
regulations; trade tensions between the world's major economies; increasing
societal and investor expectations, in particular with regard to
environmental, social and governance considerations; the impacts of
technological advancements; and such other risks identified in Rio Tinto's
most recent Annual Report and accounts in Australia and the United Kingdom and
the most recent Annual Report on Form 20-F filed with the United States
Securities and Exchange Commission (the "SEC") or Form 6-Ks furnished to, or
filed with, the SEC. Forward-looking statements should, therefore, be
construed in light of such risk factors and undue reliance should not be
placed on forward-looking statements. These forward-looking statements speak
only as of the date of this report. Rio Tinto expressly disclaims any
obligation or undertaking (except as required by applicable law, the UK
Listing Rules, the Disclosure Guidance and Transparency Rules of the Financial
Conduct Authority and the Listing Rules of the Australian Securities Exchange)
to release publicly any updates or revisions to any forward-looking statement
contained herein to reflect any change in Rio Tinto's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.
Nothing in this report should be interpreted to mean that future earnings per
share of Rio Tinto plc or Rio Tinto Limited will necessarily match or exceed
its historical published earnings per share.
Contacts
media.enquiries@riotinto.com
www.riotinto.com
Follow @riotinto on Twitter
Media Relations, United Kingdom Media Relations, Australia
Illtud Harri Jonathan Rose
M +44 7920 503 600 M +61 447 028 913
David Outhwaite Matt Chambers
M +44 7787 597 493 M +61 433 525 739
Media Relations, Americas Jesse Riseborough
Matthew Klar M +61 436 653 412
T +1 514 608 4429
Investor Relations, United Kingdom Investor Relations, Australia
Menno Sanderse Amar Jambaa
M +44 7825 195 178 M +61 472 865 948
David Ovington
M +44 7920 010 978
Clare Peever
M +44 7788 967877
Group Company Secretary Joint Company Secretary
Steve Allen Tim Paine
Rio Tinto plc Rio Tinto Limited
6 St James's Square Level 7, 360 Collins Street
London SW1Y 4AD Melbourne 3000
United Kingdom Australia
T +44 20 7781 2000 T +61 3 9283 3333
Registered in England Registered in Australia
No. 719885 ABN 96 004 458 404
This announcement is authorised for release to the market by Rio Tinto's Group
Company Secretary.
LEI: 213800YOEO5OQ72G2R82
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