REG - Rio Tinto - Rio Tinto 2014 preliminary final report <Origin Href="QuoteRef">RIO.L</Origin> - Part 2

Rio TintoAnnouncement

12/02/2015 07:00

- Part 2: For the preceding part double click  ID:nRSL7193Ea 

by $3.8 billion. 
 
Pre-tax cash cost improvements in the Iron Ore group have now delivered $710 million of savings in 2014 and 2013 compared
with the 2012 base. This is reflected in the continued reduction in Pilbara cash unit costs to $19.5 per tonne in 2014,
having been $20.4 per tonne in the first half and $18.7 per tonne in the second half of 2014. Based on a US dollar exchange
rate of 78 Australian cents and current fuel prices of 67 Australian cents per litre (net of fuel tax credits), fourth
quarter 2014 unit cash costs in the Pilbara would have been $17 per tonne. 
 
Gross sales revenues for Pilbara operations of $21,482 million include freight costs of $1,312 million (2013: $927
million). 
 
Net cash generated from operating activities of $10,274 million benefited from a $354 million release of working capital
following the drawdown of around 8 million tonnes of iron ore inventories and delivery of broader working capital
improvement initiatives. 
 
The 38 per cent decline in capital expenditure reflects the completion of the port and rail element of the 290 Mt/a Pilbara
expansion in 2013 and near-completion of the 290 Mt/a mine expansions. 
 
Markets 
 
Record sales of 302.6 million tonnes (Rio Tinto share 239.9 million tonnes) in 2014 were 17 per cent higher than in 2013.
Pilbara sales in 2014 exceeded production by around eight million tonnes largely due to the drawdown of stockpiled iron ore
inventory built at Pilbara mine sites in previous years to facilitate an accelerated ramp-up of the expanded port and rail
facilities to 290 Mt/a. 
 
Approximately 25 per cent of Pilbara sales in 2014 were priced with reference to the prior quarter's average index lagged
by one month. The remainder were priced either on the current quarter average, current month average or on the spot market.
Around 55 per cent of 2014 Pilbara sales were made on a cost and freight (CFR) basis, with the remainder sold free on board
(FOB). Achieved average pricing in 2014 was $84.3 per wet metric tonne on an FOB basis, or $91.6 per dry metric tonne. 
 
Operations 
 
Global production of 295.4 million tonnes (Rio Tinto share 233.6 million tonnes) was an 11 per cent increase year on year.
This new annual record was driven by the early completion of the 290 Mt/a expansion project in the first half and increased
mine production. Almost 90 per cent of the additional 30 million tonnes produced in 2014 has gone directly into the premium
Pilbara Blend, the industry reference for the 62 per cent Fe market. 
 
At Iron Ore Company of Canada (IOC), 2014 pellet production was two per cent higher than in 2013 due to operational
efficiency improvements achieved at the pellet plant. The prioritisation of pellet production during the year partially
accounts for the 11 per cent lower saleable concentrate production in 2014 against 2013, with the remaining reduction
driven by the unusually cold winter experienced in North America in the first quarter and ore quality issues experienced in
the fourth quarter. 
 
New projects and growth options 
 
On 13 May 2014, Rio Tinto announced that its Pilbara iron ore system of mines, rail and ports had reached a run rate of 290
Mt/a, two months ahead of schedule. 
 
Infrastructure for the 360 Mt/a expansion is around 80 per cent complete, with all major rail, marine and wharf works in
place. Completion of this infrastructure remains on track for delivery by the end of the first half of 2015. 
 
As previously announced, approximately 40 Mt/a of brownfield expansions are underway to feed the expanded infrastructure
capacity at an average mine production capital intensity of around $9 per tonne. As a result, production from the Pilbara
is expected to be 330 million tonnes (100 per cent basis) in 2015. 
 
The investment decision on the development of the Silvergrass mine, with a capital cost of approximately $1 billion, is not
required in 2015. 
 
In May 2014, the full incremental capacity of the second phase of the Concentrator Expansion Project at IOC was delivered
with the commissioning of the additional ball mill. 
 
2015 shipping and production guidance 
 
Rio Tinto expects 2015 global shipments to be approaching 350 million tonnes (100 per cent basis) from its operations in
Australia and Canada. Pilbara mines will balance brownfield production with further inventory draw-down throughout the
year. Shipments and production are each subject to weather conditions and other factors. 
 
Aluminium 
 
                                                              2014    2013    Change  
 Production (Rio Tinto share)1                                                        
 Bauxite (000 tonnes)                                         41,871  43,204  -3%     
 Alumina (000 tonnes)                                         7,458   7,037   +6%     
 Aluminium (000 tonnes)                                       3,361   3,383   -1%     
                                                                                      
 Gross sales revenue (US$ millions)                           12,123  12,463  -3%     
 Underlying EBITDA (US$ millions)                             2,930   1,894   +55%    
 Underlying earnings (US$ millions)                           1,248   557     +124%   
 Net cash generated from operating activities (US$ millions)  2,550   1,696   +50%    
 Capital expenditure (US$ millions)                           2,021   2,226   -9%     
 
 
12013 share of production numbers exclude production from asset divestments completed in 2013. 
 
The Gove alumina refinery is on care and maintenance and reported separately from Aluminium within Other Operations. 
 
Performance 
 
The Aluminium group's underlying earnings of $1,248 million increased 124 per cent in 2014, with EBITDA margins improving
to 29 per cent for integrated operations. The main drivers of this strong performance were continued momentum from cost
reduction and productivity improvement initiatives, a further rise in regional market and product premiums and the
beneficial impact of weaker Australian and Canadian currencies. 
 
The Aluminium group's focused efforts on cost savings have now delivered pre-tax cash cost improvements of $806 million in
2014 and 2013 compared with the 2012 base. The combination of improved EBITDA and reduced working capital levels also
delivered strong operating cash flow in 2014, which increased 50 per cent to $2,550 million and generated positive free
cash flow. 
 
In December 2014, Rio Tinto's aluminium group set out a new strategy focused around cash generation from its first quartile
smelters and market-paced growth from its industry-leading bauxite position. While the alumina division remains essential
to provide the group's modern, low-cost smelters with competitive security of supply, the focus in 2015 will be on driving
productivity improvements and lowering costs to maximise value from these assets. Ramping up the Yarwun refinery to its 3.4
million tonnes per annum nameplate capacity during the second half of 2015 will be a critical component of this goal. 
 
Markets 
 
The 2014 cash LME aluminium price averaged $1,867 per tonne, an increase of one per cent on 2013. Regional market premiums
for aluminium reached record levels in the latter part of the year and are expected to remain strong in the near term. With
growing demand and tight physical markets, LME inventories have begun to decline. Much of the remaining inventory continues
to be tied up in financing deals due to higher forward prices and low interest rates. 
 
Value-added products represented 62 per cent of primary metal produced in 2014, generating attractive product premiums.
Overall, the group achieved an average realised aluminium price of $2,395 per tonne in 2014 compared with $2,249 per tonne
in 2013. 
 
Bauxite prices remain strong, underpinned by growing demand and the ongoing Indonesian bauxite export ban. Third party
bauxite sales increased four per cent during 2014 to 23.3 million tonnes (2013: 22.4 million tonnes). 
 
Operations 
 
Bauxite underlying earnings increased by 14 per cent to $429 million in 2014, boosted by a rise in third party sales and
stronger pricing. The Weipa mine in Australia delivered another strong performance, comparable to that achieved in 2013 and
the Sangaredi mine in Guinea achieved record production. Gove shifted to bauxite exports following the curtailment of the
refinery in May 2014. Exports from Gove are currently infrastructure-constrained at around six million tonnes per annum but
are expected to ramp up towards an eight million tonnes per annum run-rate towards the end of 2015, as these constraints
are addressed. As a result, 2014 global bauxite production was marginally lower than 2013. 
 
The alumina division recorded a loss of $209 million, which represented a 21 per cent improvement on 2013, attributable to
volume gains and cost improvements. Alumina production was up by six per cent compared with 2013 reflecting stronger
production across all refineries, in particular Yarwun which continued to ramp up. As a result of productivity
improvements, three of the four refineries achieved production records in 2014. 
 
Primary Metal increased earnings by 215 per cent to $629 million while earnings from the Pacific Aluminium smelters rose by
131 per cent to $291 million. All regions benefited from the record product and market premiums and continued to realise
significant benefits from their cost saving programmes. Aluminium production was broadly in line with 2013, with production
from the new AP60 plant and capacity creep across the smelter portfolio offsetting the closure of Shawinigan in November
2013 and the partial shutdown at Kitimat in preparation for the commissioning of the modernised smelter. Eight smelters,
representing 54 per cent of 2014 production volumes, achieved annual production records. 
 
Further actions were taken in 2014 to streamline the portfolio, with the completion of the sales of the Aluminium group's
interests in the SØRAL smelter in Norway in October and the Alucam smelter in Cameroon in December. 
 
New projects and growth options 
 
The Kitimat Modernisation Project is proceeding in line with revised plan with first production expected towards the end of
the first half of 2015 and full capacity of 420 thousand tonnes expected to be reached in the first half of 2016. 
 
Aligned to the Aluminium group's bauxite growth strategy, the South of Embley project, a 22.8 Mt/a, tier one investment
opportunity in Cape York, Queensland, with mining costs expected to be in the first quartile, continues under evaluation.
Required regulatory permits are in place and the project is in an advanced stage of study. 
 
2015 production guidance 
 
Rio Tinto's share of bauxite, alumina and aluminium production for 2015 is expected to be 43 million tonnes, 8.0 million
tonnes and 3.3 million tonnes, respectively. 
 
Copper 
 
                                                               2014   2013   Change  
 Production (Rio Tinto share)1                                                       
 Mined copper (000 tonnes)                                     603.1  579.4  +4%     
 Refined copper (000 tonnes)                                   294.6  285.2  +3%     
 Mined molybdenum (000 tonnes)                                 11.5   5.7    +100%   
 Mined gold (000 oz)                                           487    288    +69%    
 Refined gold (000 oz)                                         252    192    +31%    
                                                                                     
 Gross sales revenue (US$ millions)                            6,282  5,916  +6%     
 Underlying EBITDA (US$ millions)                              2,336  1,750  +33%    
 Underlying earnings (US$ millions)                            912    821    +11%    
 Net cash generated from operating activities (US$ millions)2  1,701  379    +349%   
 Capital expenditure - excluding EAUs (US$ millions)           1,011  1,866  -46%    
 
 
12013 share of production numbers exclude production from asset divestments completed in 2013. 
 
2Net cash generated from operating activities excludes the operating cash flows from equity accounted units (Escondida) 
 
but includes dividends from equity accounted units. 
 
Performance 
 
The Copper group's underlying earnings of $912 million were 11 per cent higher than 2013 and 25 per cent higher than 2013
when adjusted for movements in prices and exchange rates and the impact of a write-down of the carrying value of an
exploration property in 2013. This strong performance reflected increased gold and molybdenum volumes at Kennecott Utah
Copper (KUC) following the recovery from the pit wall slide in April 2013, the ramp up of Oyu Tolgoi, delivery of further
cash cost savings and lower exploration and evaluation spend. 
 
Pre-tax cash cost improvements in the Copper group have now delivered $923 million of savings in 2014 and 2013 compared
with the 2012 base, with KUC being the major contributor following significant improvements in efficiencies. 
 
Net cash generated from operating activities of $1,701 million was 349 per cent higher than 2013 due to recovery at KUC and
the ramp-up of operations and sales at Oyu Tolgoi. The rate of customer collections at Oyu Tolgoi accelerated in 2014,
sales exceeded production and product inventories returned to normal levels by the end of 2014. 
 
Further good progress was made in 2014 on simplifying the portfolio. In addition to the $1.8 billion of divestments in
2013, the Copper group announced: 
 
·      In April 2014, a gifting of its 19.1 per cent shareholding in Northern Dynasty Minerals Ltd, owner of the Pebble
Project, to two local Alaskan charitable foundations. 
 
·      In July 2014, the completion of the divestment of its interest in the Sulawesi nickel project in Indonesia. 
 
·      In July 2014, that Turquoise Hill Resources Ltd. signed a sale and purchase agreement with National United Resources
Holdings Limited (NUR) for the sale of a 29.95 per cent interest in South Gobi Resources Ltd. This agreement was amended in
December 2014, and following the announcement of a private placement of common shares by South Gobi Resources and issuance
of shares to China Investment Corporation under its convertible debenture agreement, the sale to NUR now represents a 25.65
per cent stake with the closing date extended to 30 April 2015. 
 
·      In August 2014, that it was reviewing all options for its 53.83 per cent stake in Bougainville Copper Limited. 
 
Markets 
 
Average prices in 2014 were generally lower than 2013. Copper declined seven per cent to 310 cents per pound and gold
decreased ten per cent to $1,266 per ounce while molybdenum increased four per cent to $11.7 per pound. 
 
The total impact of price changes on the Copper group, including the effects of provisional pricing movements, resulted in
a decrease in underlying earnings of $244 million compared with 2013. 
 
At 31 December 2014, the Copper group had an estimated 331 million pounds of copper sales that were provisionally priced at
288 cents per pound. The final price of these sales will be determined during the first half of 2015. This compares with
254 million pounds of open shipments at 31 December 2013, provisionally priced at 333 cents per pound. 
 
Operations 
 
Mined copper production for the year was four per cent higher than 2013, driven by the sustained ramp-up at Oyu Tolgoi.
This ramp-up, along with higher grades at both Oyu Tolgoi and KUC, resulted in a 69 per cent increase in mined gold
production over 2013. Refined copper production in 2014 was three per cent higher than in 2013 despite the planned 65-day
smelter shutdown at KUC that started in September 2014 and was completed during the fourth quarter. 
 
At KUC, mined copper production for 2014 was comparable to 2013, despite lower grade and throughput as mine production was
aligned to smelter requirements during its planned shutdown. An acceleration of de-watering activities and further
unloading of the east wall occurred during this period in order to mitigate geotechnical risks. Mined gold for the year was
26 per cent higher than 2013 principally due to higher grades while mined molybdenum was 100 per cent higher than 2013 due
to higher grades and improved recovery rates. 
 
At Escondida, increased mill throughput in 2014 and increased ore stacked for leaching resulted in copper production being
in line with2013, despite lower grades. 
 
At Oyu Tolgoi, Rio Tinto's share of production of copper and gold in concentrates increased to 50 thousand tonnes and 197
thousand ounces, respectively, attributable to higher grades, increased throughput and a full year of production. Customer
collections of concentrate from the Chinese bonded warehouse exceeded production in 2014 and resulted in product
inventories returning to normal levels. 
 
New projects and growth options 
 
Growth opportunities in the portfolio are centred on value-accretive development options at Resolution and La Granja and
the second stage development at Oyu Tolgoi, which requires the resolution of all outstanding shareholder issues, the
finalisation and approval of the feasibility study by all shareholders including the Government of Mongolia, the agreement
of a comprehensive funding plan including project finance and the receipt of all relevant permits before further investment
will be undertaken. 
 
2015 production guidance 
 
Rio Tinto expects its share of mined copper production to be between 500,000 and 535,000 tonnes and refined copper
production to be between 190,000 and 220,000 tonnes. 
 
Energy 
 
                                                              2014    2013    Change  
 Production (Rio Tinto share)                                                         
 Hard coking coal (000 tonnes)                                7,471   8,214   -9%     
 Semi-soft coking coal (000 tonnes)                           3,213   3,859   -17%    
 Thermal coal (000 tonnes)                                    21,886  22,975  -5%     
 Uranium (000 lbs)                                            4,089   8,105   -50%    
                                                                                      
 Gross sales revenue (US$ millions)                           4,308   5,454   -21%    
 Underlying EBITDA (US$ millions)                             251     906     -72%    
 Underlying (loss) / earnings (US$ millions)                  (210)   33      na      
 Net cash generated from operating activities (US$ millions)  355     919     -61%    
 Capital expenditure (US$ millions