REG - Rio Tinto - Final Results
22/02/2023 07:00
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RNS Number : 6316Q Rio Tinto PLC 22 February 2023
Rio Tinto delivers underlying EBITDA of $26.3 billion and total dividends of
492 US cents per share
22 February 2023
Rio Tinto Chief Executive Jakob Stausholm said: "We are building a stronger
Rio Tinto and delivering against our four objectives. Our operational
performance has improved, as evidenced by a number of second half records
being set at our Pilbara iron ore mine and rail system. We are also investing
for the future, doubling our stake in the Oyu Tolgoi copper-gold project in
Mongolia through the acquisition of Turquoise Hill Resources, progressing the
Rincon Lithium Project in Argentina and reaching milestone agreements that
underpin the long-term success of our Pilbara iron ore business.
"We continue to focus on making lasting change to strengthen our workplace
culture and to building better relationships with Indigenous peoples,
communities and other partners. At all times we will seek to find better ways,
in line with our purpose. We clearly have more to do but I am encouraged by
the progress we are making.
"Despite challenging market conditions, we remain resilient because of the
quality of our assets, our great people and the strength of our balance sheet.
That is why we delivered strong financial results with underlying EBITDA of
$26.3 billion, free cash flow of $9.0 billion and underlying earnings of
$13.3 billion, after taxes and government royalties of $8.4 billion. This
enables us to continue to invest in strengthening the business while also
paying a total dividend of $8.0 billion, a 60% payout, in line with our
policy.
"The uplift in our operational performance, strengthening of external
relationships and investment in the long-term strength of the business ensure
we will be able to continue to pay attractive dividends and invest in
sustaining and growing our portfolio, while contributing to society's drive to
net zero."
At year end 2022 2021 2020 Change Change
vs 2021 vs 2020
Net cash generated from operating activities (US$ millions) 16,134 25,345 15,875 (36) % 2 %
Purchases of property, plant and equipment and intangible assets (US$ 6,750 7,384 6,189 (9) % 9 %
millions)
Free cash flow(1) (US$ millions) 9,010 17,664 9,407 (49) % (4) %
Consolidated sales revenue (US$ millions) 55,554 63,495 44,611 (13) % 25 %
Underlying EBITDA(1) (US$ millions) 26,272 37,720 23,902 (30) % 10 %
Profit after tax attributable to owners of Rio Tinto (net earnings) (US$ 12,420 21,094 9,769 (41) % 27 %
millions)
Underlying earnings per share (EPS)(1) (US cents) 819.6 1,321.1 769.6 (38) % 6 %
Ordinary dividend per share (US cents) 492.0 793.0 464.0 (38) % 6 %
Special dividend per share (US cents) - 247.0 93.0 (100) % (100) %
Total dividend per share (US cents) 492.0 1,040.0 557.0 (53) % (12) %
Net (debt)/cash(1) (US$ millions) (4,188) 1,576 (664)
Underlying return on capital employed (ROCE)(1) 25% 44% 27%
(1) This financial performance indicator is a non-IFRS (as defined below)
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 69 to 78. Our
financial results are prepared in accordance with IFRS - see page 35 for
further information. Footnotes are set out in full on page 17.
• We are committed to having a safe work environment, preventing
catastrophic events and reducing injuries. We had a fourth year in a row of
zero fatalities and our all-injury frequency rate has remained stable at 0.40.
We continue to implement our safety maturity model which, as our blueprint for
safety, describes the systems and behaviours we apply to create a strong
safety culture.
Solid financial results in 2022, set against a context of record prices in
2021
• $16.1 billion net cash generated from operating activities, 36% lower
than 2021. This included items of a non-recurring nature which were not
representative of the underlying strength of the performance of the business,
which, in aggregate, reduced operating cash flow by around $2 billion. See
page 5 for more detail. Free cash flow(1) of $9.0 billion included capital
expenditure of $6.8 billion, which decreased 9% as we commissioned our
current programme of Pilbara replacement projects, notably Gudai-Darri.
• $12.4 billion of net earnings, 41% lower than 2021, reflected the
movement in commodity prices, the impact of higher energy and raw materials
prices on our operations, and higher rates of inflation on our operating costs
and closure liabilities. Effective tax rate on net earnings of 30.9% compared
with 27.7% in 2021, with the increase being primarily due to the $0.8 billion
write down of deferred tax assets in the US.
• $26.3 billion underlying EBITDA(1) was 30% below 2021, with an
underlying EBITDA margin(1) of 45%.
• $13.3 billion underlying earnings(1) (underlying EPS(1) of 819.6 US
cents) were 38% below 2021.
• $4.2 billion of net debt(1) at year end, compared with net cash(1) of
$1.6 billion at the start of the year, primarily reflected the free cash
flow(1) of $9.0 billion, offset by $11.7 billion of cash returns to
shareholders and $3.8 billion for the acquisitions of Turquoise Hill Resources
(TRQ)(2) and Rincon Lithium Project.
• $8.0 billion full-year dividend, equivalent to 492 US cents per share.
This represents 60% of underlying earnings, in line with our shareholder
returns policy.
Delivering on our strategy
• We have put climate change and the low-carbon transition at the heart
of our strategy. We are decarbonising our assets; helping our customers
decarbonise by developing new products and technologies; and growing in
materials enabling the energy transition. We will deliver our strategy through
four clear objectives, which guide how we operate. Progressing our strategy
and four objectives will ensure that we provide the materials the world needs
while maximising shareholder returns and strengthening our position as a
partner of choice for our customers and other key stakeholders.
• We continue our work on social licence to restore trust and rebuild
relationships, particularly with Indigenous peoples, with an absolute
determination to achieve impeccable ESG credentials:
◦ We are implementing all recommendations from the comprehensive external
review of our workplace culture publi
(https://www.riotinto.com/news/releases/2022/Rio-Tinto-releases-external-review-of-workplace-culture)
shed
(https://www.riotinto.com/news/releases/2022/Rio-Tinto-releases-external-review-of-workplace-culture)
in February to ensure that everyone at Rio Tinto has a safe, respectful and
inclusive workplace. Some immediate actions include training 91% of more than
7,000 leaders in 2022 in the foundations of building psychological safety,
exceeding our target of 80%.
◦ We increased our gender diversity by 1.4 percentage points to 22.9%, but
fell short of our target to raise female representation by two percentage
points. The increases were distributed across all levels of the organisation
with female senior leaders increasing from 27.4% to 28.3%. We have also
increased the number of Indigenous leaders in our workforce to 46 (November
2020: 6), through internal promotion and recruitment.
◦ In October, we published
(https://www.riotinto.com/-/media/Content/Documents/Invest/Reports/CSP-reports/RT-CSP-commitments-disclosure-2022.pdf?rev=cce80700bf27495fadef050124fff0f1)
our second Communities & Social Performance (CSP) progress report on
actions addressing the 2020 Board Review of Cultural Heritage Management. It
includes direct feedback from the Pilbara Traditional Owners and details the
actions the company has taken to rebuild relationships with Indigenous peoples
and external stakeholders. We are moving to a model of co-management of
Country in our Pilbara iron ore business, and we are updating agreements with
Indigenous peoples. In May, we signed a Heads of Agreement with the Puutu
Kunti Kurrama and Pinikura (PKKP) people which will guide the co-management of
Puutu Kunti Kurrama and Pinikura country where mining takes place. In
November, we agreed with the PKKP Aboriginal Corporation to create the Juukan
Gorge Legacy
(https://www.riotinto.com/news/releases/2022/PKKP-and-Rio-Tinto-to-create-Juukan-Gorge-Legacy-Foundation)
(https://www.riotinto.com/news/releases/2022/PKKP-and-Rio-Tinto-to-create-Juukan-Gorge-Legacy-Foundation)
Foundation
(https://www.riotinto.com/news/releases/2022/PKKP-and-Rio-Tinto-to-create-Juukan-Gorge-Legacy-Foundation)
as part of a remedy agreement relating to the destruction of the rock shelters
at Juukan Gorge in May 2020. We also signed an updated agreement
(https://www.riotinto.com/en/news/releases/2022/Rio-Tinto-and-Yindjibarndi-people-strengthen-ties-with-updated-agreement)
with Yindjibarndi Aboriginal Corporation in Western Australia in November and
signed the first agr
(https://www.riotinto.com/news/releases/2022/The-wind-is-turning-between-Pekuakamiulnuatsh-First-Nation-and-Rio-Tinto)
eement
(https://www.riotinto.com/news/releases/2022/The-wind-is-turning-between-Pekuakamiulnuatsh-First-Nation-and-Rio-Tinto)
with the Pekuakamiulnuatsh First Nation in Quebec in December.
• To achieve our objective of becoming the best operator, we continue to
roll out the Safe Production System (SPS). We achieved our SPS deployment
target for 2022 with 30 deployments across 16 sites, which resulted in
improved performance at those sites. Roll-outs are ongoing to continuously
improve safety, strengthen employee engagement and sustainably lift
operational performance across our global portfolio.
• We made significant progress with our objective to excel in development
with the following key milestones in the year:
◦ we delivered
(https://www.riotinto.com/news/releases/2022/Rio-Tinto-First-ore-delivered-at-Gudai-Darri-iron-ore-mine-in-the-Pilbara)
first ore from Gudai-Darri, our first greenfield iron ore mine in the Pilbara
in more than a decade. The ramp-up continues to progress as planned, with the
43 million tonne per year capacity expected to be reached on a sustained basis
during 2023.
◦ we agreed
(https://www.riotinto.com/news/releases/2022/Rio-Tinto-and-Baowu-agree-to-form-joint-venture-to-develop-Western-Range)
to enter a joint venture with China Baowu Steel Group Co. Ltd with respect to
the Western Range iron ore project in the Pilbara, investing $2 billion ($1.3
billion Rio Tinto share(3)) to develop the 25 million tonne per year capacity
project. We have received all primary environmental and Australian Government
approvals, while Chinese regulatory approvals continue to progress as planned.
The joint venture is anticipated to commence in March, once the operational
elements of the JV are in place. Rio Tinto commenced early works site
mobilisation and awarded major contracts.
◦ we agreed
(https://www.riotinto.com/news/releases/2022/Rio-Tinto-modernises-joint-venture-to-develop-Rhodes-Ridge-iron-ore-project)
, together with Wright Prospecting Pty Ltd, to modernise the joint venture
covering the Rhodes Ridge project in the East Pilbara. The participants have
commenced an Order of Magnitude study which will consider development of an
operation before the end of the decade with initial plant capacity of up to 40
million tonnes annually, subject to receipt of relevant approvals.
◦ we fired 19 drawbells in 2022 from the Hugo North copper-gold
underground mine at Oyu Tolgoi in Mongolia. Drawbell progression accelerated
as a result of improvement initiatives, bringing projected first sustainable
production from Panel 0 forward to the first quarter of 2023. This followed
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, which reset the relationship between partners and resulted
in the start of underground operations.
◦ we c
(https://www.riotinto.com/news/releases/2022/Rio-Tinto-completes-acquisition-of-Turquoise-Hill)
omplete
(https://www.riotinto.com/news/releases/2022/Rio-Tinto-completes-acquisition-of-Turquoise-Hill)
d
(https://www.riotinto.com/news/releases/2022/Rio-Tinto-completes-acquisition-of-Turquoise-Hill)
the purchase of non-controlling interests in TRQ for $3.1 billion(2),
simplifying ownership of the Oyu Tolgoi mine, significantly strengthening our
copper portfolio and demonstrating our long-term commitment to the project and
to Mongolia.
◦ following completion of the $825 million Rincon acquisition, the Board
approved $194 million to develop a small starter battery-grade lithium
carbonate plant with a capacity of 3,000 tonnes per year. The investment
includes early works to support a full-scale operation. Construction
activities progressed on phase one camp facilities with rooms for 250 persons
completed. Airstrip permits were received and contractors mobilised. First
saleable production is expected in the first half of 2024.
◦ we increased our exploration and evaluation spend by 24% to $897 million
in 2022, as we ramped up our activities in Guinea, Argentina and Australia.
Progress towards our Scope 1 and 2 emissions targets
Mt CO(2)e 2022 2021 2018*
Scope 1 emissions 22.8 22.8 23.7
Scope 2 emissions 7.5 8.2 8.9
Total 30.3 31.0 32.5
*Adjusted 2018 baseline due to divestments and acquisitions. Actual emissions
in 2018 were 33.7Mt CO(2)e. Figures are more precise than the rounded numbers
shown.
• Our Scope 1 and 2 emissions targets of 15% reductions by 2025 and 50% by
2030 are aligned with 1.5°C - the stretch goal of the Paris Agreement - and
are really challenging. In contrast to many of our peers, about 80% of our
emissions are driven by processing and producing metals and minerals which are
high temperature, hard-to-abate activities. The remaining 20% are from our
mining operations. The low-carbon transition is complex: developing new
technologies and implementing major projects to decarbonise our business will
take time.
• In 2022, our Scope 1 and 2 emissions were 30.3Mt CO(2)e (31.0Mt in
2021), a reduction of 7% below our 2018 baseline. This is primarily the result
of switching to renewable power at Kennecott and Escondida in prior years, as
well as lower than planned production from the Kitimat and Boyne aluminium
smelters in 2022. We did not advance the actual implementation of our
abatement projects as fast as we would have liked last year, so our capital
expenditure on decarbonisation projects was $94 million, lower than we
anticipated when we set our targets. Challenges have included late delivery of
equipment, resourcing constraints impacting study progress, construction and
commissioning delays and project readiness.
• In response, we established six abatement programmes, with dedicated
people, to focus on the decarbonisation challenges that cut across our product
groups: repowering our Pacific Aluminium Operations, renewables, aluminium
anodes (ELYSIS(TM))), alumina process heat, minerals processing and diesel
transition. We are building capability and gaining a deeper understanding of
our decarbonisation challenge (both constraints and opportunities), and our
related operational expenditure increased to approximately $140 million in
2022. As a result, we are better placed to deliver the complex and large-scale
structural changes to our energy system needed to achieve our 2030 target.
• Given the long lead times for some of these projects, we established one
additional programme to increase our investments in Nature-based Solutions
projects and now expect these to make a more significant contribution to our
targets. If done well, these projects can play a substantial role in
addressing carbon emissions and biodiversity loss, while also providing
benefits to local communities. Our people working on these '6+1' abatement
programmes, along with our substantial investments in technology, will drive
the innovation and transformation needed to accelerate our low carbon
transition and ensure the long-term resilience of our business.
• Our 2022 Climate Change Report is available on our website,
riotinto.com.
Resilient cash flow from operations
Year ended 31 December 2022 Year ended 31 December 2021
US$m US$m
Net cash generated from operating activities 16,134 25,345
Purchases of property, plant and equipment and intangible assets (6,750) (7,384)
Sales of property, plant and equipment - 61
Lease principal payments (374) (358)
Free cash flow(1) 9,010 17,664
Disposals 80 4
Cash receipt from sale of Cortez royalty 525 -
Dividends paid to equity shareholders (11,727) (15,357)
Acquisitions relating to Rincon and McEwen Copper (850) -
Purchase of the minority interest in Turquoise Hill Resources Ltd(2) (2,961) -
Other 159 (71)
(Decrease)/Increase in net (debt)/cash(1) (5,764) 2,240
Footnotes are set out in full on page 17.
• $16.1 billion in net cash generated from operating activities, 36% lower
than 2021, was primarily driven by price movements for our major commodities
and a $0.5 billion rise in working capital, primarily due to elevated prices
for raw materials in aluminium inventory. We also incurred some items of a
non-recurring nature which were not representative of the underlying strength
of the performance of the business. These comprised; higher tax payments
(relative to profit) in 2022 as a result of a $1.1 billion (A$1.5 billion)
final payment to the Australian Taxation Office (ATO) in respect of 2021
profits; $0.4 billion (A$0.6 billion) settlement with the ATO in respect of 12
historical years; and $0.4 billion of cash losses from currency hedges on our
external dividends. At the end of 2022, we had no material outstanding tax
payable on Australian profits.
• We made some significant investments in growth with the $0.8 billion
acquisition of Rincon and the $3.0 billion(2) purchase of non-controlling
interests in TRQ (including transaction costs), giving us a 66% shareholding
in the Oyu Tolgoi copper-gold mine, our largest growth project. Our capital
expenditure of $6.8 billion encompassed $0.6 billion of growth capital, $2.2
billion of replacement capital, $3.9 billion of sustaining capital and $0.1
billion of decarbonisation spend. 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
project-financed.
• $11.7 billion of dividends paid in 2022, being the 2021 final ordinary
and special dividends paid in April 2022 ($7.6 billion) and the 2022 interim
ordinary dividend paid in September ($4.1 billion), including foreign exchange
impacts.
• The above movements, together with disposals including the $525 million
of cash received from the sale of the gross production royalty at the Cortez
Complex in Nevada, USA (Cortez royalty), resulted in net cash(1) decreasing by
$5.8 billion in 2022, and gave rise to net debt(1) of $4.2 billion at 31
December 2022.
Guidance
• In 2023, we expect our share of capital investment (refer to APMs on
page 75 and 76) to be around $8.0 billion (previously $8.0 to $9.0 billion),
including growth capital of around $2.0 billion, depending on the ramp-up of
spend at Simandou. In 2024 and 2025, this rises to $9.0 to $10.0 billion per
year, including 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 and exchange rates) and $2.0 to
$3.0 billion of replacement capital. Around 40% of our share of capital
investment is denominated in Australian dollars. Guidance includes around $1.5
billion over the next three years on decarbonisation projects, mainly relating
to Pilbara renewables: this will accelerate thereafter, bringing our best
estimate to around $7.5 billion, in aggregate, out to 2030. This remains
subject to Traditional Owner and other stakeholder engagement, regulatory
approvals and technology developments.
• Effective tax rate on underlying earnings is expected to be around 30%
in 2023.
Unit costs 2022 Actuals 2023 Guidance
Pilbara iron ore unit cash costs, free on board (FOB) basis - US$ per wet 21.3 21.0-22.5
metric tonne(4)
Australian dollar exchange rate 0.69 0.70
Copper C1 unit costs (includes Kennecott, Oyu Tolgoi and Escondida) - US cents 163 160-180
per lb
Production (Rio Tinto share, unless otherwise stated) 2022 Actuals 2023 Guidance
Pilbara iron ore (shipments, 100% basis) (Mt) 322 320 to 335
Bauxite (Mt) 55 54 to 57
Alumina (Mt) 7.5 7.7 to 8.0
Aluminium (Mt) 3.0 3.1 to 3.3
Mined copper (kt) 521 650 to 710(5)
Refined copper (kt) 209 180 to 210
Diamonds (M carats) 4.7 3.0 to 3.8
Titanium dioxide slag (Mt) 1.2 1.1 to 1.4
IOC(6) iron ore pellets and concentrate (Mt) 10.3 10.5 to 11.5
Boric oxide equivalent (Mt) 0.5 ~0.5
Footnotes set out in full on page 17.
• Production and unit cost guidance is consistent with our Fourth Quarter
Operations Review released on 17 January 2023.
• Iron ore shipments and bauxite production guidance remain subject to
weather and market conditions. Pilbara shipments guidance remains subject to
progressing the ramp-up from new mines and management of cultural heritage.
Underlying EBITDA and underlying earnings by product group
Underlying EBITDA Underlying earnings
2022 2021 Change 2022 2021 Change
Year ended 31 December US$m US$m % US$m US$m %
Iron Ore 18,612 27,592 (33) % 11,182 17,323 (35) %
Aluminium 3,672 4,382 (16) % 1,472 2,468 (40) %
Copper 2,376 3,969 (40) % 521 1,579 (67) %
Minerals 2,419 2,603 (7) % 849 888 (4) %
Reportable segment total 27,079 38,546 (30) % 14,024 22,258 (37) %
Other operations (16) (28) (43) % (340) (84) 305 %
Inter-segment transactions 24 42 (43) % 26 19 37 %
Central pension costs, share-based payments, insurance and derivatives 377 110 243 % 374 133 181 %
Restructuring, project and one-off costs (173) (80) 116 % (87) (51) 71 %
Other central costs (766) (613) 25 % (651) (585) 11 %
Central exploration and evaluation (253) (257) (2) % (209) (215) (3) %
Net interest 138 (95) (245) %
Total 26,272 37,720 (30) % 13,275 21,380 (38) %
Underlying EBITDA and underlying earnings are 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 69 to 78.
Central and other costs
Pre-tax central pension costs, share-based payments, insurance and derivatives
were a $377 million credit compared with a $110 million credit in 2021,
reflecting gains on derivatives recognised in 2022 of $132 million, compared
to derivative losses recognised in 2021 of $97 million, along with lower
central pension costs.
On a pre-tax basis, restructuring, project and one-off central costs were 116%
higher than 2021 mainly associated with corporate projects, in particular
workstreams surrounding Everyday Respect.
Other central costs of $766 million were 25% higher than in 2021, reflecting
the Group's investment in the rollout of SPS across the Group, our enhanced
capability to progress our ESG and CSP objectives and investment in
technology, R&D and associated partnerships.
Net interest increased $233 million to a credit of $138 million due to
higher interest rates, an increase in cash balances through the year and the
absence of losses on early redemption of bonds recorded in 2021.
Continuing to invest in greenfield exploration
We have a strong portfolio of greenfield exploration projects in early
exploration and studies stages, with activity in 18 countries across seven
commodities. This is reflected in our pre-tax central spend of $253 million
in 2022. The bulk of this exploration expenditure was focused on copper
projects in Australia, Colombia, Namibia, Peru, the United States and Zambia;
diamonds in Angola; and heavy mineral sands projects in Australia and South
Africa. Exploration is ongoing for nickel in Canada and Finland and in lithium
across all regions, with opportunities emerging in the United States and
Africa. Mine-lease exploration continued at Rio Tinto managed businesses,
including Pilbara Iron in Australia, Diavik in Canada and Cape York bauxite
operations in Australia.
Commentary on financial results
To provide additional insight into the performance of our business, we report
underlying EBITDA and underlying earnings. The principal factors explaining
the movements in underlying EBITDA are set out in this table.
US$m
2021 underlying EBITDA 37,720
Prices (8,101)
Exchange rates 801
Volumes and mix 606
General inflation (1,478)
Energy (1,169)
Operating cash unit costs (2,202)
Higher exploration and evaluation expenditure (171)
Non-cash costs/other 266
2022 underlying EBITDA 26,272
Solid financial results impacted by significant movements in commodity prices
We saw significant movement in pricing for our commodities, amidst growing
recession fears and a decline in consumer confidence.
Movements in commodity prices resulted in a $8,101 million decline in
underlying EBITDA overall compared with 2021. This was primarily from lower
iron ore prices ($9,155 million) and lower London Metal Exchange (LME) copper
prices and a negative provisional pricing impact ($733 million). This was
partly offset by a price uplift for our Aluminium business ($886 million),
driven by a first-half rise in LME prices, improved product premiums and
higher alumina pricing, which fell away sharply in the second half. We have
included a table of prices and exchange rates on page 79.
The monthly average Platts index for 62% iron fines converted to a Free on
Board (FOB) basis was 25% lower on average compared with 2021.
The average LME price for copper was 6% lower, while the average LME aluminium
price was 9% higher, compared with 2021. The gold price was flat compared with
2021.
The midwest premium duty paid for aluminium in the US averaged $655 per tonne,
12% higher than in 2021.
Weaker local currencies during 2022
Compared with 2021, on average, the US dollar strengthened by 8% against the
Australian dollar and by 4% against the Canadian dollar. Currency movements
increased underlying EBITDA by $801 million relative to 2021.
Improvement in sales volumes and mix
Higher sales volumes and changes in product mix across the portfolio increased
underlying EBITDA by $606 million compared to 2021. This was mostly
attributable to increased iron ore sales from the ramp-up of Gudai-Darri along
with higher portside sales in China, and favourable value-added product
premiums for our Aluminium business.
Impact of rising inflation and significantly higher energy prices
Average movements in energy prices compared with 2021 reduced underlying
EBITDA by $1,169 million, mainly due to higher diesel prices for our trucks,
trains and ships. In addition, rising general price inflation across our
global operations resulted in a $1,478 million reduction in underlying EBITDA,
including $0.2 billion for the impact of higher than expected inflation on
closure provisions (for closed or fully impaired sites and environmental
liabilities).
Disciplined focus on costs offset some of the market-linked increases
We remained focused on cost control throughout the year, in particular
maintaining discipline on fixed costs. However, a rise in our operating cash
unit costs reduced underlying EBITDA by $2,202 million (on a unit cost basis)
compared with 2021. This mainly reflected cyclical cost pressures from higher
market-linked prices for raw materials, in particular in our Aluminium
business. We also experienced fixed cost inefficiencies from lower volumes at
our Pacific alumina refineries and at the Boyne aluminium smelter due to
production disruptions. In addition, we increased resourcing in our iron ore
business to support the ramp-up at Gudai-Darri and targeted investment in pit
health and asset maintenance across the Pilbara.
Increasing our global exploration and evaluation activity
We increased our exploration and evaluation expenditure by $171 million, or
24%, to $897 million. This was mainly attributable to increased activity at
the Simandou iron ore project in Guinea and the Rincon Lithium Project in
Argentina.
Non-cash costs/other
Movements in non-cash costs, one-off and other items increased underlying
EBITDA by $266 million compared with 2021. This mainly reflected the
acquisition of the remaining 40% of Diavik in November 2021 (+$163 million),
lower incremental COVID-19 costs (+$123 million), gain on asset sale at
Kennecott (+$133 million) and lower charges to the income statement on updates
to closure cost estimates relating to closed and legacy sites (+$166 million).
This was partially offset by reduced capacity at the Kitimat aluminium smelter
(-$329 million) as ramp-up activities progressed in 2022 following the strike
which commenced in July 2021.
Net earnings
The principal factors explaining the movements in underlying earnings and net
earnings are set out below.
US$m
2021 net earnings 21,094
Total changes in underlying EBITDA (11,448)
Increase in depreciation and amortisation (pre-tax) in underlying earnings (319)
Increase in interest and finance items (pre-tax) in underlying earnings (1,112)
Decrease in tax on underlying earnings 3,949
Decrease in underlying earnings attributable to outside interests 825
Total changes in underlying earnings (8,105)
Changes in exclusions from underlying earnings:
Write-off of Federal deferred tax assets in the United States (820)
Movement in exchange differences and gains/losses on derivatives (683)
Gain recognised by Kitimat relating to LNG Canada's project (230)
Loss on disposal of interest in subsidiary (105)
Movement in impairment charges net of reversals 145
Movement in closure estimates (non-operating and fully impaired sites) 793
Gain on sale of Cortez royalty 331
2022 net earnings 12,420
Depreciation and amortisation, net interest and finance items, tax and
non-controlling interests
The depreciation and amortisation charge was $319 million higher than 2021,
mainly due to an increase in capitalised closure costs in 2021 at a number of
our Aluminium sites. Our capital base was also higher in Iron Ore, Copper and
Minerals as a result of our investment activities. This was partially offset
by a stronger US dollar against the Australian dollar.
Interest and finance items (pre-tax) were higher mainly as a result of a
$1,101 million increase in amortisation of discount on provisions, as higher
inflation had an impact on the Group's closure and restoration/environmental
liabilities. The amortisation charge of $1,517 million (2021: $415 million)
incorporates an estimate of inflation at the start of each six-month reporting
period. At the end of each half year we update the underlying cash flows for
the latest estimate of experienced inflation for the current financial year
and record this as "changes to existing provisions". For operating sites this
adjustment usually results in a corresponding adjustment to Property, plant
and equipment, and for closed and fully impaired sites the adjustment is
charged or credited to the Income statement. These income statement amounts
are included within underlying earnings except for the re-measurement of
provisions for legacy sites that were never operated by Rio Tinto.
The 2022 effective corporate income tax rate on pre-tax earnings, excluding
equity accounted units, was 30.9%, compared with 27.7% in 2021. The effective
tax rate on pre-tax earnings in Australia was 31.7% in 2022, compared with
30.7% in 2021. We r
(https://www.riotinto.com/news/releases/2022/Rio-Tinto-settles-all-tax-disputes-with-Australian-Tax-Office)
eached
(https://www.riotinto.com/news/releases/2022/Rio-Tinto-settles-all-tax-disputes-with-Australian-Tax-Office)
agreement with the Australian Taxation Office (ATO) on all tax matters in
dispute. As part of this agreement, in August we paid the ATO additional tax
of A$613 million for the period from 2010 to 2021. Over this 12-year period,
we paid nearly A$80 billion in tax and royalties in Australia.
Items excluded from underlying earnings
The Inflation Reduction Act of 2022 in the United States may give rise to
investment credits on some of our existing projects, with longer dated
projects potentially becoming more favourable. However, it also includes a new
Corporate Alternative Minimum Tax regime, which has led to the Group reviewing
the carrying value of US Federal deferred tax balances. The resulting $820
million write down of Federal deferred tax assets has been excluded from
underlying earnings on the grounds of materiality.
In 2022, we recognised an exchange and derivative loss of $137 million. This
includes losses of $373 million on revaluation of certain derivatives which do
not qualify for hedge accounting. These include currency hedges relating to
our external dividends, and exchange losses of $262 million on US dollar debt
in non-US dollar functional currency Group companies, partly offset by $478
million of exchange gains on intragroup balances. These losses compared with a
2021 gain of $546 million, giving rise to an unfavourable year-on-year
movement of $683 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.
During 2022, LNG Canada elected to terminate their option to purchase
additional land at Kitimat, Canada. This resulted in a $106 million gain which
includes the release of deferred income and receipt of a cancellation fee
payment. During 2021, we recognised a $336 million gain on recognition of a
new wharf at Kitimat that was built and paid for by LNG Canada. These gains
have been excluded from underlying earnings consistent with prior years, as
they are part of a series of material transactions unrelated to the core
business.
Impairment charges, net of reversals, decreased by $145 million compared with
2021. In 2022, we impaired the remaining full value of the Boyne Smelter in
Queensland, Australia, as a result of reduced capacity and the high cost of
energy from the coal-fired power station impacting economic performance. In
2022, we also completed the sale of the Roughrider uranium undeveloped project
in Saskatchewan, Canada, which resulted in a reversal of previous impairments.
There is a detailed explanation of the impairment process on pages 50 to 51.
In 2022, we recognised $178 million in closure costs representing adjustments
to the closure estimates relating to legacy sites where the disturbance
preceded ownership by Rio Tinto, including inflationary increases to
provisions for these sites in excess of the unwind of discount. This was $793
million lower than 2021 closure charges, which related to Energy Resources of
Australia (ERA), Gove refinery and Diavik closure provision increases, and
further increases at a number of the Group's legacy sites where the
disturbance preceded our ownership.
In 2022, we completed the $525 million sale of a gold royalty which was
retained following the disposal of the Cortez mine in 2008. The carrying value
of the royalty at 31 December 2021 was $88 million, resulting in a post-tax
gain of $331 million. This has been excluded from underlying earnings on the
grounds of materiality.
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
2022 was $12.4 billion (2021: $21.1 billion). We recorded a profit after tax
in 2022 of $13.1 billion (2021: $22.6 billion) of which a profit of $0.7
billion (2021: $1.5 billion) was attributable to non-controlling interests.
Net earnings and underlying earnings
The differences between underlying earnings and net earnings are set out in
this table (all numbers are after tax and exclude non-controlling interests).
Year ended 31 December 2022 Year ended 31 December 2021
US$m US$m
Underlying earnings 13,275 21,380
Items excluded from underlying earnings
Impairment charges net of reversals (52) (197)
Gains recognised by Kitimat relating to LNG Canada's project 106 336
Loss on disposal of interest in subsidiary (105) -
Foreign exchange and derivative gains on net debt and intragroup balances and (137) 546
derivatives not qualifying for hedge accounting
Change in closure estimates (non-operating and fully impaired sites) (178) (971)
Gain on sale of Cortez royalty 331 -
Write-off of Federal deferred tax assets in the United States (820) -
Net earnings 12,420 21,094
On pages 72 to 73 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 47.
Balance sheet
Net cash(1) reduced by $5.8 billion in 2022, resulting in a net debt(1)
position of $4.2 billion at 31 December 2022. This reflected $11.7 billion
returned to shareholders in the year, $3.0 billion(2) acquisition of the
remaining non-controlling interest of TRQ and $0.8 billion acquisition of the
Rincon Lithium Project, partially offset by $9.0 billion of free cash flow and
the $0.5 billion received from the sale of the Cortez royalty.
Our net gearing ratio(1) (net debt/ (cash) to total capital) was 7% at
31 December 2022 (31 December 2021: (3)%), see page 78.
Our total financing liabilities excluding net debt derivatives at 31 December
2022 (see page 77) were $12.3 billion (31 December 2021: $13.5 billion) and
the weighted average maturity was around 11 years. At 31 December 2022,
approximately 77% of these liabilities were at floating interest rates (85%
excluding leases). The maximum amount within non-current borrowings maturing
in any one calendar year is $1.5 billion, which matures in 2024.
We had $8.8 billion in cash and cash equivalents plus other short-term cash
investments at 31 December 2022 (31 December 2021: $15.2 billion).
Provision for closure costs
At 31 December 2022, provisions for close-down and restoration costs and
environmental clean-up obligations were $15.8 billion (31 December 2021:
$14.5 billion). The principal movements during the year were the result of a
remeasurement of underlying cash flows, including the effect of inflation.
This was recorded as an increase to mining properties for current operating
sites ($0.5 billion) and as a charge to profit for legacy sites
($0.5 billion). Also contributing to the increase in the provision was
amortisation of discount ($1.5 billion) which includes the effect of higher
inflation in the year. These increases were partly offset by utilisation of
the provision through spend (-$0.6 billion) and a weaker Australian dollar,
Canadian dollar and South African rand against the US dollar (-$0.7 billion).
Of the $15.8 billion in provisions, $11.6 billion relates to operating sites
and $4.2 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 15 years (2021: 16 years).
The provisions are based on risk-adjusted real cash flows using a real-rate
discount rate of 1.5% to reflect obligations at the present value of cash
flows on 31 December 2022 terms.
In 2023, we expect to utilise around $0.8 billion of the provisions as we
advance our closure activities at Argyle, ERA, Gove alumina refinery and
legacy sites.
Our shareholder returns policy
The Board is committed to maintaining an appropriate balance between cash
returns to shareholders and investment in the business, with the intention of
maximising long-term shareholder value.
At the end of each financial period, the Board determines an appropriate total
level of ordinary dividend per share. This takes into account the results for
the financial year, the outlook for our major commodities, the Board's view of
the long-term growth prospects of the business and the company's objective of
maintaining a strong balance sheet. The intention is that the balance between
the interim and final dividend be weighted to the final dividend.
The Board expects total cash returns to shareholders over the longer term to
be in a range of 40% to 60% of underlying earnings in aggregate through the
cycle. Acknowledging the cyclical nature of the industry, it is the Board's
intention to supplement the ordinary dividend with additional returns to
shareholders in periods of strong earnings and cash generation.
60% payout ratio on the ordinary dividend
2022 2021
US$bn US$bn
Ordinary dividend
Interim 4.3 6.1
Final 3.7 6.7
Full-year ordinary dividend 8.0 12.8
Payout ratio on ordinary dividend 60% 60%
Additional returns
Special dividend announced in July 2021, paid in September 2021 n/a 3.0
Special dividend announced in February 2022, paid in April 2022 n/a 1.0
Total cash returns to shareholders declared* 8.0 16.8
Combined total as % of underlying earnings 60% 79%
* 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 2022 final dividend has been converted at exchange rates
applicable on 21 February 2023 (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 2022 2021
Rio Tinto Group
Interim (US cents) 267.00 376.00
Final (US cents) 225.00 417.00
Full-year (US cents) 492.00 793.00
Rio Tinto plc
Interim (UK pence) 221.63 270.84
Final (UK pence) 185.35 306.72
Full-year (UK pence) 406.98 577.56
Rio Tinto Limited
Interim (Australian cents) 383.70 509.42
Final (Australian cents) 326.49 577.04
Full-year (Australian cents) 710.19 1,086.46
Special dividend per share declared 2022 2021
Rio Tinto Group
Interim (US cents) n/a 185.00
Final (US cents) n/a 62.00
Full-year (US cents) n/a 247.00
Rio Tinto plc
Interim (UK pence) n/a 133.26
Final (UK pence) n/a 45.60
Full-year (UK pence) n/a 178.86
Rio Tinto Limited
Interim (Australian cents) n/a 250.64
Final (Australian cents) n/a 85.80
Full-year (Australian cents) n/a 336.44
The 2022 final ordinary 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 20 April 2023, we will pay the 2022 final ordinary dividend to holders of
ordinary shares and holders of ADRs on the register at the close of business
on 10 March 2023 (record date). The ex-dividend date is 9 March 2023.
Rio Tinto plc shareholders may choose to receive their dividend in Australian
dollars or New Zealand dollars, and Rio Tinto Limited shareholders may choose
to receive theirs in pounds sterling or New Zealand dollars. Currency
conversions will be based on the pound sterling, Australian dollar and New
Zealand 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 28 March 2023.
We will operate our Dividend Reinvestment Plans for the 2022 final dividend
(visit riotinto.com for details). Rio Tinto plc and Rio Tinto Limited
shareholders' election notice for the Dividend Reinvestment Plans must be
received by 28 March 2023. 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.
Capital projects
Approved projects Total approved Approved capital remaining to be Status/Milestones
(Rio Tinto 100% capital cost spent from
owned unless (100% unless 1 January 2023
otherwise stated) otherwise stated)
Completed in 2022
Investment in Gudai-Darri, a new production hub in the Pilbara region of $3.1bn $0.2bn We delivered first ore in June 2022. Production from the mine ramped up in the
Western Australia. The investment incorporates a processing plant and second half of the year and we expect Gudai-Darri to reach its nameplate
infrastructure including a 166-kilometre rail line connecting the mine to our capacity of 43 million tonne per year on a sustained basis during 2023. The
existing network. mine has an expected life of more than 40 years.
Investment in the Robe River Joint Venture (West Angelas C and D and Mesa B, C $1.0bn $0.1bn In the third quarter of 2022, Mesa A rectification works were successfully
and H at Robe Valley) in the Pilbara to sustain production capacity.
completed, with the plant operating at design rates. Final train load out
(Rio Tinto share) (Rio Tinto share) tie-in works at Mesa J were also completed, with first ore achieved.
Investment in a second tunnel at the 1000MW Kemano hydropower facility at $0.8bn - The new 16-kilometre tunnel produced its first megawatt of electricity in July
Kitimat, British Columbia, Canada, which will ensure the long-term reliability 2022 after construction was completed in May 2022.
of the power supply to the Kitimat smelter.
Ongoing
Iron Ore
Investment in the Western Range iron ore project, a joint venture between Rio $1.3bn $1.1bn Announced in September 2022, the mine will have a production capacity of 25
Tinto (54%) and China Baowu Steel Group Co. Ltd (46%) in the Pilbara to
million tonnes per year. The project includes construction of a primary
sustain production of the Pilbara Blend from Rio Tinto's existing Paraburdoo (Rio Tinto share)(3) (Rio Tinto share) crusher and an 18-kilometre conveyor connection to the Paraburdoo processing
hub. plant. Early works construction commenced in 2022 and major contracts have
been awarded by Rio Tinto. First production is anticipated in 2025.
Copper
Phase two of the south wall pushback to extend mine life at Kennecott by a $1.5bn $1.1bn Approved in December 2019, the investment will further extend strip waste rock
further six years. A $108 million investment in underground characterisation mining and support additional infrastructure development. This will allow
studies is ongoing, with $55 million in development capital approved to mining to continue into a new area of the orebody between 2026 and 2032.
commence underground mining.
Development of the Oyu Tolgoi underground copper/gold mine in Mongolia (Rio $7.06bn(8) $1.6bn The project was originally approved in May 2016 for $5.3 billion, with an
Tinto 66%), 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(7) of copper per year from 2028 to 2036 and an following completion of the Definitive Estimate. By the end of 2022, a total
average of ~350,000 tonnes(7) of copper per year for a further five years, of 19 drawbells had been fired. Progression accelerated as a result of
compared with 130,000 tonnes in 2022 (open pit). improvement initiatives implemented by the Oyu Tolgoi teams, bringing
projected first sustainable production from Panel 0 forward to the first
quarter of 2023. This followed 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 $0.4bn 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. We are focused on consultation with
and equipment, including electric haul trucks, as well as a beneficiation all stakeholders to explore all options following the Government of Serbia's
chemical processing plant. cancellation of the Spatial Plan in January 2022.
Future options
Status
Iron Ore: Pilbara brownfields
Over the medium term, our Pilbara system capacity remains between 345 and 360 In addition to Western Range (Greater Paraburdoo), which has commenced early
million tonnes per year. Meeting this range, and the planned product mix, will works construction, other key projects to be delivered over the next five
require the approval and delivery of the next tranche of replacement mines. years include Hope Downs 1 Sustaining (Hope Downs 2 and Bedded Hilltop), West
Angelas Sustaining, Greater Nammuldi Sustaining and Brockman 4 Sustaining
(Brockman Syncline 1). We continue to work closely with local communities,
Traditional Owners and government to progress approvals for the new mining
projects.
Iron Ore: Rhodes Ridge
In October, Rio Tinto (50%) and Wright Prospecting Pty Ltd (50%) agreed to The participants have commenced an Order of Magnitude study, conducted by Rio
modernise the joint venture covering the Rhodes Ridge project in the Eastern Tinto, which will consider the development of an operation before the end of
Pilbara, providing a pathway for development utilising Rio Tinto's rail, port the decade with initial plant capacity of up to 40 million tonnes annually,
and power infrastructure. Rhodes Ridge contains 5.8 billion tonnes of subject to the receipt of relevant approvals. We expect to complete the Rhodes
high-grade Mineral Resources at an average grade of 62.3% Fe. The project's Ridge Order of Magnitude study in 2023.
total resource, 6.7 billion tonnes at an average grade of 61.6% Fe, represents
approximately one third of our existing Resource base in the Pilbara.(9) A
resource-drilling programme is currently underway to support future project
studies.
Iron Ore: Simandou
The Simandou iron ore project in Guinea(10) contains one of the world's Negotiations towards the co-development of project infrastructure progressed
largest known undeveloped high-grade low-impurity iron ore deposits, demand further with the December signing of a non-binding term sheet between our
for which is increasing as steelmakers look to reduce carbon emissions. Simfer joint venture, Baowu, Winning Consortium Simandou (WCS) and the
Simandou is set to diversify our strong iron ore portfolio, complementing our Government of Guinea(11). The term sheet further establishes the
high-grade Iron Ore Company of Canada products and supporting the long-term co-development principles following the incorporation of La Compagnie du
attractiveness of our Pilbara Blend™ offering. TransGuinéen on 27 July 2022, and is a pivotal next step towards securing the
shareholder agreement, cost estimates and regulatory authority approvals
necessary to progress the co-development of rail and port facilities.
Lithium: Rincon
We completed the acquisition of the Rincon Lithium Project in Salta province, In July 2022, we approved $140 million of investment and $54 million for early
Argentina in March 2022. Development of a small starter, battery-grade lithium works to support a full-scale operation to be expensed through exploration and
carbonate plant with a capacity of 3,000 tonnes per year is underway. evaluation expenditure. Construction activities progressed on phase one camp
facilities with rooms for 250 persons completed. Airstrip permits were
received and contractors mobilised. First saleable production from the small
starter plant is expected in the first half of 2024.
Copper: Resolution
The Resolution Copper project is a proposed underground copper mine in the The US Forest Service continued work to progress the Final Environmental
Copper Triangle, in Arizona, United States. It has the potential to supply up Impact Statement and complete actions necessary for the land exchange. We
to 25% of US copper demand. continued to advance partnership discussions with several federally recognised
Native American Tribes who are part of the formal consultation process.
Copper: Winu
In late 2017, we discovered copper-gold mineralisation at the Winu project in We continued to strengthen our relationships and advanced agreement making
the Paterson Province in Western Australia. In 2021, we reported our first with our host Traditional Owners, the Martu and Nyangumarta groups. Planned
Indicated Mineral Resource. The pathway is expected to take longer than drilling, fieldwork and study activities continued, strengthening the
originally anticipated and remains subject to regulatory and other required development pathway ahead of applications for regulatory and other required
approvals. approvals.
Aluminium: ELYSIS
ELYSIS, our joint venture with Alcoa, supported by Apple, the Government of Construction of the first commercial-scale prototype cells is underway at our
Canada and the Government of Quebec, is developing a breakthrough inert anode Alma smelter and is expected to become operational in 2023. ELYSIS aims to
technology that eliminates all direct greenhouse gases from the aluminium have its technology available for installation from 2024 and production of
smelting process. larger volumes of carbon-free aluminium approximately two years later.
Footnotes
1. This financial performance indicator is a non-IFRS (as defined below)
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 International Financial Reporting Standards (IFRS)
financial measures on pages 69 to 78. Our financial results are prepared in
accordance with IFRS - see page 35 for further information.
2. Total consideration of $3,139 million for the minority interest in TRQ
excludes transaction costs of $74 million. In 2022, we paid $2,928 million to
shareholders and $33 million of transaction costs. In 2023, we expect to pay
the remaining $41 million of transaction costs and approximately $211 million
to dissenting shareholders, depending on the outcome and timing of dissent
proceedings.
3. Rio Tinto share includes 100% of funding costs for Paraburdoo plant
upgrades.
4. Pilbara unit cash costs exclude COVID-19 costs (2022: $0.4 per tonne.
2021: $0.5 per tonne).
5. Oyu Tolgoi production for 2022 remains on a 33.52% Rio Tinto share
basis. Subsequent to Rio Tinto's acquisition of Turquoise Hill Resources which
completed on 16 December, 2023 mined copper guidance now includes Oyu Tolgoi
on a 100% consolidated basis and continues to reflect our 30% share of
Escondida.
6. Iron Ore Company of Canada continues to be reported as Rio Tinto share.
7. The 500ktpa target (stated as recovered metal) for the Oyu Tolgoi
underground and open pit mines is underpinned 21% by Proved Ore Reserves and
79% by Probable Ore Reserves for the years 2028 to 2036. The 350ktpa
production target for the following five years is underpinned 22% by Proved
Ore Reserves and 78% 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).
8. A cost and schedule reforecast was performed in June 2022 and estimates
that $7.06 billion is required to complete the Hugo North 1 project (an
increase of $0.3 billion beyond the 2020 Definitive Estimate). The 2022
Reforecast excludes impacts of COVID-19 restrictions arising after June 2022.
The 2022 reforecast remains subject to Oyu Tolgoi Board approval.
9. The Mineral Resource estimates for the Rhodes Ridge Joint Venture (JV)
were reported in our 2020 Annual Report released to the Australian Securities
Exchange (ASX) on 22 February 2021 (and form part of the Pilbara Mineral
Resource estimates reported in our 2021 Annual Report released to the ASX on
24 February 2022). The Competent Persons responsible for reporting these
Mineral Resource estimates were Mr P Savory, who is a Fellow of The
Australasian Institute of Mining and Metallurgy, and Ms N Brajkovich and Mr C
Kyngdon, who are Members of The Australasian Institute of Mining and
Metallurgy. We are not aware of any new information or data that materially
affects these Mineral Resource estimates and confirm that all material
assumptions and technical parameters underpinning the estimate 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 when they were reported. Mineral Resources are quoted in this release on
a 100% basis, as dry in-situ tonnes.
10. The Simandou iron ore project operates under the Simfer joint venture
where the Government of Guinea holds 15% and Simfer Jersey holds 85%. Simfer
Jersey is owned by Rio Tinto (53%) and Chalco Iron Ore Holdings (CIOH) (47%).
CIOH is owned by Chinalco (75%), Baowu (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.
11. This followed notification to Rio Tinto and the Government of Guinea of
Baowu's earlier entry into a term sheet agreement with WCS in respect of an
investment into WCS mine (blocks 1 and 2) and infrastructure vehicle - an
agreement welcomed by Rio Tinto.
11.
Review of operations
Iron Ore
Year ended 31 December 2022 2021 Change
Pilbara production (million tonnes - 100%) 324.1 319.7 1 %
Pilbara shipments (million tonnes - 100%) 321.6 321.6 - %
Salt production (million tonnes - Rio Tinto share)(1) 5.8 5.8 (2) %
Segmental revenue (US$ millions) 30,906 39,582 (22) %
Average realised price (US$ per dry metric tonne, FOB basis) 106.1 143.8 (26) %
Underlying EBITDA (US$ millions) 18,612 27,592 (33) %
Pilbara underlying FOB EBITDA margin(2) 68% 76%
Underlying earnings (US$ millions) 11,182 17,323 (35) %
Net cash generated from operating activities (US$ millions) 14,005 19,177 (27) %
Capital expenditure (US$ millions)(3) (2,940) (3,947) (26) %
Free cash flow (US$ millions) 11,033 15,172 (27) %
Underlying return on capital employed(4) 62% 100%
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 segmental revenue,
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
We achieved a number of operational records across the mine and rail system in
the second half of 2022, due to operational improvements and the ramp-up of
Gudai-Darri. In the year, we safely commissioned our Pilbara projects, despite
challenging conditions with COVID-19, labour and supply chain disruptions. The
focus now moves to the next tranche of mines starting with Western Range.
Underlying EBITDA of $18.6 billion was 33% lower than 2021, due to lower
prices ($8.8 billion), following the 25% drop in the monthly average Platts
index for 62% iron fines adjusted to an FOB basis. Higher sales volumes were
achieved from our portside operations in China, which improved underlying
EBITDA by $0.6 billion. We also increased resourcing to support the ramp-up at
Gudai-Darri and targeted investment in pit health and asset maintenance across
the Pilbara.
This additional investment, together with rising input prices, including
diesel price escalation and labour, resulted in 2022 Pilbara unit cash costs
of $21.3 per tonne (excluding COVID-19 costs of $0.4 per tonne). This
compared with $18.6 per tonne in 2021 (excluding COVID-19 costs of $0.5 per
tonne).
Our Pilbara operations delivered an underlying FOB EBITDA margin of 68%,
compared with 76% in 2021, largely due to the change in the iron ore price.
We price the majority of our iron ore sales (77%) by reference to the average
index price, for the month of shipment. In 2022, we priced approximately 10%
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 $97.6 per wet metric tonne on an FOB
basis (2021: $132.3 per wet metric tonne) across our product suite. This
equates to $106.1 per dry metric tonne, assuming 8% moisture (2021: $143.8 per
dry metric tonne), which compares with the monthly average Platts index for
62% iron fines converted to an FOB basis of $109.8 per dry metric tonne (2021:
$146.9 per dry metric tonne). The 3% lower realised price compared to the
Platts index was due to lower average grades, partially offset by higher
premiums for lump products.
Segmental revenue for our Pilbara operations included freight revenue of $2.2
billion (2021: $2.7 billion).
Net cash generated from operating activities of $14.0 billion was $5.2
billion lower than 2021, with lower pricing partly offset by a monetisation of
working capital. Free cash flow of $11.0 billion was $4.1 billion lower than
2021 due to the factors above, partially offset by a $1.0 billion reduction in
capital expenditure to $2.9 billion following completion of brownfield mine
replacement tie-in projects.
Review of operations
Pilbara operations produced 324.1 million tonnes (Rio Tinto share 272.9
million tonnes), 1% higher than 2021. Shipments of 321.6 million tonnes (Rio
Tinto share 270.8 million tonnes), in line with 2021, included 35.5 million
tonnes of lower grade SP10 products, 11% of shipments, on a 100% basis (2021:
11% of shipments).
Performance improvements continued across the system and we achieved a number
of operational records in the second half across the mine and rail system.
System inventories at the end of December were healthy, including strong
blasted stocks, mine stocks and port stocks.
Our iron ore portside sales in China were 24.3 million tonnes in 2022 (14.0
million tonnes in 2021). At the end of the December, inventory levels were 7.8
million tonnes, including 5.5 million tonnes of Pilbara product. In 2022,
approximately 80% of our portside sales were either screened or blended in
Chinese ports.
Aluminium
Year ended 31 December 2022 2021 Change
Bauxite production ('000 tonnes - Rio Tinto share) 54,618 54,326 1 %
Alumina production ('000 tonnes - Rio Tinto share) 7,544 7,894 (4) %
Aluminium production ('000 tonnes - Rio Tinto share) 3,009 3,151 (4) %
Segmental revenue (US$ millions) 14,109 12,695 11 %
Average realised aluminium price (US$ per tonne) 3,330 2,899 15 %
Underlying EBITDA (US$ millions) 3,672 4,382 (16) %
Underlying EBITDA margin (integrated operations) 29% 38%
Underlying earnings (US$ millions) 1,472 2,468 (40) %
Net cash generated from operating activities (US$ millions) 3,055 3,606 (15) %
Capital expenditure - excluding EAUs (US$ millions)(1) (1,377) (1,300) 6 %
Free cash flow (US$ millions) 1,652 2,272 (27) %
Underlying return on capital employed(2) 10% 16%
1. 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).
2. Underlying return on capital employed (ROCE) is defined as underlying
earnings excluding net interest divided by average capital employed.
Financial performance
Strong pricing in the first half fell away sharply in the second, which,
together with rising energy and raw materials costs, led to a significant
margin squeeze on our Aluminium business and a 16% decrease in underlying
EBITDA for the year as a whole. Underlying EBITDA margin fell nine percentage
points, but remained robust for the year at 29%.
Underlying EBITDA of $3.7 billion benefited from higher product premiums for
primary metal in addition to the stronger pricing environment for primary
metal and alumina in the first half. However, this was offset by higher coal
prices and costs for key materials such as caustic soda, coke, pitch and
anodes, leading to an increase in cash costs for alumina and primary metal.
We achieved an average realised aluminium price of $3,330 per tonne, 15%
higher than 2021 ($2,899 per tonne).
Average realised aluminium prices comprise the LME price, a market premium and
a value-added product (VAP) premium. The cash LME price averaged $2,703 per
tonne, 9% higher than 2021, while in our key US market, the Midwest premium
duty paid, which is 57% of our volumes (2021: 55%), increased by 12% to $655
per tonne (2021: $584 per tonne). Our VAP sales were stable at 50% of the
primary metal we sold (2021: 50%) and generated product premiums averaging
$431 per tonne of VAP sold (2021: $230 per tonne).
Our conversion of underlying EBITDA to cash remained relatively strong, with
net cash generated from operating activities of $3.1 billion and free cash
flow of $1.7 billion.
Review of operations
Bauxite production of 54.6 million tonnes was 1% higher than 2021, despite
equipment reliability issues at Weipa and Gove in Australia.
We shipped 38.0 million tonnes of bauxite to third parties in 2022, 1% higher
than 2021. In 2022, segmental revenue for bauxite increased 9% to $2.4
billion; this includes freight revenue of $635 million (2021: $462 million).
Alumina production of 7.5 million tonnes was 4% lower than 2021. The
refineries in the Pacific (Yarwun and Queensland Alumina Limited) were
impacted by a range of challenges in 2022, including unplanned outages and
equipment reliability issues. COVID-19 absenteeism impacted production in
early 2022 but eased in the second half. Production at the Vaudreuil refinery
in Quebec remained stable.
As the result of Queensland Alumina Limited's (QAL) activation of a step-in
process following sanction measures by the Australian Government, we have
taken on 100% of capacity for as long as the step-in continues. We are using
Rusal's 20% share of capacity under the tolling arrangement with QAL. This
additional output is excluded from our production results as QAL remains 80%
owned by Rio Tinto and 20% owned by Rusal.
Aluminium production of 3.0 million tonnes was 4% lower than 2021, due to
reduced output at our Kitimat smelter in British Columbia, Canada and Boyne
smelter in Queensland, Australia. The rate of pot restarts at Kitimat picked
up in the fourth quarter and Boyne smelter cell recovery efforts continued on
plan. Recovery at both smelters is progressing, with full ramp-up expected to
be completed during the course of 2023. All of our other aluminium smelters
continued to demonstrate stable performance.
Copper
Year ended 31 December 2022 2021 Change
Mined copper production ('000 tonnes - Rio Tinto share) 521.1 493.5 6 %
Refined copper production ('000 tonnes - Rio Tinto share) 209.2 201.9 4 %
Segmental revenue (US$ millions) 6,699 7,827 (14) %
Average realised copper price (US cents per pound)(1) 403 424 (5) %
Underlying EBITDA (US$ millions) 2,376 3,969 (40) %
Underlying EBITDA margin (product group operations) 49% 59%
Underlying earnings (US$ millions) 521 1,579 (67) %
Net cash generated from operating activities (US$ millions)(2) 1,374 2,634 (48) %
Capital expenditure - excluding EAUs(3) (US$ millions) (1,622) (1,328) 22 %
Free cash flow (US$ millions) (265) 1,295 (120) %
Underlying return on capital employed (product group operations)(4) 6% 14%
1. Average realised price for all units sold. Realised price does not
include the impact of the provisional pricing adjustments, which negatively
impacted revenues by $175 million (2021: $246 million benefit).
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.
Financial performance
Underlying EBITDA was down 40% to $2.4 billion, with $0.7 billion of the
reduction a result of lower copper prices, particularly in the second half of
the year. An anticipated decrease in by-product sales volumes (particularly
lower gold in concentrate at Oyu Tolgoi), rising cash costs, higher energy
prices and an increase in exploration and evaluation expenditure also impacted
EBITDA in 2022. Underlying EBITDA margin remained strong at 49%.
Our copper unit costs, at 163 cents per pound, increased by 81 cents, largely
driven by the decline in by-product credits, together with rising input and
higher labour costs, following the implementation of new labour laws in
Mongolia and a new five-year collective bargaining agreement at Kennecott.
We generated $1.4 billion in net cash from operating activities, a 48%
decrease on 2021, from the same drivers as underlying EBITDA, together with a
smaller increase in working capital compared to 2021.
Negative free cash flow of $0.3 billion reflected the significant investment
of $2.0 billion in our projects, an increase of 26% on 2021. This mainly
related to the ongoing development of the Oyu Tolgoi underground project,
underground growth projects at Kennecott and the Simandou iron ore project in
Guinea.
Review of operations
Mined copper production, at 521 thousand tonnes, was 6% higher than 2021 due
to higher grades at Kennecott and Escondida, partly offset by lower grades and
recoveries at Oyu Tolgoi as a result of planned mine sequencing.
The 4% increase in refined copper production to 209 thousand tonnes mainly
reflected a furnace failure in 2021 at Kennecott which resulted in the smelter
being offline for the majority of the fourth quarter of 2021. Unplanned
maintenance was required in the fourth quarter of 2022 in our anode furnaces,
leading to extended downtime and continued poor anode production.
Oyu Tolgoi underground project
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 the Government of Mongolia on 25 January 2022, resetting the relationship
between the partners, increasing the value the project delivers for Mongolia,
and allowing underground operations to commence.
In 2022, Rio Tinto and the Government of Mongolia remained focused on
supporting Oyu Tolgoi to reach the sustainable production milestone, and
continuing progress on the remaining measures contained in Mongolian
Parliamentary Resolution 103.
At the end of 2022, a total of 19 drawbells had been fired. Drawbell
progression accelerated as a result of improvement initiatives implemented by
the Oyu Tolgoi teams, bringing projected first sustainable production from
Panel 0 forward to the first quarter of 2023 (previously first half of 2023).
At the end of December, shafts 3 and 4 sinking had reached 378 metres and 507
metres below ground level respectively. Operational safety sinking pauses have
caused some delays against the 2022 reforecast(1) to shaft sinking. Final
depths required for shafts 3 and 4 are 1,148 and 1,149 metres below ground
level respectively. Construction of conveyor-to-surface works continued with
civil scope of works completed and other contractors mobilised to site.
Study work for Panels 1 and 2, which are required to support the ramp-up to
95,000 tonnes of ore per day, remains on track to be completed in the first
half of 2023. It will incorporate any ventilation impacts due to the shaft 3
and 4 delays as a result of COVID-19 restrictions and reprioritisation of the
mobilised workforce over the course of 2022.
On 16 December, we completed
(https://www.riotinto.com/news/releases/2022/Rio-Tinto-completes-acquisition-of-Turquoise-Hill)
the acquisition of Turquoise Hill Resources Ltd (TRQ) for consideration of
approximately $3.1 billion(2), simplifying ownership of the Oyu Tolgoi mine,
significantly strengthening our copper portfolio, and demonstrating our
long-term commitment to the project and Mongolia. We now hold a 66% direct
interest with the remaining 34% owned by the Government of Mongolia through
Erdenes Oyu Tolgoi. This is allowing us to focus fully on strengthening our
relationship with the Government of Mongolia and moving the project forward
with a simpler and more efficient ownership and governance structure.
1. A cost and schedule reforecast was performed in June 2022 and estimates
that $7.06 billion is required to complete the Hugo North 1 project (an
increase of $0.3 billion beyond the 2020 Definitive Estimate). The 2022
Reforecast excludes impacts of COVID-19 restrictions arising after June 2022.
The 2022 reforecast remains subject to Oyu Tolgoi Board approval.
2. Total consideration of $3,139 million for the minority interest in TRQ
excludes transaction costs of $74 million. In 2022, we paid $2,928 million to
shareholders and $33 million of transaction costs. In 2023, we expect to pay
the remaining $41 million of transaction costs and approximately $211 million
to dissenting shareholders, depending on the outcome and timing of dissent
proceedings .
Minerals
Year ended 31 December 2022 2021 Change
Iron ore pellets and concentrates production(1) (million tonnes - Rio Tinto 10.3 9.7 6 %
share)
Titanium dioxide slag production ('000 tonnes - Rio Tinto share) 1,200 1,014 18 %
Borates production ('000 tonnes - Rio Tinto share) 532 488 9 %
Diamonds production ('000 carats - Rio Tinto share)(2) 4,651 3,847 21 %
Segmental revenue (US$ millions) 6,754 6,481 4 %
Underlying EBITDA (US$ millions) 2,419 2,603 (7) %
Underlying EBITDA margin (product group operations) 40% 43%
Underlying earnings (US$ millions) 849 888 (4) %
Net cash generated from operating activities (US$ millions) 1,522 1,433 6 %
Capital expenditure (US$ millions)(3) (679) (644) 5 %
Free cash flow (US$ millions) 814 762 7 %
Underlying return on capital employed (product group operations)(4) 22% 21%
1. Iron Ore Company of Canada (IOC) continues to be reported within
Minerals.
2. 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.
Financial performance
In 2022, we benefited from strong market conditions for titanium dioxide
pigment and borates, partially offset by a weaker market for iron ore pellets
and concentrate, albeit off record levels. We also saw higher diamond prices
compared with 2021, following a pandemic-related build up of demand and low
inventory levels.
Underlying EBITDA of $2.4 billion was 7% lower than 2021, primarily due to
inflationary pressures, energy price increases and Rincon evaluation costs.
This was partially offset by prices and higher EBITDA in relation to the
increased ownership in Diavik.
Net cash generated from operating activities of $1.5 billion was 6% higher
than 2021, while free cash flow of $0.8 billion was 7% higher, reflecting a
higher EBITDA cash conversion supported by lower dividends paid to holders of
non-controlling interests at Iron Ore Company of Canada.
Review of operations
Production of iron ore pellets and concentrate at IOC was 6% higher than 2021
due to the successful deployment of the Safe Production System (SPS) at the
concentrator, which was completed in the year. Record performance metrics were
achieved in the year, including monthly records for concentrate production and
total material moved in the second quarter. Planning for SPS deployment at the
pellet plant commenced in December.
Titanium dioxide production of 1.2 million tonnes was 18% higher than 2021 due
to community disruptions at Richards Bay Minerals (RBM) in South Africa in
2021, and continued improved performance of operations at Rio Tinto Iron and
Titanium Quebec Operations, Canada. Nationwide loadshedding of electrical
power caused production constraints at RBM in late 2022.
Borates production was 9% higher than 2021, with strong production rates,
higher grades and improved equipment reliability.
Our share of carats recovered was 21% higher than 2021, from our increased
share of production since taking 100% ownership of Diavik in November 2021,
partly offset by lower carats recovered due to lower grades.
Price and exchange rate sensitivities
The following sensitivities give the estimated effect on underlying EBITDA,
assuming that each price or exchange rate moved in isolation. The relationship
between currencies and commodity prices is a complex one; movements in
exchange rates can affect movements in commodity prices and vice versa. The
exchange rate sensitivities quoted here include the effect on operating costs
of movements in exchange rates, but do not include the effect of the
revaluation of foreign currency working capital. Please use them with care.
Average published US$ million impact on
price/exchange rate for full-year 2022
2022 underlying EBITDA
of a 10% change
in prices/exchange rates
Aluminium - US$ per tonne 2,703 1,076
Copper - US cents per pound 398 505
Gold - US$ per troy ounce 1,800 68
Iron ore realised price (FOB basis) - US$ per dry metric tonne 106.1 2,608
Australian dollar against the US dollar 0.69 629
Canadian dollar against the US dollar 0.77 339
Oil (Brent) - US per barrel 100 220
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 $1,678 per tonne in 2022 ($1,373 per tonne in 2021):
US$/t
Alumina (FOB) 191
Green petroleum coke (FOB) 23
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.
2.
Condensed consolidated financial statements for the
year ended 31 December 2022
Contents:
Condensed consolidated financial statements Page number
Group income statement 27
Group statement of comprehensive income 28
Group cash flow statement 29
Group balance sheet 31
Group statement of changes in equity 32
Selected explanatory notes to the condensed consolidated financial statements
1 Status of financial information 35
2 Basis of preparation and changes in accounting policies 35
3 Segmental information 45
4 Segmental information - additional information 49
5 Impairment charges net of reversal 50
6 Taxation 52
7 Acquisitions and disposals 53
8 Cash and cash equivalents 55
9 Provisions including post-retirement benefits 55
10 Financial instruments 57
11 Commitments and Contingencies 60
12 Purchase of Turquoise Hill Resources Ltd 63
13 Events after the balance sheet date 64
Additional voluntary disclosure for the shareholders
Rio Tinto financial information by business unit 65
Alternative performance measures 69
Metal prices and exchange rates 79
Group income statement
Year ended 31 December Note 2021
2022 US$m
US$m
Consolidated operations
Consolidated sales revenue 3,4 55,554 63,495
Net operating costs (excluding items disclosed separately) (34,770) (32,690)
Impairment reversals/(charges net of reversals) 5 150 (269)
Loss on disposal of interest in subsidiary 5 (105) -
Exploration and evaluation expenditure (net of profit relating to interests in (896) (719)
undeveloped projects)
Operating profit 19,933 29,817
Share of profit after tax of equity accounted units 777 1,042
Impairment of investments in equity accounted units 5 (202) -
Profit before finance items and taxation 20,508 30,859
Finance items
Net exchange gains on external and intragroup net (debt)/cash balances 253 802
Net losses on derivatives not qualifying for hedge accounting (424) (231)
Finance income 179 64
Finance costs (335) (243)
Amortisation of discount on provisions 9 (1,519) (418)
(1,846) (26)
Profit before taxation 18,662 30,833
Taxation 6 (5,586) (8,258)
Profit after tax for the year 13,076 22,575
- attributable to owners of Rio Tinto (net earnings) 12,420 21,094
- attributable to non-controlling interests 656 1,481
Basic earnings per share 766.8c 1,303.4c
Diluted earnings per share 762.1c 1,295.0c
The notes on pages 35 to 64 are an integral part of these condensed
consolidated financial statements.
Group statement of comprehensive income
Year ended 31 December Note 2021
2022 US$m
US$m
Profit after tax for the year 13,076 22,575
Other comprehensive (loss)/income
Items that will not be reclassified to the income statement:
Re-measurement gains on pension and post-retirement healthcare plans 578 1,026
Changes in the fair value of equity investments held at fair value through - 5
other comprehensive income (FVOCI)
Tax relating to these components of other comprehensive income (123) (305)
Share of other comprehensive income of equity accounted units, net of tax 5 12
460 738
Items that have been/may be subsequently reclassified to the income statement:
Currency translation adjustment((a)) (2,371) (1,843)
Currency translation on subsidiary disposed of, transferred to the income 105 -
statement
Fair value movements:
- Cash flow hedge losses (167) (211)
- Cash flow hedge losses transferred to the income statement 106 14
Net change in costs of hedging reserve 4 (18)
Tax relating to these components of other comprehensive loss 21 62
Share of other comprehensive losses of equity accounted units, net of tax (27) (12)
(2,329) (2,008)
Total other comprehensive (loss)/income for the year, net of tax (1,869) (1,270)
Total comprehensive income for the year 11,207 21,305
- attributable to owners of Rio Tinto 10,705 19,896
- attributable to non-controlling interests 502 1,409
(a) Excludes a currency translation charge of US$240 million (2021: charge
of US$211 million) arising on Rio Tinto Limited's share capital for the year
ended 31 December 2022, which is recognised in the Group statement of changes
in equity on page 32.
(a)
Group cash flow statement
Year ended 31 December Note 2021
2022 US$m
US$m
Cash flows from consolidated operations((a)) 23,158 33,936
Dividends from equity accounted units 879 1,431
Cash flows from operations 24,037 35,367
Net interest paid (573) (438)
Dividends paid to holders of non-controlling interests in subsidiaries (421) (1,090)
Tax paid (6,909) (8,494)
Net cash generated from operating activities 16,134 25,345
Cash flows from investing activities
Purchases of property, plant and equipment and intangible assets (6,750) (7,384)
Sales of property, plant and equipment and intangible assets - 61
Acquisitions of subsidiaries, joint ventures and associates 7 (850) -
Disposals of subsidiaries, joint ventures, unincorporated joint operations and 7 80 4
associates
Purchases of financial assets (55) (45)
Sales of financial assets((b)(c)) 892 114
Net (funding of)/receipts from equity accounted units (75) 6
Other investing cash flows((d)) 51 85
Net cash used in investing activities (6,707) (7,159)
Cash flows before financing activities 9,427 18,186
Cash flows from financing activities
Equity dividends paid to owners of Rio Tinto (11,727) (15,357)
Proceeds from additional borrowings((e)) 321 1,488
Repayment of borrowings and associated derivatives((e)) (790) (1,707)
Lease principal payments (374) (358)
Proceeds from issue of equity to non-controlling interests 86 66
Purchase of non-controlling interest((f)) 12 (2,961) -
Other financing cash flows (28) 6
Net cash used in financing activities (15,473) (15,862)
Effects of exchange rates on cash and cash equivalents 15 100
Net (decrease)/increase in cash and cash equivalents (6,031) 2,424
Opening cash and cash equivalents less overdrafts 12,805 10,381
Closing cash and cash equivalents less overdrafts 8 6,774 12,805
(a) Cash flows from consolidated operations
Profit after tax for the year 13,076 22,575
Adjustments for:
- Taxation 6 5,586 8,258
- Finance items 1,846 26
- Share of profit after tax of equity accounted units (777) (1,042)
- Loss on disposal of interest in subsidiary 5 105 -
- Impairment charges of investments in equity accounted units after tax 5 202 -
- Impairment reversal/(charges net of reversals) 5 (150) 269
- Depreciation and amortisation 5,010 4,697
- Provisions (including exchange differences on provisions) 9 1,006 1,903
- Pension settlement - (291)
Utilisation of other provisions 9 (176) (128)
Utilisation of provisions for close-down and restoration 9 (609) (541)
Utilisation of provisions for post-retirement benefits and other employment 9 (254) (231)
costs
Change in inventories (1,185) (1,397)
Change in receivables and other assets((g)) 20 (367)
Change in trade and other payables 700 685
Other items((h)) (1,242) (480)
23,158 33,936
Group cash flow statement (continued)
(b) In 2022, we received net proceeds of US$352 million (2021: US$107
million) from our 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 within "Sales of financial
assets" or "Purchases of financial assets" depending on the overall net
position at each reporting date.
(c) Sale of financial assets includes US$525 million of cash received from
the sale of our gross production royalty from the Cortez Complex in Nevada,
USA, (the "Cortez royalty") comprising a gold mine joint venture operated by
Barrick Gold Corporation ("Barrick") and Newmont Corporation and the Fourmile
project owned and operated by Barrick.
(d) In 2022 other investing cash flows includes inflows relating to payments
from a trust fund controlled by the Government of Australia to Energy
Resources Australia ('ERA') for closure activity that has been completed. At
31 December 2022 the total amount held in the trust fund was US$329 million
(31 December 2021: US$388 million). In 2021 other investing cash flows
included a net settlement upon completion of a transaction increasing the
Group's 60% share in the Diavik Diamond Mine to sole ownership.
(e) In 2021, we issued US$1.25 billion 30-years fixed rate SEC-registered
debt securities with a coupon of 2.75%. The funds were received net of
issuance fees and discount. We also completed a US$1.2 billion (nominal
value) bond buy-back programme. There were no issuances in 2022.
(f) On 16 December 2022 we acquired the remaining 49% share of Turquoise
Hill Resources for expected consideration of US$3.2 billion inclusive of
transaction fees. At 31 December 2022 US$2,961 million had been paid.
(g) 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.
(h) Other items includes the deduction of the US$432 million relating to
the gain recognised on sale of the Cortez royalty shown in "Sale of financial
assets" and the recognition of realised losses of US$459 million on currency
forwards not designated as hedges (2021: realised losses US$131 million). In
2021 other items also included US$336 million relating to a gain on
recognition of a new wharf at Kitimat, Canada with no associated cash flow.
(h)
Group balance sheet
Note 2022 2021
US$m US$m
Non-current assets
Goodwill 826 879
Intangible assets 5 3,645 2,832
Property, plant and equipment 64,734 64,927
Investments in equity accounted units 3,298 3,504
Inventories 203 196
Deferred tax assets 2,766 3,375
Receivables and other assets 1,893 2,194
Tax recoverable - 29
Other financial assets 406 528
77,771 78,464
Current assets
Inventories 6,213 5,436
Receivables and other assets 3,478 3,574
Tax recoverable 347 72
Other financial assets 2,160 2,543
Cash and cash equivalents 8 6,775 12,807
18,973 24,432
Total assets 96,744 102,896
Current liabilities
Borrowings (923) (812)
Leases (292) (324)
Other financial liabilities (69) (245)
Trade and other payables (8,047) (7,733)
Tax payable (223) (1,407)
Close-down and restoration provisions (1,142) (1,023)
Provisions for post-retirement benefits and other employment costs (353) (383)
Other provisions (554) (700)
(11,603) (12,627)
Non-current liabilities
Borrowings (10,148) (11,356)
Leases (908) (1,039)
Other financial liabilities (904) (393)
Trade and other payables (604) (798)
Tax payable (36) (660)
Deferred tax liabilities (3,601) (3,503)
Close-down and restoration provisions 9 (14,617) (13,519)
Provisions for post-retirement benefits and other employment costs 9 (1,305) (2,109)
Other provisions 9 (744) (302)
(32,867) (33,679)
Total liabilities (44,470) (46,306)
Net assets 52,274 56,590
Capital and reserves
Share capital((a))
- Rio Tinto plc 207 207
- Rio Tinto Limited 3,330 3,570
Share premium account 4,322 4,320
Other reserves 7,805 9,998
Retained earnings 34,511 33,337
Equity attributable to owners of Rio Tinto 50,175 51,432
Attributable to non-controlling interests 12 2,099 5,158
Total equity 52,274 56,590
Group balance sheet (continued)
(a) At 31 December 2022, Rio Tinto plc had 1,249.7 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$28.20 (31 December 2021: US$29.47).
Group statement of changes in equity
Year ended 31 December 2022 Attributable to owners of Rio Tinto
Share capital Share premium Other reserves Retained earnings Total Non-controlling Total
US$m account US$m US$m US$m interests equity
US$m US$m US$m
Opening balance 3,777 4,320 9,998 33,337 51,432 5,158 56,590
Change in accounting policy (refer to note 2) - - - (17) (17) - (17)
Revised opening balance 3,777 4,320 9,998 33,320 51,415 5,158 56,573
Total comprehensive income for the year - - (2,165) 12,870 10,705 502 11,207
Currency translation arising on Rio Tinto Limited's share capital (240) - - - (240) - (240)
Dividends((a)) - - - (11,716) (11,716) (421) (12,137)
Own shares purchased from Rio Tinto shareholders to satisfy share awards to - - (84) (16) (100) - (100)
employees((b))
Change in equity interest held by Rio Tinto (refer to note 12) - - - 701 701 (3,907) (3,206)
Treasury shares reissued and other movements - 2 - - 2 - 2
Equity issued to holders of non-controlling interests (note 12) - - - (711) (711) 797 86
Employee share awards charged to the income statement - - 56 63 119 - 119
Transfers and other movements - - - - - (30) (30)
Closing balance 3,537 4,322 7,805 34,511 50,175 2,099 52,274
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$m
Opening balance 3,988 4,314 11,960 26,792 47,054 4,849 51,903
Total comprehensive income for the year - - (1,916) 21,812 19,896 1,409 21,305
Currency translation arising on Rio Tinto Limited's share capital (211) - - - (211) - (211)
Dividends((a)) - - - (15,385) (15,385) (1,090) (16,475)
Own shares purchased from Rio Tinto shareholders to satisfy share awards to - - (95) (18) (113) - (113)
employees((b))
Change in equity interest held by Rio Tinto - - - 76 76 (76) -
Treasury shares reissued and other movements - 6 - - 6 - 6
Equity issued to holders of non-controlling interests - - - - - 66 66
Employee share awards charged to the income statement - - 49 60 109 - 109
Closing balance 3,777 4,320 9,998 33,337 51,432 5,158 56,590
Group statement of changes in equity (continued)
(a) Dividends per share announced or paid during the period are summarised
below:
For year ended 31 December 2021
2022 US$m
US$m
Dividends per share: Ordinary - paid during the year 684.0c 685.0c
Dividends per share: Special - paid during the year 62.0c 278.0c
Ordinary dividends per share: announced with the results for the year 225.0c 417.0c
Special dividends per share: announced with the results for the year - 62.0c
(b) Net of contributions received from employees for share awards.
Selected explanatory notes to the condensed consolidated financial statements
1. 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 2022. These statutory accounts have been audited, were approved
by the Board on 22 February 2023, 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
2021 have been filed with the Registrar of Companies.
Unless stated otherwise, financial information for the years ended
31 December 2022 and 31 December 2021 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,
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 2022 and 31 December 2021 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.
1. Basis of preparation and changes in 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 2022.
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 22 February 2023.
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 2021, except for the accounting requirements set out
below, effective as at 1 January 2022, which did not have a significant impact
on the Group's financial statements.
2. Basis of preparation and changes in accounting policies (continued)
Proceeds before Intended Use (Amendments to IAS 16 "Property, Plant and
Equipment")
We adopted Proceeds before Intended Use (Amendments to IAS 16 "Property, Plant
and Equipment") at 1 January 2022. The amendment prohibits 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,
proceeds from selling items before the related item of property, plant and
equipment is available for use are recognised within "Consolidated sales
revenue" in the income statement along with the costs of producing those items
within "Net operating costs (excluding items disclosed separately)". We
apportion development expenditure in the period to derive the cost associated
with pre-production revenue, based on the tonnes produced in the period as a
percentage of the total expected production (estimated total ore reserve).
During 2021 we completed a review of the impact of these amendments and
concluded that adjustments to retained earnings as at 1 January 2020, and
restatement of the 2020 and 2021 Group Income Statement and Balance Sheet upon
adoption of the amendments, were insignificant and as a result no restatements
were made to comparative periods. During the year ended 31 December 2022 we
recognised in the income statement pre-production revenue of US$511 million
and related costs of US$30 million in relation to Gudai Darri and Oyu Tolgoi.
Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37
"Provisions, Contingent Liabilities and Contingent Assets")
We adopted Onerous Contracts - Cost of Fulfilling a Contract (Amendments to
IAS 37 "Provisions, Contingent Liabilities and Contingent Assets") at 1
January 2022. The amendments specify that the costs an entity includes in
determining whether a contract is onerous are made up of all directly related
costs, including both incremental amounts and an allocation of other directly
related expenditure. Previously, we made provision for onerous contracts when
the assets dedicated to the contract were fully impaired or the contract
became stranded as a result of a business decision. From 2022, we 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.
We have applied the amendments without revision to comparative amounts. We
have increased other provisions and reduced our retained earnings as at 1
January 2022 by US$17 million.
New standards issued but not yet effective
We have not early adopted any new accounting standards or amendments that have
been issued but are not yet effective.
Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12 Income Taxes, mandatory in 2023 and endorsed
by the UK)
The Group will adopt, from January 2023 (the transition date), the
narrow-scope amendments to IAS 12, which introduce an exclusion to the initial
recognition exemption application for transactions that give rise to equal and
offsetting taxable and deductible temporary differences.
2. Basis of preparation and changes in accounting policies (continued)
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 amendments, deferred tax assets and liabilities are required to be
recognised in respect of such temporary differences from the transition date,
with restatement of comparatives for 2022 and 2021.
The most significant impact of implementing these amendments is expected to be
from temporary differences related to the Group's provisions for close-down
and restoration, and lease obligations and corresponding capitalised closure
costs and right-of-use assets. Adjustments to deferred tax assets and
liabilities related to these balances will be recognised as at 1 January 2021,
being the beginning of the earliest comparative period presented in 2023
financial statements, with the cumulative effect recognised as an adjustment
to retained earnings or other components of equity at that date. For other
transactions the amendments apply only to those taking place on or after 1
January 2021.
The impact of restatement as at 31 December 2022 is that the Group will
recognise additional gross deferred tax liabilities of US$922 million and
gross deferred tax assets of US$1.4 billion in relation to close-down and
restoration obligations and related capitalised closure costs. The Group will
also recognise additional gross deferred tax liabilities of US$140 million and
gross deferred tax assets of US$149 million in relation to lease liabilities
and related right-of-use assets.
After the required offsetting within the same tax jurisdiction, these
adjustments result in the Group recognising additional net deferred tax assets
of US$30 million and a reduction in net deferred tax liabilities of US$437
million with the resulting cumulative impact increasing retained earnings
(inclusive of income statement adjustments described below) by US$459
million. As at 1 January 2021 and 31 December 2021, the restatement of
gross and net deferred tax balances does not differ materially from the impact
as at 31 December 2022.
The impact of restatement on net earnings for the year ended 2022 is a net
charge of US$28 million comprising a US$84 million credit (2021:US$22 million)
related to depreciation of closure and right of use assets, and settlement of
closure and lease liabilities, offset by a US$112 million charge (2021: nil)
related to the derecognition of deferred tax assets as a result of the
recently enacted Corporate Alternative Minimum Tax regime in the USA (refer
to Note 6).
There will be no impact on tax cash flows or amounts recognised on the balance
sheet as tax recoverable or payable as a result of implementing these
amendments.
IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts
(mandatory in 2023 and endorsed by the UK)
The standard provides consistent principles for all aspects of accounting for
insurance contracts. We are finalising our assessment and have not identified
a material impact to date, particularly in areas of judgment related to
reinsurance contracts with EAUs and in substance self-insurance arrangements.
2. Basis of preparation and changes in accounting policies (continued)
Other amendments
The assessment is ongoing in relation to other amendments, but no material
impact has been identified to date. These are listed below:
- Amendments to IAS 1 Presentation of Financial Statements:
disclosure of accounting policies (mandatory in 2023 and endorsed by the UK);
- Amendments to IAS 8 Accounting policies, changes in
accounting estimates and errors: definition of accounting estimates (mandatory
in 2023 and endorsed by the UK)
- Amendments to IAS 1 Presentation of Financial Statements:
classification of liabilities (mandatory in 2024 and not yet endorsed by the
UK).
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.
Impact of climate change on the Group
Strategy and approach to climate change
Over a year ago, we put the low-carbon transition at the heart of our new
strategy, setting a clear pathway to deliver long-term value as well as
ambitious targets to decarbonise our business. In 2022, our shareholders
supported our Climate Action Plan in a non-binding advisory vote on the
Group's ambitions, emissions targets and actions to achieve them.
Our Scope 1 and 2 emissions reduction targets of 15% by 2025, 50% by 2030
(both relative to our 2018 equity baseline) and the aim to achieve net zero
emissions by 2050 are aligned with 1.5°C - the stretch goal of the Paris
Agreement. We have set up six large abatement programmes focused on
renewables, Pacific aluminium operations, ELYSIS(TM) technology, process heat,
minerals processing and diesel alternatives. To deliver our climate targets,
we expect to make capital investment of US$7.5 billion in decarbonisation
projects over the period to 2030, including around US$1.5 billion in the next
three years, mainly relating to the repowering of the Pilbara. Progress
towards our Scope 1 and 2 emissions targets is reflected within executive
remuneration.
In 2022, we delivered the first 34MW of renewable power at Gudai-Darri and
announced our plan to invest US$600 million in 200MWh of solar power
facilities and 200MWh of battery storage in the Pilbara by 2026. We agreed to
test at least four battery-powered locomotives, and pilot battery-powered
trucks in the Pilbara in 2024. By 2030, we aim to phase out the purchase of
diesel haulage trucks and locomotives across our operations. At the
Queensland Alumina refinery we are working to develop an energy efficient
digestion process at an estimated cost of US$240 million. In 2022, we
continued to work with the Queensland Government and energy providers to
design a renewable energy solution for Boyne Smelter. Similarly, in 2022,
Tomago Aluminium Company released an expression of interest to work towards a
green repowering solution for the Tomago smelter.
2. Basis of preparation and changes in accounting policies (continued)
In addition, we have signed a 130MW solar power purchase agreement for
Richards Bay Minerals (RBM) in South Africa.We also intend to decarbonise our
shipping fleet and aim to have net zero vessels in our portfolio by 2030. To
achieve this, in 2022 we successfully completed a trial of fuel blend with
biofuels and in 2023-2024 we plan to incorporate nine LNG dual-fuel chartered
vessels into our fleet. Decarbonisation projects are expected to accelerate
beyond 2025, which we expect to include further decarbonisation of the Pilbara
electricity system (estimated at US$3 billion out of the US$7.5 billion total
spend by 2030) and other abatement projects.
We are also stepping up our focus on Scope 3 goals, which are explicitly
linked to executive remuneration. Over 90% of our Scope 3 emissions are from
the downstream processing of iron ore, bauxite and other products by our
customers. We have not set an overall quantitative Scope 3 emissions target,
but instead engage with our customers to optimise their current operations
toward low-emitting, higher efficiency processes; and foster partnerships with
them, which we believe are more effective ways to advance actions. The shift
toward green steel is underway and we are working on options to beneficiate
our Pilbara ores to be better suited to green steel technologies and are
exploring DRI pathways using sustainable resources such as hydrogen and
biomass.
We expect that our annual incremental operating expenditure on building new
teams and energy efficiency initiatives will be around US$200 million, in
addition to R&D investment.
Our ambition is to increase our growth capital expenditure to around US$2
billion in 2023 and up to US$3 billion per year in 2024-2025 to capture new
growth opportunities with a focus on materials that are expected to see strong
demand growth from the low carbon transition. This includes investment in
future production of lithium at Rincon, copper at Oyu Tolgoi and Winu and
high-grade iron ore from Simandou. Our budget for central greenfield
exploration remains at approximately US$250 million annually, mainly focused
on copper with a growing battery minerals programme.
For internal capital allocation purposes for major projects, a notional carbon
price of US$75/t CO(2)e is used to incentivise investment in low carbon
abatement options. The US$75/t CO(2)e price is derived from our analysis of
the carbon mitigation options across our assets that are needed to achieve our
emissions targets. This is unrelated to the different carbon prices we use in
our core scenarios which are based on our assessment of climate policy
ambition.
The impact of climate change and the execution of our climate change strategy
on our financial statements is discussed below:
Climate change scenarios
Our strategy and approach to climate change are informed by an analysis of the
interplay of global megatrends, explored through the lens of plausible global
scenarios. These set the context for our industry and underpin our commodity
price outlooks, portfolio and capital allocation choices and how we operate as
a business. There are many plausible scenarios for global energy transition,
all with different impacts on future commodity price outcomes. As part of our
2022 strategy process, we replaced our three scenarios described in the 2021
Annual Report and now focus on two core scenarios. These are used to generate
a single central Reference Case for use in commodity pricing forecasts,
valuation models and reserves and resources determination, as was the case in
the prior year.
2. Basis of preparation and changes in accounting policies (continued)
These changes in scenarios represent an evolution of our interpretation and
estimations in the current year, not a change in accounting policy, and as
such we have not restated comparative information. Our two core scenarios are:
- Competitive Leadership scenario, limiting global warming to
approximately 2°C by 2100, reflects a rapidly developing world of high growth
and strong climate action post-2030 with change driven by policy and
competitive innovation. As a result, we expect that countries achieve their
Glasgow Climate Pact commitments. Global weighted average carbon prices are
forecast to rise rapidly at an average of 8% per year over the next three
decades, reaching US$42/tCO(2)e in 2030, and rising rapidly post-2030 to
incentivise significant mitigation in industrial sectors post-2030.
- Fragmented Leadership scenario, with global warming exceeding 2.5°C by
2100, is characterised by limited progress on policy reform with volatile low
growth. We expect that nations eventually achieve their 2030 Nationally
Determined Contributions as agreed in Paris in 2015 but fail to progress
towards long term carbon goals agreed at the UN Climate Summit COP26 Glasgow.
Global weighted average carbon prices are forecast to rise slowly, at an
average of 2.9% per year over the period to 2050, reaching US$42 in 2030; but
remain too low post-2030 to incentivise significant mitigation in industrial
sectors resulting in flat global emissions post-2030.
At the UN Climate Summit in late 2022 (COP27), there was broad recognition
that the pace of decarbonisation across the global economy is too slow to
limit warming to 1.5°C and that current climate policies in many countries
are not yet aligned with their stated ambitions. Consequently, neither of our
two core scenarios is consistent with the expectation of climate policies
required to accelerate the global transition to meet the stretch goal of the
Paris Agreement. Although our operational emissions reduction targets align
with the goals of the Paris Agreement, our two core scenarios do not.
Consequently, we also assess our sensitivity and test the economic performance
of our business against a scenario we have developed to reflect our view of
the global actions required to meet the stretch goal of the Paris Agreement.
We refer to this Paris-aligned scenario as the Aspirational Leadership
scenario.
Importantly none of our three scenarios are considered a definitive
representation for our assessment of the future impact of climate change on
the Group. Scenario modelling has inherent limitations and by its nature
allows a range of possible outcomes to be considered where it is impossible to
predict which outcome is likely.
The Aspirational Leadership scenario reflects a world of high growth,
significant social change and accelerated climate action. Global weighted
average carbon prices rise rapidly - at an average of 9.3% per year over the
next three decades - reaching $59/tCO2e in 2030 and incentivise rapid and deep
reductions in industrial emissions post-2030. Despite geopolitical
differences, major economies work together through multilateral frameworks and
proactively work towards limiting temperature change to 1.5°C by 2050. The
Aspirational Leadership scenario is a commodity sales price and carbon tax
sensitivity, with all other inputs remaining equal to our Reference Case; and
is built by design to reach net-zero emissions globally by 2050 and help us
better understand the pathways to meet the Paris Agreement goal, and what this
could mean for our business. It is used for strategy and risk discussions,
including analysis of sensitivity to our view of a Paris-aligned pathway and
comparison of relative economic performance to our core scenarios.
2. Basis of preparation and changes in accounting policies (continued)
We do not publish the commodity price forecasts associated with these
scenarios as to do so would weaken our position in commercial negotiations and
might give rise to concerns from other market participants.
Impacts of climate change pricing scenarios on our portfolio, low-carbon
transition risks and opportunities
Through our strategy process we compare the economic performance of our
portfolio under our two core scenarios and the Aspirational Leadership
scenario and this indicates that overall the economic performance of our
portfolio would be stronger in scenarios with proactive climate action,
particularly in relation to aluminium, copper and higher-grade iron ore.
We anticipate that all our commodities are needed in the low-carbon
transition, but estimate that the demand varies significantly between our
scenarios. We expect that copper demand will rise from a 2020 base by
65-150% by 2050 across the three scenarios to support a rapid rise in
renewable generation while lithium is expected to be a fundamental ingredient
in electric vehicle batteries and grid-firming energy storage solutions.
Demand for aluminium is expected to grow for use in energy-efficient
lightweight vehicles with demand for aluminium semi-fabricated products more
than doubling in the period 2021-50 in Aspirational Leadership and Competitive
Leadership scenarios, with moderate demand growth in Fragmented Leadership.
Our access to self-generated hydro power is a source of competitive advantage
for our aluminium business in Canada.
We forecast that global iron ore demand will remain strong with a premium on
higher grade ore needed for the production of green steel, such as that from
our IOC products and the planned investment in Simandou, which increases in
our Aspirational Leadership and Competitive Leadership scenarios. In our
Aspirational Leadership scenario, accelerated switching to green steel and
increasing scrap use reduces the relative value of low-grade iron ore in the
Pilbara.
We will need to carefully monitor and manage transition risks linked to our
operational Scope 1 and 2 emissions and value-chain Scope 3 emissions. In
particular, we expect the decarbonisation of our assets to benefit from the
implementation of new technologies. The pace of technological development is
uncertain, which could delay or increase the cost of our decarbonisation
efforts.
Our Aspirational Leadership scenario predicts the Group's overall economic
performance would fall between the Fragmented Leadership and Competitive
Leadership scenarios. This reflects higher estimated economic performance for
our copper and aluminium businesses in the Aspirational Leadership scenario,
based on their higher price profiles, offset by higher expected carbon
penalties across our operating jurisdictions, and lower prices for lower grade
iron ore products. Refer below for our assessment of the accounting
implications of forecast commodity pricing in the Aspirational Leadership
scenario.
Physical risk
In 2022, we launched the Physical Resilience Programme across the Group.
During the year we commenced a physical risk and resilience assessment across
prioritised risk areas: the entire Pilbara iron ore operation and the Saguenay
aluminium operations focused on Lac Saint-Jean. Our ongoing review processes,
including impairment assessments, have not identified any material accounting
impacts to date. For example, in 2022, no write-offs are necessary in the
Pilbara, where certain infrastructure assets, such as transmission lines, that
have reached the end of their natural lives are being replaced with climate
resilient infrastructure.
2. Basis of preparation and changes in accounting policies (continued)
In addition, we do not foresee the renewal of our contractual water rights in
Canada that have been classified as indefinite-lived intangible assets to be
at risk from climate change. Further, closure planning considers future
climate change projections at each step of the process to support safe and
appropriate final landform design. In 2023, we will progress a Group-wide
top-down assessment to further understand the risks and opportunities
associated with physical climate change and to quantify any financial impacts,
in addition to the site-specific bottom-up assessments, which will continue in
the foreseeable future.
Accounting judgments and estimates
Global decarbonisation and the world's energy transition continues to evolve,
with the potential to materially impact our future financial results as our
significant accounting judgments and key estimates are updated to reflect
prevailing circumstances. In response, carrying values of assets and
liabilities could be materially affected in future periods. Our current
strategy and approach to decarbonise our operations and achieve our scope 1
and 2 emissions targets is considered in our significant judgments and key
estimates reflected in these financial results.
Impacts from executing our climate change strategy - accounting for capital
expenditure and operating costs underpinning our Climate Action Plan
Given the significant investment we are making to abate our carbon emissions,
we have 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. No material
changes to accounting estimates to useful economic lives have been necessary
due to the anticipated use of these assets for firming support in the
transition. As the renewable projects progress, it is possible that such
adjustments may be identified in the future. The renewable assets in the
Pilbara are our own built and operated arrangements and follow normal rules on
capitalisation of directly attributable costs. The solar power purchase
agreement for RBM is accounted for on an accrual basis as energy is produced.
There are no accounting impacts to date from the programme to develop
renewable energy solutions for our Queensland aluminium assets as the work has
not been completed and commercial terms have not been agreed. Large scale
renewable power off-take arrangements may, in the future, require complex
derivative measurement or lease accounting depending on contractual terms.
No adjustments to useful lives of the existing fleet have been identified to
date as a result of planned fleet electrification in the Pilbara and the
purchase of battery-powered locomotives. The solutions are still in
development or pilot stages and the gradual fleet replacement is intended to
be part of the normal lifecycle renewal of trucks. Depending on technological
development, which is highly uncertain, this could lead to accelerated
depreciation in the future. Similarly, our target to have net zero vessels in
our portfolio by 2030 has not given rise to accounting adjustments to date, as
the replacement is planned as part of the lifecycle renewal. The energy
efficiency digestion project at Queensland Alumina refinery does not reduce
the economic lives of the underlying alumina assets but could lower operating
costs and improve margins. The expenditure on our own carbon abatement
projects and technology advancements follows existing accounting policies on
cost capitalisation, research and development costs.
2. Basis of preparation and changes in accounting policies (continued)
Use of sensitivities to Paris aligned accounting
The forecast commodity prices (including carbon prices) informed by a blend of
our two scenarios 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 included as inputs to impairment testing,
estimation of remaining economic life for units of production depreciation and
discounting closure and rehabilitation provisions. These prices represent
our best estimate of actual market outcomes based on the range of future
economic conditions regarding matters largely outside our control, as required
by IFRS. As neither of our core scenarios represents the Group's view of the
goals of the Paris Agreement, our commodity price assumptions used in
accounting estimates are not consistent with the expectation of climate
policies required to accelerate the global transition to meet the goals of the
Paris Agreement. As described above, we use our Aspirational Leadership
scenario to understand the sensitivity of these estimates to Paris aligned
assumptions.
Under the Aspirational Leadership scenario, which is not used in the
preparation of these financial statements, nor for budgeting purposes, the
economic performance of copper and aluminium is expected to be stronger under
supply and demand forward pricing curves which we believe will be consistent
with the Paris Agreement. It is possible therefore, under the right
conditions, that historical impairments associated with these assets could
reverse. We recognised an impairment of US$202 million during the year for the
Boyne smelter cash-generating unit, triggered by economic and operating
performance of the smelter. When measuring the recoverable amount for this
cash-generating unit we utilised net present value of cash flows to the end of
the existing joint venture agreements in 2029, which also coincides with the
Group's targeted carbon emission reductions by 2030. The Group continues to
evaluate lower emission power solutions for the smelter that could extend its
life to at least 2040. In such circumstances, the net present value of
forecast future cash flows could support the reversal of past impairments.
Both the recorded outcome and the sensitivity represent a reduction in
emissions that we considered to be Paris-aligned.
In the Aspirational Leadership scenario the prices for lower-grade iron ore
are supported in the medium term by an assumed underlying increase in
GDP-driven demand. However, in the longer term we assume the pricing for lower
grade iron ore to be weaker than in our core scenarios. This will depend on
the development of low-emissions steel technology, the pace of which is
uncertain, but is expected to be offset by higher prices for higher-grade iron
ore. This is unlikely to give rise to impairment triggers for 2022 or in the
foreseeable future due to the high returns on capital employed in the Pilbara.
We completed the divestments of our coal businesses in 2018 and no longer mine
coal, but retained a contingent royalty from these divestments. Recent
favourable coal prices exceeded contractual benchmark levels and resulted in
the cash royalty receipt of US$36 million during 2022. We also carry royalty
receivables of US$209 million on our balance sheet at 31 December 2022,
measured at fair value. The fair value of this balance may be adversely
impacted in the future by a faster pace of transition to a low carbon economy,
but this impact is not expected to be material.
2. Basis of preparation and changes in accounting policies (continued)
Closure dates and cost of closure are also sensitive to climate assumptions,
but no material changes have been identified in the year specific to climate
change that would require a material revision to the provisions in 2022. For
those commodities with higher forward price curves under the Aspirational
Leadership scenario, it may be economical to mine lower mineral grades, which
could result in the conversion of additional Mineral Resources to Ore Reserves
and therefore longer dated closure.
Overall, based on the Aspirational Leadership scenario pricing outcomes, and
with all other assumptions remaining consistent with those applied to our 2022
financial statements, we do not currently envisage a material adverse impact
of the 1.5°C Paris-aligned sensitivity on asset carrying values, remaining
useful life, or closure and rehabilitation provisions for the Group. It is
possible that other factors may arise in the future, which are not known
today, that may impact this assessment.
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 69 to 78 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
Our financial statements have been prepared in accordance with IFRS 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). We are required to disclose the effect of the
adjustments to our consolidated income statement, consolidated total
comprehensive income/(loss) and consolidated shareholders' funds if our
accounts were prepared under the version of IFRS that is applicable in
Australia. This is in order to satisfy the obligations of Rio Tinto Limited to
prepare consolidated accounts under Australian company law, as amended by an
order issued by the Australian Securities and Investments Commission on 16
July 2021.
Prior to 1 January 2004, our 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$380 million at 31 December 2022 (2021:
US$377 million).
Save for the exception described above, the Group's financial statements
prepared in accordance with IFRS are consistent with the requirements of AAS.
3. Segmental information
Our management structure is based on principal product groups (PG) together
with global support functions whose leaders make up the Executive Committee.
The Executive Committee members each report directly to our Chief Executive
who is the chief operating decision maker (CODM) and is responsible for
allocating resources and assessing performance of the operating segments. The
CODM's primary measure of profit is underlying EBITDA. Finance costs and net
debt are managed on a Group-wide basis and are therefore excluded from the
segmental results.
Our reportable segments are as follows:
Reportable segment Principal activities
Iron Ore Iron ore mining and salt and gypsum production in Western Australia.
Aluminium Bauxite mining; alumina refining; aluminium smelting.
Copper Mining and refining of copper, gold, silver, molybdenum and other by-products;
exploration activities together with the Simandou iron ore project, which was
the responsibility of the Copper product group chief executive during 2022.
Minerals Includes businesses with products such as borates, titanium dioxide feedstock
together with the Iron Ore Company of Canada (iron ore mining and iron
concentrate/pellet production). Also includes diamond mining, sorting and
marketing.
The Rio Tinto financial information by business unit provided on pages 65 to
Error! Bookmark not defined. provides additional voluntary business unit
disclosure which the Group considers useful to the users of the financial
statements.
3. Segmental information (continued)
2021
2022
Year ended Year ended 31 December Segmental revenue((a)) Underlying EBITDA((b)) Capital expenditure((c)) Segmental revenue((a)) Underlying EBITDA((b)) (Adjusted)
US$m US$m US$m US$m US$m Capital expenditure((c))
US$m
Iron Ore 30,906 18,612 2,940 39,582 27,592 3,947
Aluminium 14,109 3,672 1,377 12,695 4,382 1,300
Copper 6,699 2,376 1,622 7,827 3,969 1,328
Minerals 6,754 2,419 679 6,481 2,603 644
Reportable segments total 58,468 27,079 6,618 66,585 38,546 7,219
Other Operations 192 (16) 53 251 (28) (13)
Inter-segment transactions (256) 24 (268) 42
Share of equity accounted units((d)) (2,850) (3,073)
Central pension costs, share-based payments, insurance and derivatives 377 110
Restructuring, project and one-off costs (173) (80)
Central costs (766) (613)
Central exploration and evaluation expenditures (253) (257)
Proceeds from disposal of property, plant and equipment - 61
Other items 79 117
Consolidated sales revenue/Capital expenditure 55,554 6,750 63,495 7,384
Underlying EBITDA 26,272 37,720
(a) Segmental revenue includes 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). Segmental revenue
measures revenue on a basis that is comparable to our underlying EBITDA
metric.
(b) Underlying EBITDA (calculated on page 47) is reported to provide
greater understanding of the underlying business performance of Rio Tinto's
operations.
(c) Capital expenditure for reportable segments includes the net cash
outflow on purchases less disposals of property, plant and equipment,
capitalised evaluation costs and purchases less disposals 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. In 2022,
we have excluded capitalised expenditure relating to equity accounted units
and have adjusted prior year comparatives for this change in definition.
(d) Consolidated sales revenue includes subsidiary sales of US$50 million
(2021: US$44 million; 2020: US$34 million) to equity accounted units which are
not included in segmental revenue. Segmental revenue includes the Group's
proportionate share of product sales by equity accounted units (after
adjusting for sales to subsidiaries) of US$2,900 million (2021: US$3,117
million; 2020: US$2,441 million) which are not included in consolidated sales
revenue.
(d)
3. Segmental information (continued)
Reconciliation of profit after tax to underlying EBITDA
Underlying EBITDA represents profit before taxation, net finance items,
depreciation and amortisation adjusted to exclude the EBITDA impact of items,
which do not reflect the underlying performance of our reportable segments.
Items excluded from profit after tax are those gains and losses that,
individually or in aggregate with similar items, are of a nature and size to
require exclusion in order to provide additional insight into the underlying
business performance.The following items are excluded from profit after tax in
arriving at underlying EBITDA in each year irrespective of materiality:
- Depreciation and amortisation in subsidiaries and equity
accounted units;
- Taxation and finance items in equity accounted units;
- Taxation and finance items relating to subsidiaries;
- Unrealised gains/(losses) on embedded derivatives not
qualifying for hedge accounting;
- Net gains/(losses) on disposal of interests in
subsidiaries;
- Impairment charges net of reversals;
- The underlying EBITDA of discontinued operations;
- Adjustments to closure provisions where the adjustment is
associated with an impairment charge and for legacy sites where the
disturbance or environmental contamination relates to the pre-acquisition
period.
In addition, there is a final judgmental category which includes, where
applicable, other credits and charges that, individually or in aggregate if of
a similar type, are of a nature or size to require exclusion in order to
provide additional insight into underlying business performance. In 2022 this
category included the gain recognised by Kitimat relating to LNG Canada's
project and the gain recognised upon sale of the Cortez royalty. In 2021 the
category included the changes in closure estimates at Energy Resources of
Australia and Gove Refinery.
Year ended 31 December 2022 2021
US$m US$m
Profit after tax for the year 13,076 22,575
Taxation 5,586 8,258
Profit before taxation 18,662 30,833
Depreciation and amortisation in subsidiaries excluding capitalised 4,871 4,525
depreciation((a))
Depreciation and amortisation in equity accounted units 470 497
Finance items in subsidiaries 1,846 26
Taxation and finance items in equity accounted units 640 759
(Gains)/Losses on embedded commodity derivatives not qualifying for hedge (6) 51
accounting (including foreign exchange)
Impairment charges net of reversals((b)) 52 269
Gain recognised by Kitimat relating to LNG Canada's project((c)) (116) (336)
Change in closure estimates (non-operating and fully impaired sites)((d)) 180 1,096
Loss on disposal of interests in subsidiary((b)) 105 -
Gain on sale of the Cortez Royalty((e)) (432) -
Underlying EBITDA 26,272 37,720
3. Segmental information (continued)
(a) Depreciation and amortisation in subsidiaries for the year ended
31 December 2022 is net of capitalised depreciation of US$139 million
(31 December 2021: US$172 million).
(b) Refer to note 5
(c) During the first half of 2022, LNG Canada elected to terminate their
option to purchase additional land and facilities for expansion of their
operations at Kitimat, Canada. The resulting gain has been excluded from
underlying EBITDA consistent with prior years as it is part of a series of
transactions that together were material. 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 was excluded from underlying EBITDA on the grounds of
individual magnitude and consistency with the associated impairment charge in
2021, refer to Note 5.
(d) In 2022 the charge relates to re-estimates of underlying closure cash
flows for legacy sites where the environmental damage preceded ownership by
Rio Tinto. 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$510 million at 31 December 2021. Other increases to closure
estimates charged to the income statement in 2021 relate to Diavik, Gove
refinery, and a number of the Group's legacy sites where the environmental
damage preceded ownership by Rio Tinto. The adjustments at Energy Resources
Australia and Gove refinery were recognised in the income statement as these
are non-operating sites, and excluded from underlying earnings due to the
magnitude of the individual updates and materiality when aggregated. In 2020
we recognised an increase in the Diavik closure provision based on preliminary
Pre-Feasibility Study findings. On completion of the study in 2021 a true up
was recorded in the income statement and excluded from underlying EBITDA in
line with the treatment of the initial increase in 2020, which was excluded
from underlying EBITDA as Diavik was fully impaired during the year.
(e) On 2 August 2022, we completed the sale of a gross production royalty
which was retained following the disposal of the Cortez Complex in 2008. The
gain recognised on sale of the royalty has been excluded from underlying
EBITDA on the grounds of individual magnitude.
4. Segmental information - additional information
Consolidated sales revenue by destination
Consolidated sales revenue by destination((a)) Year ended 31 December
2022 2021 2022 2021
% % US$m US$m
Adjusted Adjusted
Greater China((b)) 54.3 % 59.7 % 30,172 37,878
United States of America 15.9 % 12.6 % 8,823 8,012
Asia (excluding Greater China and Japan) 7.1 % 6.9 % 3,937 4,415
Japan 7.4 % 7.9 % 4,091 5,012
Europe (excluding UK) 6.5 % 5.2 % 3,618 3,271
Canada 3.1 % 2.6 % 1,743 1,677
Australia 1.9 % 1.8 % 1,047 1,122
UK 0.3 % 0.4 % 182 243
Other countries 3.5 % 2.9 % 1,941 1,865
Consolidated sales revenue 100.0 % 100.0 % 55,554 63,495
(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.
(b) Consolidated sales revenue by destination has been adjusted to classify
Taiwan and China together as 'Greater China'; previously Taiwan was included
in Asia (excluding Greater China and Japan). This change has resulted in a
decrease in 2021 revenue attributable to Asia (excluding Greater China and
Japan) of: 2.5% and US$1,570 million.
Consolidated sales revenue by product
Year ended 31 December 2022 Year ended 31 December 2021
Consolidated sales revenue by product Revenue from Other Consolidated Revenue from contracts Other Consolidated sales revenue
contracts revenue((a)) sales revenue with customers revenue((a)) 2021
with 2022 2022 2021 2021 US$m
customers US$m US$m US$m US$m
2022
US$m
Iron ore 33,068 (267) 32,801 42,992 (796) 42,196
Aluminium, alumina and bauxite 13,955 (165) 13,790 12,336 103 12,439
Copper 3,276 (80) 3,196 3,229 96 3,325
Industrial minerals (comprising titanium dioxide slag, borates and salt) 2,685 (16) 2,669 2,114 3 2,117
Gold 564 9 573 1,075 2 1,077
Diamonds 816 - 816 501 - 501
Other products((b)) 1,710 (1) 1,709 1,837 3 1,840
Consolidated sales revenue 56,074 (520) 55,554 64,084 (589) 63,495
(a) Consolidated sales revenue includes both revenue from contracts with
customers, accounted for under IFRS 15 and subsequent movements in
provisionally priced receivables, accounted for under IFRS 9, and included in
'other revenue' above.
(b) "Other products" includes metallic co-products, molybdenum, silver and
other commodities. Individually the revenue from each of these products is
less than 15% of the total Other products category.
5. Impairment charges net of reversals
Pre-tax Taxation Non-controlling Net Pre-tax
amount 2022 interest amount amount
2022 US$m 2022 2022 2021
US$m US$m US$m US$m
Other operations - Roughrider 150 - - 150 -
Aluminium - Pacific Aluminium (202) - - (202) -
Aluminium - Kitimat - - - - (269)
Total impairment charges net of reversals (52) - - (52) (269)
Allocated as:
Intangible assets 150 -
Property, plant and equipment - (269)
Investment in equity accounted units ("EAUs") (202) -
Total impairment charges net of reversals (52) (269)
Comprising:
Impairment reversal/(charges net of reversals) 150 (269)
Impairment charges related to EAUs (pre-tax) (202) -
Total impairment charges net of reversals in the financial information by (52) (269)
business unit (page 65)
Taxation (including related to EAUs) - 72
Total impairment charges net of reversals in the income statement (52) (197)
2022
Other operations - Roughrider, Canada
On 17 October 2022, we completed the sale of the Roughrider uranium
undeveloped project located in the Athabasca Basin in Saskatchewan, Canada for
US$150 million (US$80 million in cash and US$70 million in shares of Uranium
Energy Corp.). The project was fully impaired during the year ended
31 December 2017 due to significant uncertainty over whether commercially
viable quantities of mineral resources could be identified at a future date.
The sale therefore led to an impairment reversal in the current year. It also
led to a loss on disposal being recognised of US$105 million arising from the
recycling of the currency translation reserve to the income statement.
5. Impairment charges net of reversals (continued)
Aluminium - Pacific Aluminium, Australia and New Zealand
The operating and economic performance of the Boyne Smelter in Queensland,
Australia was below our expectations in 2022. The plant operated with
reduced capacity and the economic performance suffered due to the high cost of
energy from the coal-fired Gladstone Power Station. These conditions have been
identified as an impairment trigger. We have calculated a recoverable amount
for the cash-generating unit based on post-tax cash flows, expressed in real
terms and discounted using a post-tax rate of 6.6% over the period to 2029.
This date was chosen as it coincides with both the remaining term of the Boyne
Smelter joint venture agreements and the Group's Paris-aligned commitment to
reduce carbon emissions by 50% by 2030 relative to the 2018 baseline. Despite
the recent implementation of temporary energy price caps by the Australian
Government, this resulted in an impairment charge of US$202 million,
representing a full impairment of the carrying value of the Boyne Smelter
investment in equity accounted unit. We are committed to the repowering of our
aluminium smelter in Queensland with firmed renewable energy by 2030. For this
reason, along with the coal price cap noted above, we have separated the
Gladstone Power Station from the Boyne Smelter cash-generating unit. As a
sensitivity we have considered the impact of a potential repowering of the
smelter using commodity and energy price assumptions from our Aspirational
Leadership scenario, with all other assumptions being unchanged. This would
result in improved cash flows, including an extension of operations at the
Boyne Smelter beyond current joint venture agreements through to 2040. The
potential value uplift under this sensitivity is not part of our base
valuation as it is dependent upon commercial agreements that are not currently
in place, but could support the reversal of past impairments. Both the
recorded outcome and the sensitivity, as described in "Impact of climate
change on the Group" section in Note 2, are considered to be Paris-aligned.
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 was 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 was expected to extend through into 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.
Using the fair value less cost of disposal methodology and discounting
real-terms post-tax cash flows at 6.6%, we recognised a post-tax impairment
charge of US$197 million (pre-tax US$269 million) representing the difference
between the recoverable amount (US$3,126 million) and the carrying value
(US$3,323 million).
6. Taxation
Prima facie tax reconciliation
Year ended 31 December 2021
2022 US$m
US$m Adjusted((i))
Profit before taxation((a)) 18,662 30,833
Prima facie tax payable at UK rate of 19% (2021: 19%)((b)) 3,546 5,858
Higher rate of taxation of 30% on Australian earnings (2021: 30%) 1,550 2,598
Other tax rates applicable outside the UK and Australia (17) 103
Tax effect of profit from equity accounted units, related impairments and (109) (198)
expenses((a))
Impact of changes in tax rates (11) -
Resource depletion allowances (40) (52)
Recognition of previously unrecognised deferred tax assets((c)) (261) (212)
Write-down of previously recognised deferred tax assets((d)) 820 -
Utilisation of previously unrecognised deferred tax assets((e)) (37) (200)
Unrecognised current year operating losses((f)) 212 107
Adjustments in respect of prior periods((g)) (222) 40
Other items((h)) 155 214
Total taxation charge 5,586 8,258
(a) The Group profit before tax includes profit after tax of equity
accounted units. Consequently, the tax effect on the profit from equity
accounted units is included as a separate reconciling item in this prima facie
tax reconciliation.
(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 corporate tax rate on profit before
tax is approximately 29% (31 December 2021: 29%).
(c) The recognition of previously unrecognised deferred tax assets relates
primarily to Oyu Tolgoi where ongoing progress towards sustainable underground
production in the current and comparative periods reduces the risk of tax
losses that expire if not recovered against taxable profits within eight
years. In the comparative period to 31 December 2021 the recognition of
previously unrecognised deferred tax assets also included the recognition of
prior year deferred tax assets in our Australian Aluminium business.
(d) The write-down of previously recognised deferred tax assets relates to
deferred tax assets of our US businesses. The enactment of the US Inflation
Reduction Act of 2022 in August included a new Corporate Alternative Minimum
Tax (CAMT) regime which applies a minimum tax rate of 15% on accounting
profits. As a result of the new legislation, which does not give relief for
some Federal deferred tax assets, the deferred tax assets previously
recognised have been written down.
(e) In 2021, the utilisation of previously unrecognised deferred tax assets
arose due to higher than forecast profits in the year at Oyu Tolgoi.
6. Taxation (continued)
(f) Unrecognised current year operating losses include tax losses around the
Group for which no tax benefit is currently recognised due to uncertainty
regarding whether suitable taxable profits will be earned in future to obtain
value for the tax losses.
(g) In the year to 31 December 2022, adjustments in respect of prior periods
includes amounts related to the settlement of all tax disputes with the
Australian Tax Office for the years 2010 to 2021.
(h) 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 previously under
discussion with the Australian Tax Office.
(i) The presentation of the prima facie tax reconciliation comparatives
has been revised. We have allocated the tax relating to exclusions
(historically shown separately in the financial statements) to the appropriate
tax line items above. The presentation of the impact of including profit after
tax from equity accounted units within the Group profit before tax has also
been revised as described in note (a) above.
Future tax developments
We continue to monitor the Organisation for Economic Co-operation and
Development's (OECD) Two Pillar Solution to address the Tax Challenges Arising
from the Digitalisation of the Economy. Pillar Two of those proposals seeks to
apply a 15% global minimum tax and is expected to be enacted in 2023 with
application to the Group from 1 January 2024. We note the release in July by
the UK Government of draft legislation to implement a "Multinational Top-up
Tax" on a country-by-country basis in line with Pillar Two.
We are in the process of evaluating the cash tax and accounting implications
of the Pillar Two global minimum tax rules under IAS 12. Recognition of any
impact will only occur once legislation has been substantively enacted.
7. Acquisitions and disposals
Acquisitions
2022
Following approval from Australia's Foreign Investment Review Board (FIRB), on
29 March 2022 we completed the acquisition of Rincon Mining Pty Limited, the
owner of a lithium project in Argentina. Total cash consideration was US$825
million. In determining whether Rincon's set of activities is a business, we
have assessed whether it has inputs and substantive processes which together
significantly contribute to the ability to create outputs. Based on this
assessment, we have concluded that Rincon does not meet the definition of a
business as defined by IFRS 3 "Business Combinations" and therefore no
goodwill has been recorded. The transaction has therefore been treated as an
asset purchase with US$822 million of capitalised exploration and evaluation
recorded for the principal economic resource. The balance of total
consideration has been allocated to property, plant & equipment and other
assets/liabilities. For the Group cash flow statement we determined that,
since Rincon constitutes a group of companies, it is appropriate to present
the cash outflow as "Acquisitions of subsidiaries, joint ventures and
associates" rather than as separate asset purchases even though it did not
meet the definition of a business combination.
7. Acquisitions and disposals (continued)
On 31 August 2022 we made a US$25 million investment in McEwen Copper Inc.
through our copper leaching technology venture, Nuton. We accounted for our
holding in McEwen Copper Inc as an investment in associate, given our
representation on the board.
On 16 December 2022 we acquired the remaining 49% share of Turquoise Hill
Resources for expected consideration of US$3.2 billion, inclusive of
transaction costs. This transaction was not classified as a business
combination as it related to the purchase of non-controlling interests in an
entity already consolidated as a subsidiary. Accordingly the transaction did
not result in the remeasurement of assets or liabilities and has been
accounted for in the statement of equity as an adjustment to non-controlling
interests and retained earnings.
At 31 December 2022 consideration paid amounted to US$2,961 million (including
US$33 million of transaction costs, with further transaction costs of US$41
million expected to be paid in 2023). Certain shareholders exercised their
right to dissent to the transaction. In accordance with the terms of the
circular, those dissenting shareholders have received initial consideration of
C$34.4 per share, with final consideration depending on the outcome and timing
of dissent proceedings. We have included within other provisions (note 9)
US$211 million for additional consideration to be paid to the dissenting
shareholders representing the difference between their initial consideration
and C$43 per share paid to all other shareholders.
2021
On 18 November 2021, we announced that we had completed the acquisition of the
40% share in the Diavik Diamond Mine in the Northwest Territories of Canada
held by Dominion Diamond Mines, becoming the 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, we recognised our 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.
Disposals
As summarised in note 5, we sold our Roughrider uranium undeveloped project on
17 October 2022 for consideration of US$150 million (US$80 million in cash
and US$70 million in shares of Uranium Energy Corp). There were no other
material disposals in 2022 or 2021.
8. Cash and cash equivalents
Closing cash and cash equivalents less overdrafts for the purposes of the cash
flow statement differs from cash and cash equivalents on the Group balance
sheet as per the following reconciliation:
Closing cash and cash equivalents less overdrafts 31 December 31 December
2022
2021
US$m US$m
Balance per Group balance sheet 6,775 12,807
Bank overdrafts repayable on demand (unsecured) (1) (2)
Balance per Group cash flow statement 6,774 12,805
9. Provisions including post-retirement benefits
Post-retirement benefits and other employee entitlements((a)) Close-down, Other provisions Total Total
restoration and environmental((b)) 2022 2021
US$m US$m US$m US$m US$m
Opening Balance 2,492 14,542 1,002 18,036 17,665
Change in accounting policy((c)) - - 17 17 -
Revision to opening balance 2,492 14,542 1,019 18,053 17,665
Adjustment on currency translation (99) (699) (43) (841) (546)
Adjustments to mining properties/right of use assets:
- increases to existing and new provisions - 520 4 524 521
Charged/(credited) to profit:
- increases to existing and new provisions 231 541 365 1,137 2,130
- unused amounts reversed (12) (72) (66) (150) (250)
- exchange losses on provisions - 17 - 17 23
- amortisation of discount((d)) - 1,517 2 1,519 418
Utilised in the period (254) (609) (176) (1,039) (900)
Re-measurement gains recognised in other comprehensive income (701) - - (701) (687)
Transfers and other movements((e)) 1 2 193 196 (338)
Closing balance 1,658 15,759 1,298 18,715 18,036
Balance sheet analysis:
Current 353 1,142 554 2,049 2,106
Non-current 1,305 14,617 744 16,666 15,930
Total 1,658 15,759 1,298 18,715 18,036
(a) The provision for post-retirement benefits and other employee
entitlements includes a provision for long service leave of US$271 million
(31 December 2021: US$272 million), based on the relevant entitlements in
certain Group operations and includes US$32 million (31 December 2021: US$60
million) of provision for redundancy and severance payments.
9. Provisions including post-retirement benefits (continued)
(b) Close-down, restoration and environmental liabilities at 31 December
2022 have not been adjusted for closure-related receivables amounting to
US$351 million (31 December 2021: US$410 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.
(c) The way we calculate the cost of fulfilling a contract when assessing
whether it is onerous has changed with the adoption of the amendments of IAS
37 (refer to note 2). This has led to an increase in the opening provision by
US$17 million.
(d) The present value of close-down, restoration and environmental
liabilities has been uplifted due to the re-measurement of underlying cash
flows for inflation in the year. The amortisation of discount
US$1,517 million (31 December 2021: US$415 million) is used to
systematically uplift cash-flows including a forecast of full year inflation
at the start of each reporting period. At the end of each half-year we
updated the underlying cash-flows for the latest estimate of experienced
inflation for the current financial year and recorded this as "changes to
existing provisions". For operating sites this adjustment usually results in a
corresponding adjustment to Property, Plant and Equipment and for closed and
fully impaired sites the adjustment is charged or credited to the income
statement.
(e) Transfers and other movements includes US$211 million consideration to
be paid to the dissenting shareholders of the Turquoise Hill Resources
transaction. It represents the difference between their initial consideration
of C$34.4 per share and C$43 per share paid to all other shareholders, with
the final amount and timing to be determined by dissent proceedings. As a
transaction with shareholders of a subsidiary in their capacity as owners,
this adjustment has been made through equity.
(e)
10. Financial Instruments
Valuation hierarchy of financial instruments carried at fair value on a
recurring basis
The table below shows the classifications of our financial instruments by
valuation method in accordance with IFRS 13 at 31 December 2022 and
31 December 2021.
All instruments shown as being held at fair value have been classified as fair
value through the profit and loss unless specifically footnoted.
At 31 December 2022 At 31 December 2021
Held at fair value Held at fair value
Total Level 1((a)) Level 2((b)) Level 3((c)) Held at Total Level 1((a)) Level 2((b)) Level 3((c)) Held at
US$m US$m US$m US$m amortised cost US$m US$m US$m US$m amortised costs
US$m US$m
Assets
Cash and cash equivalents((d)) 6,775 2,725 - - 4,050 12,807 4,138 - - 8,669
Investments in equity shares and funds((e)) 222 147 - 75 - 117 64 - 53 -
Other investments, including loans((f)) 2,275 2,018 - 229 28 2,682 2,422 - 238 22
Trade and other financial receivables((g)) 2,765 18 1,306 - 1,441 2,762 1 1,163 - 1,598
Forward, option and embedded derivatives contracts, not designated as 67 - 16 51 - 133 - 48 85 -
hedges((h))
Derivatives related to net debt((i)) 2 - 2 - - 139 - 139 - -
Liabilities
Trade and other financial payables((j)) (6,485) - (30) - (6,455) (6,356) - (67) - (6,289)
Forward, option and embedded derivatives contracts, designated as hedges((h)) (189) - - (189) - (125) - - (125) -
Forward, option and embedded derivatives contracts, not designated as (92) - (57) (35) - (253) - (179) (74) -
hedges((h))
Derivatives related to net debt((i)) (692) - (692) - - (240) - (240) - -
10. Financial Instruments (continued)
(a) Valuation is based on unadjusted quoted prices in active markets for
identical financial instruments.
(b) Valuation is based on inputs that are observable for the financial
instruments, which include quoted prices for similar instruments or identical
instruments in markets which are not considered to be active, or inputs,
either directly or indirectly based on observable market data.
(c) Valuation is based on inputs that cannot be observed using market data
(unobservable inputs). The change in valuation of our level 3 instruments for
the year to 31 December 2022 is below:
31 December 2022 31 December 2021
Level 3 financial assets and liabilities US$m US$m
Opening balance 177 395
Currency translation adjustments (4) (6)
Total realised gains/(losses) included in:
- consolidated sales revenue 16 27
- net operating costs 365 (50)
Total unrealised gains included in:
- net operating costs 124 68
Total unrealised losses transferred into other comprehensive income through (110) (212)
cash flow hedges
Additions to financial assets/(liabilities) 41 (21)
Disposals/maturity of financial instruments (478) (6)
Transfers - (18)
Closing balance 131 177
Net gains included in the income statement for assets and liabilities held at 103 20
year end
(d) Our "cash and cash equivalents" of US$6,775 million (31 December
2021:US$12,807 million), includes US$2,725 million (31 December 2021:US$4,138
million) relating to 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) Investments in equity shares and funds include US$153 million
(31 December 2021: US$98 million) of equity shares, not held for trading,
where we have irrevocably elected to present fair value gains and losses on
revaluation in other comprehensive income (FVOCI). The election is made at an
individual investment level.
(f) Other investments, including loans, covers: cash deposits in
rehabilitation funds, government bonds, managed investment funds and royalty
receivables.
(g) 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 2022, US$1,234
million (31 December 2021: US$1,114 million) of provisionally priced
receivables were recognised.
10. Financial Instruments (continued)
(h) Level 3 derivatives consist of derivatives embedded in electricity
purchase contracts linked to the LME, midwest premium and billet premium with
terms expiring between 2025 and 2036 (31 December 2021: 2025 and 2036).
(i) Net debt derivatives include interest rate swaps and cross-currency
swaps.
(j) Trade and other financial payables comprise trade payables, other
financial payables, accruals and amounts due to equity accounted units.
There were no material transfers between level 1 and level 2, or between level
2 and level 3 in the period ended 31 December 2022 or in the year ended
31 December 2021.
Valuation techniques and inputs
The techniques used to value our more significant fair value
assets/(liabilities) categorised under Level 2 and Level 3 are summarised
below:
Description Fair Value Valuation technique Significant Inputs
US$m
Level 2
Interest rate swaps (356) Discounted cash flows Applicable market quoted swap yield curves
Credit default spread
Cross currency interest rate swaps (334) Discounted cash flows Applicable market quoted swap yield curves
Credit default spread
Market quoted FX rate
Provisionally priced receivables 1,234 Closely related listed product Applicable forward quoted metal price
Level 3
Derivatives embedded in electricity contracts (208) Option pricing model LME forward aluminium price
Midwest premium and billet premium
Royalty receivables 209 Discounted cash flows Forward commodity price
Mine production
Sensitivity analysis in respect of level 3 financial instruments
For assets/(liabilities) classified under level 3, the effect of changing the
significant unobservable inputs on carrying value has been calculated using a
movement that we deem to be reasonably probable.
To value the long-term aluminium embedded power derivatives, we use
unobservable inputs when the term of the derivative extends beyond observable
market prices. 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 for either reported period. The fair
value of these derivatives is a net liability of US$208 million at
31 December 2022 (31 December 2021: US$146 million).
10. Financial Instruments (continued)
Royalty receivables include amounts arising from our divested coal businesses
with a carrying value of US$209 million (31 December 2021: US$136 million).
These are classified as "Other investments, including loans" within "Other
financial assets". The fair values are determined using level 3 unobservable
inputs. These royalty receivables include US$81 million from forecast
production beyond 2030. These have not been adjusted for potential changes in
production rates that could occur due to climate change targets impacting the
operator.
The main unobservable input is the long-term coal price used over the life of
these royalty receivables. A 15% increase in the coal spot price would result
in a US$68 million increase (31 December 2021: US$63 million increase) in the
carrying value. A 15% decrease in the coal spot price would result in a US$18
million decrease (31 December 2021: US$53 million decrease) in the carrying
value. We have used a 15% assumption to calculate our exposure as it
represents the annual coal price movement that we deem to be reasonably
probable (on an annual basis over the long run).
Fair values disclosure of financial instruments
The following table shows the carrying amounts and fair values of our
borrowings including those which are not carried at an amount which
approximates their fair value at 31 December 2022 and 31 December 2021. The
fair values of our remaining financial instruments approximate their carrying
values because of their short maturity, or because they carry floating rates
of interest.
31 December 2022 31 December 2021
Carrying Fair Carrying Fair
value value value value
US$m US$m US$m US$m
Borrowings (including overdrafts) 11,071 11,192 12,168 13,904
Total borrowings with a carrying value of US$6.6 billion (31 December 2021:
US$7.3 billion) relate to listed bonds with a fair value of US$6.6 billion
(31 December 2021: US$8.7 billion) and are categorised as level 1 in the fair
value hierarchy. Borrowings with a carrying value of US$3.8 billion
(31 December 2021: US$4.2 billion) relate to project finance drawn down by
Oyu Tolgoi, with a fair value of US$3.9 billion (31 December 2021: US$4.4
billion) using a number of level 3 valuation inputs. 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.
11. Commitments and contingencies
Contingent liabilities (subsidiaries, joint operations, joint ventures and
associates)
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.
11. Commitments and contingencies (continued)
Contingent liabilities, indemnities and other performance guarantees were
US$498 million at 31 December 2022 (31 December 2021: US$441 million).
There were no material contingent liabilities arising in relation to the
Group's joint ventures and associates. We have 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 our
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 in the
future incur 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.
Contingent liabilities - not quantifiable
The current status of contingent liabilities where it is not practicable to
provide a reliable estimate of possible financial exposure is:
Litigation disputes
Litigation matter Latest update
Timing of the impairment of Rio Tinto Coal Mozambique (US securities and In October 2017, Rio Tinto announced that it had been notified by the U.S.
exchange commission) 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 trial court dismissed the case again
in 2022. The securities holders have appealed further to reinstate their
claims, and the court has requested briefing in 2023. No provision has been
recognised for this case.
2011 Contractual payments in Guinea 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.
11. Commitments and contingencies (continued)
At 31 December 2022, the outcomes of the matters remain uncertain, but they
could ultimately expose the Group to material financial cost. We believe these
cases are unwarranted and will defend the allegations vigorously. A dedicated
Board committee continues to monitor the progress of these matters, as
appropriate.
On 6 March 2022 we reached a settlement with ASIC regarding the disclosure of
the impairment of Rio Tinto Coal Mozambique (RTCM), which was reflected in Rio
Tinto's 2012 year-end accounts. This was previously disclosed as a contingent
liability at 31 December 2021. As part of the court approved settlement, we
paid a A$750,000 penalty for a single contravention of our continuous
disclosure obligations in the period 21 December 2012 to 17 January 2013,
immediately preceding the impairment announcement. As part of this court
approved settlement between ASIC and Rio Tinto, there were no findings of
fraud or any systemic or widespread failure by Rio Tinto. The case against Tom
Albanese and Guy Elliott brought by ASIC has been wholly dismissed.
Other contingent liabilities
We are modernising agreements with Traditional Owner groups in response to the
Juukan Gorge incident. We have created provisions, within "Other
provisions", based on our best estimate of historical claims; however, the
process is incomplete and it is possible that further claims could arise
relating to past events.
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 our 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.
Capital commitments at 31 December 2022
Capital commitments, excluding the Group's share of joint venture capital
commitments, were US$3,354 million (31 December 2021: US$2,551 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 of US$7.5 billion
between 2022 and 2030 unless otherwise contractually committed. On a legally
enforceable basis, capital commitments would be approximately US$1.0 billion
(2021: US$1.1 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$15 million at
31 December 2022 (31 December 2021: US$11 million).
12. Purchase of Turquoise Hill Resources Ltd
On 16 December 2022, we purchased the remaining 49% share of Turquoise Hill
Resources Ltd. The Group now holds a 66% direct interest in Oyu Tolgoi LLC
(OT). Up until December 2022 the Group had a 50.79% interest in Turquoise Hill
Resources Ltd, which held a 66% interest in OT. The Group therefore had a
33.5% indirect interest in OT.
Summarised below is the financial information of Oyu Tolgoi on a 100% basis.
It represents the amounts shown in the subsidiaries' financial statements
prepared in accordance with IFRS under Group accounting policies, including
fair value adjustments, and before intercompany eliminations.
Income statement summary for the year ended 31 December Oyu Tolgoi Oyu Tolgoi
2022 2021
US$m US$m
Revenue 1,424 1,971
(Loss)/profit after tax (224) 465
- attributable to non-controlling interests (159) 285
- attributable to Rio Tinto (65) 180
Total comprehensive (loss)/income (224) 465
Balance sheet summary as at 31 December 2022 2021
US$m US$m
Non-current assets 13,662 12,199
Current assets 753 523
Current liabilities (4,253) (3,172)
Non-current liabilities (10,731) (9,874)
Net assets (569) (324)
- attributable to non-controlling interests (210) (89)
- attributable to Rio Tinto (359) (235)
Cash flow statement summary for the year ended 31 December 2022 2021
US$m US$m
Cash flow from operations 406 851
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 commence the 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. This comprised 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 also
agreed a plan to deliver the funding required until sustainable underground
production is reached.
12. Purchase of Turquoise Hill Resources Ltd (continued)
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 was between Turquoise Hill and Erdenes rather than with Oyu Tolgoi
LLC itself, both the principal and interest were treated as transactions with
owners acting in their capacity as owners. Consequently, at 31 December 2021,
related amounts were 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 were not classified as
loan receivables in the Group Balance Sheet, and there was no interest income
shown in the Group Income Statement. Accumulation of interest on the funding
balances increased the share of retained earnings attributable to Rio Tinto as
it 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 is 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 as a result of this transaction. There was no
exchange of cash or other financial assets between parties and there has been
no change to the underlying free cash flows of the Oyu Tolgoi operations and
development project. The waiver did not have an impact on the Group's
assessment of impairment indicators for either 2021 or 2022, since it related
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 has been recorded in the
Group Statement of Changes in Equity for 2022 by reducing equity attributable
to owners of Rio Tinto and increasing equity attributable to non-controlling
interests.
13. Events after the balance sheet date
On 16 February 2023, we re-financed the US$3.9 billion Oyu Tolgoi project
finance facility with a syndicate of international financial institutions,
export credit agencies and commercial lenders. The lenders have agreed to a
deferral of the principal repayments by three years to June 2026 and to an
extension of the final maturity date by five years from 2030 to 2035. The
terms and conditions are broadly unchanged and lenders continue to benefit
from the Debt Service Undertaking from Turquoise Hill Resources Limited and
the Completion Support Undertaking from Rio Tinto plc.
There were no other significant events after the balance sheet date requiring
disclosure.
Rio Tinto financial information by business unit
Segmental revenue((a)) Underlying EBITDA((a)) Depreciation and amortisation Underlying earnings((a))
Year ended 31 December Rio Tinto 2022 2021 2022 2021 2022 2021 2022 2021
interest US$m US$m US$m US$m US$m US$m US$m US$m
%
Iron Ore
Pilbara (b) 29,313 39,111 18,474 27,837 2,011 2,003 11,075 17,544
Dampier Salt 68.4 352 298 56 39 19 20 19 10
Evaluation projects/other (c) 2,711 2,147 33 (81) - - 53 (79)
Intra-segment (c) (1,470) (1,974) 49 (203) - - 35 (152)
Total Iron Ore Segment 30,906 39,582 18,612 27,592 2,030 2,023 11,182 17,323
Aluminium
Bauxite 2,396 2,203 618 619 361 328 83 174
Alumina 3,215 2,743 289 569 200 165 17 306
Primary Metal 7,561 6,706 2,426 2,592 704 694 1,266 1,454
Pacific Aluminium 3,102 2,947 497 693 135 103 248 426
Intra-segment and other (3,138) (2,718) 12 14 - (1) (8) 192
Integrated operations 13,136 11,881 3,842 4,487 1,400 1,289 1,606 2,552
Other product group items 973 814 25 26 - - 15 17
Product group operations 14,109 12,695 3,867 4,513 1,400 1,289 1,621 2,569
Evaluation projects/other - - (195) (131) - - (149) (101)
Total Aluminium Segment 14,109 12,695 3,672 4,382 1,400 1,289 1,472 2,468
Copper
Kennecott 100.0 1,923 2,528 857 1,142 624 538 (9) 513
Escondida 30.0 2,628 2,935 1,641 2,013 330 348 798 1,003
Oyu Tolgoi and Turquoise Hill (d) 1,424 1,971 449 1,213 194 213 130 325
Product group operations 5,975 7,434 2,947 4,368 1,148 1,099 919 1,841
Simandou iron ore project (e) - - (189) (58) - - (145) (43)
Evaluation projects/other 724 393 (382) (341) 5 4 (253) (219)
Total Copper Segment 6,699 7,827 2,376 3,969 1,153 1,103 521 1,579
Minerals
Iron Ore Company of Canada 58.7 2,818 3,526 1,381 2,026 207 197 475 734
Rio Tinto Iron & Titanium (f) 2,366 1,791 799 470 224 213 369 176
Rio Tinto Borates 100.0 742 592 155 89 54 51 80 32
Diamonds (g) 816 501 330 180 45 12 151 99
Product group operations 6,742 6,410 2,665 2,765 530 473 1,075 1,041
Evaluation projects/other 12 71 (246) (162) 1 1 (226) (153)
Total Minerals Segment 6,754 6,481 2,419 2,603 531 474 849 888
Reportable segments total 58,468 66,585 27,079 38,546 5,114 4,889 14,024 22,258
Other operations (h) 192 251 (16) (28) 272 199 (340) (84)
Inter-segment transactions (256) (268) 24 42 26 19
Central pension costs, share-based payments, insurance and derivatives 377 110 374 133
Restructuring, project and one-off costs (173) (80) (87) (51)
Central costs (766) (613) 94 106 (651) (585)
Central exploration and evaluation (253) (257) (209) (215)
Net interest 138 (95)
Underlying EBITDA/earnings 26,272 37,720 13,275 21,380
Items excluded from underlying EBITDA/earnings 269 (811) (855) (286)
Reconciliation to Group income statement
Share of equity accounted unit sales and intra-subsidiary/equity accounted (2,850) (3,073)
unit sales
Impairment charges net of reversals (52) (269)
Depreciation and amortisation in subsidiaries excluding capitalised (4,871) (4,525)
depreciation
Depreciation and amortisation in equity accounted units (470) (497) (470) (497)
Taxation and finance items in equity accounted units (640) (759)
Finance items (1,846) (26)
Consolidated sales revenue/profit before taxation/depreciation and 55,554 63,495 18,662 30,833 5,010 4,697 12,420 21,094
amortisation/net earnings
Rio Tinto financial information by business unit (continued)
Capital expenditure((i)) Operating assets((j))
for the year as at
ended 31 December
Rio Tinto 2022 Adjusted 31 December 2022 31 December 2021
interest US$m 2021 US$m US$m
% US$m
Iron Ore
Pilbara (b) 2,906 3,928 17,510 16,850
Dampier Salt 68.4 34 19 153 159
Evaluation projects/other (c) - - 835 1,283
Intra-segment (c) - - (220) (255)
Total Iron Ore Segment 2,940 3,947 18,278 18,037
Aluminium
Bauxite 161 155 2,395 2,542
Alumina 356 362 2,372 2,258
Primary Metal 752 690 9,343 9,734
Pacific Aluminium 108 93 155 228
Intra-segment and other - - 629 839
Total Aluminium Segment 1,377 1,300 14,894 15,601
Copper
Kennecott 100.0 563 411 2,006 2,404
Escondida 30.0 - - 2,792 2,515
Oyu Tolgoi and Turquoise Hill (d) 1,056 911 13,477 8,998
Product group operations 1,619 1,322 18,275 13,917
Simandou iron ore project (e) - - (22) 13
Evaluation projects/other 3 6 165 210
Total Copper Segment 1,622 1,328 18,418 14,140
Minerals
Iron Ore Company of Canada 58.7 366 377 1,146 1,077
Rio Tinto Iron & Titanium (f) 217 184 3,348 3,369
Rio Tinto Borates 100.0 34 43 496 487
Diamonds (g) 48 25 (106) (19)
Product group operations 665 629 4,884 4,914
Evaluation projects/other 14 15 874 43
Total Minerals Segment 679 644 5,758 4,957
Reportable segments total 6,618 7,219 57,348 52,735
Other operations (h) 53 (13) (1,883) (1,533)
Inter-segment transactions 12 (12)
Other items 79 117 (1,114) (1,334)
Total 6,750 7,323 54,363 49,856
Add back: Proceeds from disposal of property, plant and equipment - 61
Total purchases of property, plant & equipment and intangibles as per cash 6,750 7,384
flow statement
Add: Net (debt)/cash (4,188) 1,576
Equity attributable to owners of Rio Tinto 50,175 51,432
Notes to financial information by business unit
Business units are classified according to the Group's management structure.
(a) Segmental revenue, Underlying EBITDA and Capital expenditure are defined
and calculated in note 3 from pages 45 to 49. Underlying Earnings is defined
and calculated within the Alternative performance measures section on pages 69
to 78.
(b) 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.
(c) Segmental revenue, Underlying EBITDA, Underlying 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".
(d) Until 16 December 2022, our interest in Oyu Tolgoi was held indirectly
through our 50.8% investment in Turquoise Hill Resources Ltd (TRQ), where
TRQ's principal asset was its 66% investment in Oyu Tolgoi LLC, which owned
the Oyu Tolgoi copper-gold mine. Following the purchase of TRQ we now directly
hold a 66% investment in Oyu Tolgoi LLC.
(e) 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.
(f) Includes our interests in Rio Tinto Iron and Titanium Quebec Operations
(100%), QIT Madagascar Minerals (QMM, 80%) and Richards Bay Minerals
(attributable interest of 74%).
(g) Includes our interests in Argyle (100%) residual operations which
relates to the sale of remaining inventory and Diavik. Until 18 November 2021
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 the Argyle
closure is reported in Other operations effective from 1 January 2021. Refer
to (h).
(h) 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
16 June 2022, Commercial Treasury and related central costs are reported as
part of 'Other operations' instead of 'Other items' in previous periods. We
have not restated prior year balances as the impact was not significant. From
1 January 2021, Uranium moved from Minerals to Other operations and Argyle
closure has been included in Other operations.
Notes to financial information by business unit (continued)
(i) 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 as derived from the Group cash flow
statement. The details provided include 100% of subsidiaries' capital
expenditure and Rio Tinto's share of the capital expenditure of joint
operations but exclude equity accounted units. We have adjusted the
comparatives for this change in definition.
(j) Operating assets of the Group represents equity attributable to Rio
Tinto adjusted for net (debt)/cash. Operating assets of subsidiaries, joint
operations and the Group's share relating to equity accounted units are made
up of net assets adjusted for net (debt)/cash 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).
(j)
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.
Segmental revenue
Segmental revenue includes 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). The reconciliation can be
found in Note 3.
Underlying EBITDA
Underlying EBITDA represents profit before tax, net finance items,
depreciation and amortisation adjusted to exclude the EBITDA impact of items
that do not reflect the underlying performance of our reportable segments.
The reconciliation of profit after tax to underlying EBITDA can be found in
the segmental information note on page 47.
Alternative performance measures (continued)
Underlying EBITDA margin
Underlying EBITDA margin is defined as Group underlying EBITDA divided by the
aggregate of consolidated sales revenue and our share of equity account unit
sales after eliminations.
2021
2022 US$m
US$m
Underlying EBITDA 26,272 37,720
Consolidated sales revenue 55,554 63,495
Share of equity accounted unit sales and inter-subsidiary/equity accounted 2,850 3,073
unit sales eliminations
58,404 66,568
Underlying EBITDA margin 45 % 57 %
Pilbara underlying FOB EBITDA margin
The Pilbara underlying free on board (FOB) EBITDA margin is defined as Pilbara
underlying EBITDA divided by Pilbara segmental revenue, excluding freight
revenue.
2021
2022 US$m
US$m
Pilbara
Underlying EBITDA 18,474 27,837
Pilbara segmental revenue 29,313 39,111
Less: Freight revenue (2,206) (2,707)
Pilbara segmental revenue, excluding freight revenue 27,107 36,404
Pilbara underlying FOB EBITDA margin 68 % 76 %
Underlying EBITDA margin from Aluminium integrated operations
Underlying EBITDA margin from integrated operations is defined as underlying
EBITDA divided by segmental revenue.
2021
2022 US$m
US$m
Aluminium
Underlying EBITDA - integrated operations 3,842 4,487
Segmental revenue - integrated operations 13,136 11,881
Underlying EBITDA margin from integrated operations 29 % 38 %
Alternative performance measures (continued)
Underlying EBITDA margin (product group operations)
Underlying EBITDA margin (product group operations) is defined as underlying
EBITDA divided by segmental revenue.
2021
2022 US$m
US$m
Copper
Underlying EBITDA - product group operations 2,947 4,368
Segmental revenue - product group operations 5,975 7,434
Underlying EBITDA margin - product group operations 49 % 59 %
2021
2022 US$m
US$m
Minerals
Underlying EBITDA - product group operations 2,665 2,765
Segmental revenue - product group operations 6,742 6,410
Underlying EBITDA margin - product group operations 40 % 43 %
Underlying earnings
Underlying earnings represents net earnings attributable to the owners of Rio
Tinto, adjusted to exclude items that 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 year irrespective of materiality:
- Net gains/(losses) on disposal of interests in
subsidiaries.
- 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.
Alternative performance measures (continued)
In addition, there is a final judgmental category which includes, where
applicable, other credits and charges that, individually or in aggregate if of
a similar type, are of a nature or size to require exclusion in order to
provide additional insight into underlying business performance.
Exclusions from underlying earnings relating to equity accounted units are
stated after tax and included in the column "Pre-tax".
Reconciliation of underlying earnings to net earnings
Pre-tax Taxation Non-controlling Net amount Net amount
2022 2022 interests 2022 2021
US$m US$m 2022 US$m US$m
US$m
Underlying earnings 18,613 (4,684) (654) 13,275 21,380
Items excluded from underlying earnings
Impairment charges net of reversals((a)) (52) - - (52) (197)
Loss on disposal of interest in subsidiary((b)) (105) - - (105) -
Foreign exchange and derivative (losses)/gains:
- Foreign exchange gains on external net debt, intragroup balances and 244 (25) (3) 216 726
derivatives((c))
- Losses on currency and interest rate derivatives not qualifying for hedge (435) 60 2 (373) (127)
accounting((d))
- Gains/(losses) on embedded commodity derivatives not qualifying for hedge 29 (8) (1) 20 (53)
accounting((e))
Gain recognised by Kitimat relating to LNG Canada's project((f)) 116 (10) - 106 336
Change in closure estimates (non-operating and fully impaired sites)((g)) (180) 2 - (178) (971)
Gain on sale of the Cortez Royalty((h)) 432 (101) - 331 -
Write-off of Federal deferred tax assets in the United States((i)) - (820) - (820) -
Total excluded from underlying earnings 49 (902) (2) (855) (286)
Net earnings 18,662 (5,586) (656) 12,420 21,094
(a) Refer to Note 5
(b) Relates to the recycling of currency translation reserve on sale of the
Roughrider deposit, refer to Note 5.
(c) Exchange gains on external net debt and intragroup balances included
post-tax foreign exchange losses on net debt of US$262 million offset by
post-tax gains of US$478 million on intragroup balances, primarily as a result
of the Australian dollar weakening against the US dollar. In 2021, exchange
gains on external net debt and intragroup balances included post-tax foreign
exchange gains on intragroup balances of US$913 million partially offset by
post-tax losses of US$187 million on external net debt/cash, primarily as a
result of a weakening Australian dollar against the US dollar during the year.
Alternative performance measures (continued)
(d) 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.
(e) 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.
(f) During the first half of 2022, LNG Canada elected to terminate their
option to purchase additional land and facilities for expansion of their
operations at Kitimat, Canada. The resulted gain has been excluded from
underlying earnings consistent with prior years as it is part of a series of
transactions that together were material. 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 was excluded from underlying earnings on the grounds
of individual magnitude and consistency with the associated impairment charge,
refer to note 5.
(g) In 2022 the charge relates to inflationary increases to the closure
provision for non-operating and fully impaired sites in excess of the unwind
of the discount. 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 related 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 were 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.
(h) On 2 August 2022, we completed the sale of a gross production royalty
which was retained following the disposal of the Cortez Complex in 2008. The
gain recognised on sale of the royalty has been excluded from underlying
earnings on the grounds of individual magnitude.
(i) In 2022 we wrote off US$0.8 billion of our deferred tax assets in the
United States following the introduction of the Corporate Alternative Minimum
Tax legislation, refer to Note 6.
(i)
Alternative performance measures (continued)
Basic underlying earnings per share
Basic underlying earnings per share is calculated as underlying earnings
divided by the weighted average number of shares outstanding during the year.
Year ended 31 December 2021
2022
Net earnings (US$ million) 12,420 21,094
Weighted average number of shares (millions) 1,619.8 1,618.4
Basic earnings per ordinary share (cents) 766.8 1,303.4
Items excluded from underlying earnings per share (cents)((a)) 52.8 17.7
Basic underlying earnings per ordinary share (cents) 819.6 1,321.1
(a) Calculation of items excluded from underlying earnings per share 2021
2022
Income excluded from underlying earnings (refer to page 72) 855 286
Weighted average number of shares (millions) 1,619.8 1,618.4
Items excluded from underlying earnings per share (cents) 52.8 17.7
We have provided basic underlying earnings per share as this allows the
comparability of underlying financial performance adjusted to exclude items,
that do not reflect the underlying performance of the Group's operations.
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) are 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.
Year ended 31 December 2021
2022 US$m
US$m
Profit before taxation 18,662 30,833
Add back
Finance income (179) (64)
Finance costs 335 243
Share of profit after tax of equity accounted units (777) (1,042)
Items excluded from underlying earnings (49) 508
Add: Dividends from equity accounted units 879 1,431
Calculated earnings 18,871 31,909
Finance income 179 64
Finance costs (335) (243)
Add: Amounts capitalised (416) (358)
Total finance income/costs before capitalisation (572) (537)
Interest cover 33 59
Alternative performance measures (continued)
Payout ratio
The payout ratio is used by us to guide the dividend policy we implemented in
2016, under 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.
For year ended 31 December 2021
2022 (cents)
(cents)
Interim dividend declared per share 267.0 376.0
Interim special dividend declared per share - 185.0
Final dividend declared per share 225.0 417.0
Final special dividend declared per share - 62.0
Total dividend declared per share for the year 492.0 1,040.0
Underlying earnings per share 819.6 1,321.1
Payout ratio 60 % 79 %
APMs derived from cash flow statement
Capital expenditure
Capital expenditure includes 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.
Rio Tinto share of capital investment
Rio Tinto's share of capital investment represents the Group's economic
investment in capital projects. It has been newly introduced during the year
to better represent the Group's share of funding for capital projects which
are jointly funded with other shareholders, and which may differ from the
consolidated basis included in the Capital expenditure APM. This better
reflects the Group's approach to capital allocation.
Alternative performance measures (continued)
The measure is based upon the Capital expenditure APM, adjusted to deduct
equity or shareholder loan financing provided to partially owned subsidiaries
by non-controlling interests in respect of major capital projects in the
period. Where funding which would otherwise be provided directly by
shareholders is replaced with project financing, an adjustment is also made to
deduct the share of project financing attributable to the non-controlling
interest.This adjustment is not made in cases where Rio Tinto has unilaterally
guaranteed this project financing. Lastly, funding contributed by the Group to
Equity Accounted Units for its share of investment in their major capital
projects is added to the measure. No adjustment is made to the Capital
expenditure APM where capital expenditure is funded from the operating cash
flows of the subsidiary or Equity Accounted Unit.
In the current and prior years the Capital expenditure APM and Rio Tinto share
of capital investment are identical. However, the capital guidance on page 6
has been provided on this new basis and a reconciliation of the measure will
be published in future periods when the two measures differ.
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.
Year ended 31 December 2021
2022 US$m
US$m
Net cash generated from operating activities 16,134 25,345
Less: Purchase of property, plant and equipment and intangible assets (6,750) (7,384)
Less: Lease principal payments (374) (358)
Add: Sales of property, plant and equipment and intangible assets - 61
Free cash flow 9,010 17,664
Alternative performance measures (continued)
APMs derived from the balance sheet
Consolidated net (debt)/cash
Net (debt)/cash is total borrowings plus lease liabilities less cash and cash
equivalents and other liquid investments, adjusted for derivatives related to
net (debt)/cash.
Net (debt)/cash measures how we are managing our balance sheet and capital
structure.
Financing liabilities Other assets
Year ended 31 December Borrowings Lease liabilities((b)) Net debt related derivatives((c)) Cash and cash equivalents including overdrafts((a)) Other investments((d)) Net (debt)/cash
US$m
excluding overdrafts((a)) US$m US$m US$m US$m
US$m
Analysis of changes in consolidated net (debt)/cash
Opening balance (12,166) (1,363) (101) 12,805 2,401 1,576
Foreign exchange adjustment 118 69 (92) 15 - 110
Cash movements excluding exchange movements 470 374 (3) (6,046) (352) (5,557)
Other non-cash movements 508 (280) (494) - (51) (317)
Closing balance (11,070) (1,200) (690) 6,774 1,998 (4,188)
(a) Borrowings excluding overdrafts, of US$11,070 million (2021:US$12,166
million) differs from Borrowings on the balance sheet as it excludes bank
overdrafts of US$1 million (2021: US$2 million) which has been included in
cash and cash equivalents for the net (debt)/cash reconciliation.
(b) Other non-cash movements in lease liabilities include the net impact of
additions, modifications and terminations during the year.
(c) Included within "Net (debt)/cash-related derivatives" are interest rate
and cross currency interest rate swaps that are in hedge relationships with
the Group's debt.
(d) Other investments includes US$1,998 million (2021: US$2,401 million) of
highly liquid financial assets held in managed investment funds classified as
held for trading.
Alternative performance measures (continued)
Net gearing ratio
Net gearing ratio is defined as net (debt)/cash divided by the sum of net
(debt)/cash and total equity at the end of each year. It demonstrates the
degree to which the Group's operations are funded by debt versus equity.
31 December 2022 31 December 2021
US$m US$m
Net (debt)/cash (4,188) 1,576
Net (debt)/cash (4,188) 1,576
Total equity (52,274) (56,590)
Net (debt)/cash plus total equity (56,462) (55,014)
Net gearing ratio 7% (3%)
Underlying return on capital employed
Underlying return on capital employed ("ROCE") is defined as underlying
earnings excluding net interest divided by average capital employed (operating
assets).
Underlying ROCE measures how efficiently we generate profits from investment
in our portfolio of assets.
2022 2021
US$m US$m
Profit after tax attributable to owners of Rio Tinto (net earnings) 12,420 21,094
Items added back to derive underlying earnings (refer to page 72) 855 286
Underlying earnings 13,275 21,380
Add/(deduct):
Finance income per the income statement (179) (64)
Finance costs per the income statement 335 243
Tax on finance cost (238) (52)
Non-controlling interest share of net finance costs (98) (64)
Net interest cost in equity accounted units (Rio Tinto share) 42 32
Net interest (138) 95
Adjusted underlying earnings 13,137 21,475
Equity attributable to owners of Rio Tinto - beginning of the year 51,432 47,054
Net (cash)/debt - beginning of the year (1,576) 664
Operating assets - beginning of the year 49,856 47,718
Equity attributable to owners of Rio Tinto - end of the year 50,175 51,432
Net debt/(cash) - end of the year 4,188 (1,576)
Operating assets - end of the year 54,363 49,856
Average operating assets 52,110 48,787
Underlying return on capital employed 25 % 44 %
Metal prices and exchange rates
2022 2021 Increase/ (Decrease)
Metal prices - average for the period
Copper - US cents/lb 398 422 (6) %
Aluminium - US$/tonne 2,703 2,480 9 %
Gold - US$/troy oz 1,800 1,799 0 %
Full-year average Year-end
Exchange rates against the US dollar 2022 2021 Increase/ (Decrease) 2022 2021 Increase/ (Decrease)
Pound sterling 1.24 1.38 (10) % 1.21 1.35 (10) %
Australian dollar 0.69 0.75 (8) % 0.68 0.73 (7) %
Canadian dollar 0.77 0.80 (4) % 0.74 0.78 (5) %
Euro 1.05 1.18 (11) % 1.07 1.13 (5) %
South African rand 0.061 0.068 (10) % 0.059 0.063 (6) %
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 Please direct all enquiries to media.enquiries@riotinto.com
Media Relations, UK Media Relations, Australia
Matthew Klar Matt Chambers
M+ 44 7796 630 637 M +61 433 525 739
David Outhwaite Jesse Riseborough
M +44 7787 597 493 M +61 436 653 412
Alyesha Anderson
M +61 434 868 118
Media Relations, Americas Investor Relations, Australia
Simon Letendre Tom Gallop
M +1 514 796 4973
M +61 439 353 948
Malika Cherry
Amar Jambaa
M +1 418 592 7293
M +61 472 865 948
Investor Relations, UK
Menno Sanderse
M: +44 7825 195 178
David Ovington
M +44 7920 010 978
Clare Peever
M +44 7788 967 877
Rio Tinto plc Rio Tinto Limited
6 St James's Square Level 43, 120 Collins Street
London SW1Y 4AD
United Kingdom Melbourne 3000
T +44 20 7781 2000 Australia
Registered in England
No. 719885
T +61 3 9283 3333
Registered in Australia
ABN 96 004 458 404
riotinto.com
This announcement is authorised for release to the market by Rio Tinto's Group
Company Secretary.
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