REG - Rio Tinto - Rio Tinto 2015 full year results <Origin Href="QuoteRef">RIO.L</Origin> - Part 2
11/02/2016 07:10
- Part 2: For the preceding part double click ID:nRSK7276Oa
242 238
Net assets/(liabilities) of disposal groups held for sale (q) - - - - 182 (48)
Other items 65 (416) 69 82 (1,253) (2,784)
Less: equity accounted units (859) (1,032) (462) (472)
Total 4,588 7,418 4,646 4,860 51,132 58,791
Add back: Proceeds from disposal of property, plant and equipment 97 744
Total capital expenditure per cash flow statement 4,685 8,162
Less: Net debt (13,783) (12,495)
Less: EAU funded balances excluded from net debt - (11)
Equity attributable to owners of Rio Tinto 37,349 46,285
Notes to financial information by business unit
Business units are classified according to the Group's management structure.
Where presentational revisions are made, comparative amounts are adjusted
accordingly.
a) Gross sales revenue includes the sales revenue of equity accounted
units (after adjusting for sales to subsidiaries) in addition to consolidated
sales. Consolidated sales revenue includes subsidiary sales to equity
accounted units which are not included in gross sales revenue.
b) EBITDA of subsidiaries and the Group's share of EBITDA relating to
equity accounted units represents profit before: tax, net finance items,
depreciation and amortisation charged to the income statement in the period.
Underlying EBITDA excludes the same items that are excluded from Underlying
earnings.
c) Represents profit after tax for the period attributable to the owners
of the Rio Tinto Group. Business unit earnings are stated before finance items
but after the amortisation of discount related to provisions. Earnings
attributed to business units do not include amounts that are excluded in
arriving at Underlying earnings.
d) Pilbara represents the Group's 100 per cent holding in Hamersley and
65 per cent holding of Robe River Iron Associates. 30 per cent of Robe River
Iron Associates is held through a 60 per cent owned subsidiary and therefore
the Group's net beneficial interest is 53 per cent.
e) Presented on an integrated operations basis splitting activities
between Bauxite & Alumina, Primary Metal, Pacific Aluminium and Other
integrated operations (which in total reflect the results of the integrated
production of aluminium) and Other product group items which relate to other
commercial activities.
f) Under the terms of a contractual agreement, Rio Tinto is entitled to
40 per cent of material mined as a consequence of expansions and developments
of the Grasberg facilities since 1998.
g) Rio Tinto's interest in Oyu Tolgoi is held indirectly through its
50.8 per cent investment in Turquoise Hill Resources Ltd. (TRQ) which in turn
owns 66 per cent of Oyu Tolgoi LLC, which owns the Oyu Tolgoi copper-gold
mine. As at 31 December 2015 the principal asset of TRQ was its interest in
the Oyu Tolgoi mine. As at 31 December 2014, TRQ's investment in SouthGobi
Resources Ltd. was classified as an asset held for sale. On 23 April 2015,
TRQ completed the block sale of 48.7 million common shares in SouthGobi
Resources and with further divestments has reduced its interest to below 20
per cent. As at 31 December 2015 TRQ's interest in SouthGobi Resources Ltd is
no longer consolidated as a subsidiary and has been classified as an available
for sale investment.
h) In the 2014 Annual report, Copper Evaluation projects / other
included the results of TRQ. As at 31 December 2015 the principal asset of
TRQ was its interest in the Oyu Tolgoi mine and as such has been shown
combined with Oyu Tolgoi. The 2014 and 2013 comparative periods have been
restated to be shown on a consistent basis.
i) Includes Rio Tinto's 80 per cent interest in Coal & Allied, through
which Rio Tinto held its beneficial interests in Bengalla, Mount Thorley and
Warkworth of 32 per cent, 64 per cent and 44.5 per cent respectively. In
February 2016, the restructuring of the Coal and Allied group completed. As a
result Rio Tinto now has a 100 per cent shareholding in Coal & Allied
Industries Limited and its wholly-owned subsidiaries and in Hunter Valley
Resources Pty Ltd. Mitsubishi is now a joint venture participant in the Hunter
Valley Operations Joint Venture.
j) On 7 October 2014, Rio Tinto disposed of its interest in Rio Tinto
Coal Mozambique (RTCM), including its interests in the Benga project, a 65:35
joint venture with Tata Steel Limited. Zululand Anthracite Colliery (ZAC),
which was retained, is reported within Coal Evaluation projects/other. In
February 2016, Rio Tinto signed an agreement to dispose of its interest in
ZAC.
k) Includes Rio Tinto's interests in Argyle (100 per cent) and Diavik
(60 per cent). Murowa (77.8 per cent) was included until its disposal to RZ
Murowa Holdings Limited.
l) Includes Rio Tinto's interests in Rio Tinto Fer et Titane (RTFT)
(100 per cent), QIT Madagascar Minerals (QMM, 80 per cent) and Richards Bay
Minerals (RBM, attributable interest of 74 per cent).
m) Other Operations include Rio Tinto's 100 per cent interest in the Gove
alumina refinery and Rio Tinto Marine.
Notes to financial information by business unit (continued)
n) Capital expenditure comprises 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 per cent of subsidiaries' capital expenditure and Rio Tinto's
share of the capital expenditure of joint operations and equity accounted
units.
o) Operating assets of subsidiaries comprise net assets excluding post
retirement assets and liabilities, net of tax, and are before deducting net
debt. Operating assets are stated after deduction of non-controlling
interests, which 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).
p) In 2015 the Energy product group as presented in previous periods was
split with the coal assets taken to the newly formed Copper and Coal product
group and the uranium assets to the Diamonds and Minerals product group.
q) Assets and liabilities held for sale at 31 December 2015 comprise Rio
Tinto's interests in the Blair Athol coal project, Carbone Savoie, Bengalla,
and Molybdenum Autoclave Process.
Assets and liabilities held for sale as at 31 December 2014 comprised Rio
Tinto's interests in the Blair Athol coal project and SouthGobi Resources
Ltd.
Review of operations
Iron Ore
2015 2014 Change
Production (million tonnes - Rio Tinto share) 263.0 233.6 +13%
Production (million tonnes - 100%) 327.6 295.4 +11%
Shipments (million tonnes - Rio Tinto share) 270.9 239.9 +13%
Shipments (million tonnes - 100%) 336.6 302.6 +11%
Gross sales revenue (US$ millions) 15,305 23,281 -34%
Underlying EBITDA (US$ millions) 7,872 14,244 -45%
Underlying earnings (US$ millions) 3,952 8,107 -51%
Net cash generated from operating activities (US$ millions) 6,061 10,274 -41%
Capital expenditure (US$ millions) 1,726 4,211 -59%
The Simandou iron ore project is reported within Diamonds & Minerals,
reflecting management responsibility.
Performance
The Iron Ore group's underlying earnings of $3,952 million in 2015 were 51 per
cent or $4,155 million lower than 2014. This was driven by the impact of lower
prices, reflected in the fall in the Platts 62 per cent index, which reduced
earnings by $5.5 billion. However, the loss of earnings from lower prices was
partly offset by higher sales volumes together with a weaker Australian
dollar, lower energy costs and the realisation of further significant cost
savings initiatives.
Pre-tax cash cost improvements in the Iron Ore group were $428 million in 2015
and have now delivered $1,138 million of cumulative savings compared with the
2012 base. This is reflected in a reduction in Pilbara cash unit costs to
$14.9 per tonne in 2015, compared with $19.5 per tonne in 2014. Pilbara
operations delivered a free on board (FOB) EBITDA margin of 60 per cent in
2015, compared with 68 per cent in 2014.
Gross sales revenues for Pilbara operations in 2015 of $13,886 million
included freight revenue of
$918 million (2014: $1,312 million).
Net cash generated from operating activities of $6,061 million benefited from
strong shipments from both the Pilbara and the Iron Ore Company of Canada,
combined with lower operating costs through realised cost savings initiatives
and improved productivity.
The 59 per cent decline in capital expenditure during 2015 reflects the
completion of the Pilbara infrastructure expansion.
Markets
Sales of 336.6 million tonnes (Rio Tinto share 270.9 million tonnes) in 2015
were 11 per cent higher than in 2014. Pilbara sales in 2015 exceeded
production by around 9 million tonnes primarily due to the drawdown of
stockpiled iron ore inventory built up at the mines during the infrastructure
expansion phase. Bulk inventories are now largely exhausted.
Approximately 22 per cent of sales in 2015 were priced with reference to the
prior quarter's average index lagged by one month. The remainder was sold
either on current quarter average, current month average or on the spot
market. Approximately 59 per cent of 2015 sales were made on a cost and
freight (CFR) basis, with the remainder sold FOB.
Achieved average pricing in 2015 was $48.4 per wet metric tonne on an FOB
basis (2014: $84.3 per wet metric tonne). This equates to $52.6 per dry metric
tonne (2014: $91.6 per dry metric tonne), assuming an average eight per cent
moisture content, which compares with the average Platts price of $50.4 per
dry metric tonne for 62 per cent iron Pilbara fines during the year.
Operations
Global production of 327.6 million tonnes (Rio Tinto share 263.0 million
tonnes) was 11 per cent higher than 2014 following completion of the
brownfields developments and expanded infrastructure in the Pilbara towards
the end of the first half of 2015, as well as a significant positive shift in
operational performance at the Iron Ore Company of Canada due to a number of
productivity improvements.
New projects and growth options
Following completion of the Pilbara infrastructure and brownfields expansions
in the first half of 2015, the focus has shifted to the Nammuldi Incremental
Tonnes (NIT) project which delivers high grade, low phosphorous ore to the
Pilbara Blend. The initial phase, with a five million tonne per annum
capacity, started production in the fourth quarter of 2015. Construction has
commenced on the second phase, which will take annual capacity from the NIT
project up from five to ten million tonnes and is due to come into production
in the fourth quarter of 2016.
Testing and verification of AutoHaul is continuing, with over 70,000
kilometres of mainline trials completed by the end of 2015.
2016 shipments guidance
Rio Tinto's expected global shipments are around 350 million tonnes (100 per
cent basis) from its operations in Australia and Canada, subject to weather
conditions.
Aluminium
2015 2014 Change
Production (Rio Tinto share)
Bauxite (000 tonnes) 43,677 41,871 +4%
Alumina (000 tonnes) 7,788 7,458 +4%
Aluminium (000 tonnes) 3,322 3,279 +1%
Gross sales revenue (US$ millions) 10,117 12,123 -17%
Underlying EBITDA (US$ millions) 2,742 2,930 -6%
Underlying earnings (US$ millions) 1,118 1,248 -10%
Net cash generated from operating activities (US$ millions) 2,413 2,550 -5%
Capital expenditure - excluding EAUs (US$ millions) 1,601 1,940 -17%
The Gove alumina refinery is curtailed and reported separately from Aluminium
within Other Operations.
Performance
The Aluminium group's underlying earnings of $1,118 million decreased ten per
cent compared with 2014, primarily attributable to a decline in prices which
lowered earnings by $958 million year-on-year and was also the main driver of
the 17 per cent drop in revenues. The impact of lower prices was partly offset
by portfolio optimisation, further cost reduction efforts and productivity
improvement initiatives. These actions helped to limit the decline in
underlying EBITDA to six per cent at $2,742 million and strengthened
integrated operations EBITDA margins in 2015 to 31 per cent, compared with 29
per cent in 2014.
Pre-tax cash cost improvements in the Aluminium group were $326 million in
2015 and the group has now delivered $1,132 million of cumulative savings
compared with the 2012 base. This strong performance, combined with reduced
working capital levels, helped the group to deliver close to
$2,413 million of operating cash flow and more than $800 million of free cash
flow in 2015. Capital expenditure decreased by 17 per cent following the
completion of the Kitimat smelter expansion, with first production achieved in
June 2015.
Markets
The 2015 cash LME aluminium price averaged $1,661 per tonne, a decrease of 11
per cent on 2014. Market premia in all regions fell rapidly from their record
highs in early 2015. Specifically, in the US, the Mid-West market premium
reached $535 per tonne in the first quarter of 2015, ahead of a dramatic move
downward during the second quarter, to end the year at $184 per tonne.
Overall, the group achieved an average realised aluminium price of $2,058 per
tonne in 2015 compared with $2,395 per tonne in 2014. This includes premia for
value-added products (VAP), which represented 58 per cent of primary metal
produced in 2015 and generated attractive product premia averaging
$251 per tonne of VAP sold in 2015 on top of physical market premia.
Bauxite prices were stable in 2015, underpinned by growing import demand in
China. Rio Tinto's share of third party bauxite sales increased by 14 per cent
in 2015 to 26.6 million tonnes (2014: 23.3 million tonnes).
Operations
Bauxite underlying earnings increased by 26 per cent to $542 million in 2015,
with continued strong FOB EBITDA margins in excess of 50 per cent, driven by
the increase in third party sales and sustained pricing. Bauxite production
was four per cent higher than 2014 and set a new record, primarily driven by a
strong performance at Weipa and steady ramp-up at Gove, which has now reached
production and export capacity of 8 million tonnes per annum of dry bauxite.
Gross sales revenues for bauxite in 2015 increased five per cent to $2,057
million and included freight revenues of $205 million (2014: $256 million).
The alumina division recorded a loss of $187 million, compared with a loss of
$209 million in 2014, with assistance from productivity gains and cost
reduction initiatives. Alumina production for 2015 increased four per cent
compared with 2014 (excluding production from the Gove refinery, which was
curtailed in May 2014, and whose results are included within Other
operations), reflecting continued consistent performance across Rio Tinto's
refineries.
Primary Metal (Canada, Europe, Middle East) earnings declined by 29 per cent
to $446 million, while earnings from the Pacific Aluminium (Australia, New
Zealand) smelters decreased by 49 per cent to
$147 million, driven by the negative movements in prices. All operations
continued to realise significant cost savings and benefited from favourable
currency movements. Aluminium production was in line with 2014. Record annual
production at nine smelters offset lower production from Kitimat as the
modernised and expanded smelter was commissioned.
New projects and growth options
The expanded Kitimat smelter commenced production in June 2015. Its ramp-up
towards nameplate capacity of 420 thousand tonnes, which represents a 48 per
cent increase over previous nameplate capacity, is well underway and is
expected to be achieved in early 2016. Once Kitimat is at full production, it
will sit comfortably in the first decile of the industry cost curve.
On 27 November 2015, the Group approved the $1.9 billion Amrun (South of
Embley) bauxite mine and associated processing and port facilities on the Cape
York Peninsula in north Queensland. The planned initial annual output of 22.8
million tonnes a year1 is expected to replace production from the depleting
East Weipa mine and increase annual bauxite exports from Cape York by around
10 million tonnes. Production and shipping are expected to commence in the
first half of 2019.
2016 production guidance
Rio Tinto's expected share of production of bauxite, alumina and aluminium is
45 million tonnes,
7.8 million tonnes and 3.6 million tonnes, respectively.
1This production target was disclosed in a release to the market on 27
November 2015. All material assumptions underpinning that target continue to
apply and have not materially changed.
Copper & Coal
2015 2014 Change
Production (Rio Tinto share)
Mined copper (000 tonnes) 504.4 603.1 -16%
Refined copper (000 tonnes) 213.0 294.6 -28%
Hard coking coal (000 tonnes) 7,859 7,054 +11%
Semi-soft coking coal (000 tonnes) 3,647 3,213 +14%
Thermal coal (000 tonnes) 18,638 19,080 -2%
Gross sales revenue (US$ millions) 7,705 9,957 -23%
Underlying EBITDA (US$ millions) 1,968 2,682 -27%
Underlying earnings (US$ millions) 274 831 -67%
Net cash generated from operating activities (US$ millions)1 1,775 2,064 -14%
Capital expenditure - excluding EAUs (US$ millions) 786 1,177 -33%
1Net cash generated from operating activities excludes the operating cash
flows from equity accounted units (mainly Escondida)
but includes dividends from equity accounted units.
Performance
The Copper & Coal group's underlying earnings of $274 million, 67 per cent
lower than 2014, were heavily impacted by lower prices. These were partly
offset by the delivery of further cash cost savings at Oyu Tolgoi and Rio
Tinto Coal Australia and increased sales volumes from Oyu Tolgoi. Volumes were
lower at Rio Tinto Kennecott, where efforts remained focused on de-weighting
and de-watering the east wall of Bingham Canyon.
Pre-tax cash cost improvements in the Copper & Coal group were $214 million in
2015, bringing total pre-tax cash cost savings delivered since 2012 to $1,934
million.
Despite the challenging market environment, all Copper & Coal operations were
free cash flow positive during the year, contributing $1 billion to the Group,
around $0.1 billion higher than 2014. Capital expenditure was $0.4 billion
lower, compensating for the $0.3 billion lower net cash generated from
operating activities, where the impact of lower prices was partly offset by
further cash cost saving initiatives and a significant reduction in trade
working capital.
Markets
Average prices in 2015 were lower than 2014. Copper declined 20 per cent to
249 cents per pound and gold decreased eight per cent to $1,160 per ounce.
Thermal and coking coal prices also declined further in 2015, averaging $62
and $102 per tonne, respectively.
The total impact of price changes on the Copper & Coal group, including the
effects of provisional pricing movements, resulted in a decrease in underlying
earnings of $934 million compared with 2014.
At 31 December 2015, the Group had an estimated 252 million pounds of copper
sales that were provisionally priced at 217 cents per pound. The final price
of these sales will be determined during the first half of 2016. This compares
with 331 million pounds of open shipments at 31 December 2014, provisionally
priced at 288 cents per pound.
Operations - Copper
Mined copper production was 16 per cent lower than 2014, as a result of
reduced output at Kennecott from de-weighting and de-watering activities,
partly offset by an increase in production at Oyu Tolgoi.
Kennecott cash flows remained positive in 2015 despite the continuation of
remediation activities. This result was supported by the tolling of third
party concentrate, with 414 thousand tonnes received for processing in 2015
(excluded from reported production figures), and the drawdown of inventory,
along with further insurance proceeds received following the Manefay event in
2013.
Mined copper production at Escondida in 2015 was comparable to 2014, as higher
throughput and recoveries from leaching offset lower grades.
At Oyu Tolgoi, mined copper production for 2015 was 36 per cent higher than
2014, attributable to higher grades and throughput, with the mine operating at
record levels. These additional volumes, along with cash cost reductions,
improved cost efficiencies and a reduction in trade working capital, resulted
in Oyu Tolgoi contributing over half a billion dollars of free cash flow
during the year.
Operations - Coal
Hard coking coal production was 11 per cent higher than 2014 following
improved production rates at Kestrel. Semi-soft coking coal production was 14
per cent higher than 2014 reflecting mine production sequencing at Hunter
Valley Operations. Thermal coal production was broadly in line with 2014.
Despite lower prices, the Coal operations' contribution to free cash flow in
2015 was higher than in 2014, with further cost savings delivered and
monetisation of working capital. All operations were free cash flow positive
in 2015.
On 30 September 2015, Rio Tinto reached a binding agreement for the sale of
its interest in the Bengalla Joint Venture to New Hope Corporation Limited for
$606 million. The sale is expected to close in the first quarter of 2016.
On 27 January 2016, Rio Tinto announced that it had reached a binding
agreement for the sale of its Mount Pleasant thermal coal assets to MACH
Energy Australia Pty Ltd for $224 million plus royalties. The sale is subject
to certain conditions precedent being met and is expected to close in the
second quarter of 2016.
New projects and growth options
On 18 May 2015, the Government of Mongolia, Turquoise Hill Resources and Rio
Tinto signed the Underground Mine Development and Financing Plan, which
addressed outstanding shareholder matters and provided a pathway to restart
underground development at Oyu Tolgoi.
On 14 December 2015, the development of the Oyu Tolgoi underground mine took
an important step forward with the signing of a US$4.4 billion project
financing agreement. Next steps include securing all necessary permits for
development of the underground mine, and consideration of approval of the
project by the various boards.
At Escondida, the new 152 thousand tonne per day Organic Growth Project 1
(OGP1) concentrator achieved mechanical completion in the first half of 2015.
The ramp-up of OGP1 progresses ahead of plan and is expected to reach full
capacity during 2016.
2016 production guidance
In 2016, Rio Tinto expects its share of mined copper production to increase to
between 575 and 625 thousand tonnes, with higher production at Kennecott, and
including an expected share of joint venture production at Grasberg. Refined
copper production is expected to be between 220 and 250 thousand tonnes.
For coal, Rio Tinto's share of production is expected to be 7 to 8 million
tonnes of hard coking coal,
3.3 to 3.9 million tonnes of semi-soft coking coal and 16 to 17 million tonnes
of thermal coal. Thermal coal guidance includes a contribution from Bengalla
up to the expected date of divestment during the first quarter of 2016.
Diamonds & Minerals
2015 2014 Change
Production (Rio Tinto share)
Titanium dioxide (000 tonnes) 1,089 1,443 -25%
Borates (000 tonnes) 476 508 -6%
Diamonds (000 carats) 17,392 13,872 +25%
Salt (000 tonnes) 5,539 6,793 -18%
Uranium (000 lbs) 4,907 4,089 +20%
Gross sales revenue (US$ millions) 3,674 4,783 -23%
Underlying EBITDA (US$ millions) 833 1,045 -20%
Underlying earnings (US$ millions) 189 269 -30%
Underlying earnings pre-Simandou (US$ millions) 230 324 -29%
Net cash generated from operating activities (US$ millions) 1,010 1,184 -15%
Capital expenditure (US$ millions) 446 562 -21%
The Simandou iron ore project is reported within Diamonds & Minerals,
reflecting management responsibility.
Performance
The Diamonds & Minerals group's underlying earnings of $189 million were 30
per cent lower than 2014, primarily driven by lower prices and a reduction in
sales volumes. Weaker exchange rates boosted earnings by $266 million, which
offset lower pricing across most products. Sales volumes were driven lower by
softer markets, most notably in titanium dioxide feedstocks. The Group aligned
production accordingly with market demand. This in turn impacted cash cost
savings, which are calculated on a unit cash cost of production. In absolute
terms, 2015 cash operating costs were $832 million lower than 2014 following
further cost reduction initiatives during the year. The year-on-year cash
operating cost variance included a $342 million benefit from exchange rate
movements.
Net cash generated from operating activities of $1,010 million was 15 per cent
lower than 2014 due to lower prices and sales volumes, partly mitigated by
further reductions in working capital.
Capital expenditure declined by $116 million, or 21 per cent, to $446 million,
following the completion of the modified direct dissolving of kernite (MDDK)
process plant at Boron in 2014 and lower expenditure on the Argyle underground
project, together with continued capital discipline across the product group.
Markets
Titanium dioxide feedstock demand remained weak throughout 2015 and prices
remained under pressure as the industry continued to absorb inventories. The
market for zircon remained stable.
Demand for borates has been stable globally, with increased demand in Asia
offset by reduced demand in Europe.
Industry rough diamond prices were weaker, driven by lower demand from India
and China, higher rough and polished diamond inventory, and lower trade
manufacturing margins.
The uranium market continues to suffer from high inventory levels throughout
the supply chain, keeping uranium prices under pressure during the year.
Operations
Titanium dioxide slag production was 25 per cent lower in 2015 as Rio Tinto
Iron & Titanium continues to optimise production in light of weaker demand.
Two of nine furnaces at Rio Tinto Fer et Titane and one of four furnaces at
Richards Bay Minerals (RBM) are currently idled, reflecting lower demand for
high grade feedstocks.
Borates production in 2015 was six per cent lower than in 2014, driven
primarily by lower market demand.
Diamonds production increased 25 per cent year-on-year, with higher volumes at
Argyle from the continued ramp-up of production from the underground mine
offsetting lower carats recovered at Diavik, attributable to processing plant
pauses in the fourth quarter and the absence of stockpiled ore which was
processed in the first half of 2014.
In June 2015, Rio Tinto completed the sale of its interest in the Murowa
diamond mine in Zimbabwe.
Salt production in 2015 was 18 per cent lower than in 2014 as a result of
weaker demand.
Uranium production was 20 per cent higher than 2014, with lower grades and
recoveries at Rössing more than offset by a full year of production at ERA in
2015 compared with a complete shutdown of processing facilities in the first
half of 2014 following the failure of a leach tank in December 2013.
New projects and growth options
Work continues on the feasibility study for the Zulti South development at
RBM, which is expected to maintain the low cost RBM smelter capacity once
completed.
The Jadar project in Serbia is a potentially world-class lithium-borate
deposit discovered by Rio Tinto in 2004. Findings so far are encouraging and
pre-feasibility assessments are ongoing to confirm the economic business
case.
On 11 June 2015, Rio Tinto announced that it supported ERA's decision not to
progress any further study or development of Ranger 3 Deeps, due to the
project's economic challenges and, as indicated at the time of the
announcement, has recognised a non-cash impairment of $262 million (net of
non-controlling interests and tax) relating to its shareholding in ERA.
In late 2015, Rio Tinto completed an Order of Magnitude study on the
Roughrider uranium project in Canada. This led to the Group recognising a
post-tax impairment charge of $199 million relating to goodwill and
exploration and evaluation intangible assets.
The development of the A21 kimberlite pipe at Diavik is advancing as planned
and will provide an important source of incremental production to maintain
current volume levels up to the end of mine life. A21 is estimated to cost
US$350 million (Rio Tinto share US$210 million), with first production
expected in 2018.
On 26 May 2014, Rio Tinto and its Simandou project partners signed an
Investment Framework with the Government of Guinea which provided the legal
and commercial foundation for the project and formally separated the
infrastructure and mine development plan. The Simandou project partners are
currently finalising an integrated Bankable Feasibility Study (BFS) for the
mine, port and infrastructure elements of the project, which is scheduled to
be submitted to the Government of Guinea in May 2016. Given the uncertainties
associated with funding the infrastructure, coupled with the volatility of the
current and near-term outlook for commodity prices, the Group has undertaken a
review of the carrying value of the asset and determined a non-cash impairment
charge of $1,118 million (net of non-controlling interests and tax). Rio Tinto
is finalising the integrated BFS and will maintain a dialogue with potential
infrastructure investors, in order to preserve the potential of this world
class ore body.
2016 production guidance
Rio Tinto's expected share of titanium dioxide slag, boric oxide equivalent
production, uranium and diamond production in 2016 is one million tonnes, 0.5
million tonnes, five to six million pounds and
21 million carats, respectively.
Other Operations
2015 2014
Production (Rio Tinto share)
Alumina (000 tonnes) - Gove refinery - 676
Gross sales revenue (US$ millions) 13 241
Underlying EBITDA (US$ millions) (81) (287)
Underlying loss (US$ millions) (88) (240)
Capital expenditure (US$ millions) (36) (56)
The Gove alumina refinery is reported in Other Operations. The curtailment of
production was completed on 28 May 2014.
Central exploration
2015 2014
US$ millions
Central exploration (post-tax) (147) (151)
Divestments gain/(loss) 6 (5)
Post-tax charge (141) (156)
Central exploration expenditure in 2015 (post divestments and tax) resulted in
a charge to underlying earnings of $141 million which was ten per cent lower
than in 2014, principally driven by divestment inflows.
Price & exchange rate sensitivities
The following sensitivities give the estimated effect on underlying earnings
assuming that each individual price or exchange rate moved in isolation. The
relationship between currencies and commodity prices is a complex one and
movements in exchange rates can affect movements in commodity prices and vice
versa. The exchange rate sensitivities quoted below include the effect on
operating costs of movements in exchange rates but exclude the effect of the
revaluation of foreign currency working capital. They should therefore be used
with care.
Average published price/exchange rate for 2015 $ million impact on full year 2015 underlying earningsof a 10% change in prices/exchange rates
Aluminium $1,661/t 416
Copper 249c/lb 213
Gold $1,160/oz 39
Iron ore (62% Fe FOB) $50/dmt 843
Coking coal (benchmark) $102/t 60
Thermal coal (average spot) $62/t 114
Australian dollar against the US dollar 0.75 651
Canadian dollar against the US dollar 0.78 211
Oil $52/bbl 65
Capital projects
Rio Tinto has a programme of high-quality projects delivering industry-leading
returns across a broad range of commodities. The Group is taking further
pre-emptive action to protect shareholder value given market uncertainty. The
current status of all capital projects is under review with timing and total
expenditure expected to be revised.
In production
Iron ore - expansion of the Pilbara port, rail and power supply capacity to 360Mt/a. Rio Tinto's share of total approved capex is $3.5 bn. $5.9bn $0.4bn The phase two expansion to 360Mt/a includes investment in the port, rail and power supply and an investment in autonomous trains.
Iron ore - investment to extend the life of the Yandicoogina mine in the Pilbara to 2021 and expand its nameplate capacity from 52 Mt/a to 56 Mt/a. $1.7bn - Approved in June 2012, first production from the wet plant took place in March 2015 and from the dry plant in April 2015. The project was completed in July 2015. The wet processing plant is expected to maintain product specification levels.
Aluminium - expansion and modernisation of Kitimat smelter in British Columbia, Canada, to increase annual capacity from 280kt to 420kt. $4.8bn $0.1bn First production took place at the end of the first half of 2015 with full capacity expected to be reached in early 2016.
Copper - development of Organic Growth Project 1 (OGP1) a new 152kt per day capacity concentrator at Escondida (Rio Tinto 30%), Chile. $1.3bn(RT share) <$0.1bn(RT share) Approved in February 2012, OGP1 achieved mechanical completion in the second quarter of 2015. The ramp-up is progressing ahead of plan and is expected to reach full capacity during 2016. The remaining spend is related to commissioning.
Ongoing and approved
Copper
Construction of a desalination facility to ensure continued water supply and sustain operations at Escondida (Rio Tinto 30%), Chile. $1.0bn(RT share) $0.3bn(RTshare) Approved in July 2013, the project is designed to provide a long-term sustainable supply of water for the operations. It remains on schedule and on budget and is 76 per cent complete, with commissioning scheduled in 2017.
Grasberg project funding for 2012 to 2016 $0.9bn(RT share) $0.2bn(RTshare) Investment to continue the pre-production construction of the Grasberg Block Cave, the Deep Mill Level Zone underground mines, and the associated common infrastructure. Rio Tinto's final share of capital expenditure will be influenced in part by its share of production over the 2012 to 2016 period.
Remediation of the east wall at Rio Tinto Kennecott, US $0.3bn $0.2bn Following the pit wall slide in 2013, mine operations have focused on remediation from the slide and the east wall of Bingham Canyon, including significant de-weighting and de-watering activities. These activities will continue in 2016.
Investment to extend mine life at Rio Tinto Kennecott, US beyond 2019. $0.6bn $0.6bn Funding for the continuation of open pit mining via the push back of the south wall has been approved and will largely consist of simple mine stripping activities.
Diamonds & Minerals
Development of A21 pipe at the Diavik Diamond Mine in Canada (Rio Tinto 60%). Rio Tinto's share of capex is $210m. $0.35bn $0.28bn Approved in November 2014, the development of the A21 pipe is expected to ensure the continuation of existing production levels. First carats are planned for late 2018.
Aluminium
Investment in the Amrun bauxite mine on the Cape York Peninsula in north Queensland with a planned initial output of 22.8 million tonnes a year1. $1.9bn $1.9bn Approved in December 2015, output includes an expected 10 million tonne increase in annual exports with production commencing in the first half of 2019.
Aluminium
Investment in the Amrun bauxite mine on the Cape York Peninsula in north
Queensland with a planned initial output of 22.8 million tonnes a year1.
$1.9bn
$1.9bn
Approved in December 2015, output includes an expected 10 million tonne
increase in annual exports with production commencing in the first half of
2019.
1 Refer to the statements related to this production target on page 18.
About Rio Tinto
Rio Tinto is a leading international mining group headquartered in the UK,
combining Rio Tinto plc, a London and New York Stock Exchange listed company,
and Rio Tinto Limited, which is listed on the Australian Securities Exchange.
Rio Tinto's business is finding, mining, and processing mineral resources.
Major products are aluminium, copper, diamonds, gold, industrial minerals
(borates, titanium dioxide and salt), iron ore, thermal and metallurgical coal
and uranium. Activities span the world and are strongly represented in
Australia and North America, with significant businesses in Asia, Europe,
Africa and South America.
Forward-looking statements
This announcement 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 announcement, 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 are levels of actual production during any period,
levels of demand and market prices, the ability to produce and transport
products profitably, the impact of foreign currency exchange rates on market
prices and operating costs, operational problems, political uncertainty and
economic conditions in relevant areas of the world, the actions of
competitors, activities by governmental authorities such as changes in
taxation or regulation and such other risk factors 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 announcement. Rio Tinto expressly disclaims any
obligation or undertaking (except as required by applicable law, the UK
Listing Rules, the Disclosure 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 announcement should be interpreted to mean that future
earnings per share of Rio Tinto plc or Rio Tinto Limited will necessarily
match or exceed its historical published earnings per share.
Contacts
media.enquiries@riotinto.com
www.riotinto.com
Follow @riotinto on Twitter
Media Relations, EMEA/AmericasIlltud HarriT +44 20 7781 1152M +44 7920 503 600 David OuthwaiteT +44 20 7781 1623M +44 7787 597 493 David Luff Media Relations, Australia/AsiaBen MitchellT +61 3 9283 3620M +61 419 850 212 Bruce TobinT +61 3 9283 3612M +61 419 103 454 Matt KlarT + 61 7 3625 4244
T + 44 20 7781 1177 M + 61 457 525 578 Investor Relations, Australia/AsiaNatalie WorleyT +61 3 9283 3063M +61 409 210 462 Rachel StorrsT +61 3 9283 3628M +61 417 401 018
M + 44 7780 226 422 Investor Relations, EMEA/AmericasJohn SmeltT +44 20 7781 1654M +44 7879 642 675 David OvingtonT +44 20 7781 2051M +44 7920 010 978 Grant DonaldT +44 20 7781 1262M +44 7920 587 805
Rio Tinto plc6 St James's SquareLondon SW1Y 4ADUnited Kingdom T +44 20 7781 2000 Rio Tinto Limited120 Collins StreetMelbourne 3000Australia T +61 3 9283 3333Registered in AustraliaABN 96 004 458 404
Registered in England No. 719885
Rio Tinto plc
6 St James's SquareLondon SW1Y 4ADUnited Kingdom T +44 20 7781 2000
Registered in England No. 719885
Rio Tinto Limited
120 Collins StreetMelbourne 3000Australia T +61 3 9283 3333Registered in
AustraliaABN 96 004 458 404
Group income statement
Years ended 31 December
2015US$m 2014US$m
Consolidated operations
Consolidated sales revenue 34,829 47,664
Net operating costs (excluding items shown separately) (27,919) (33,910)
Impairment charges net of reversals (a) (2,791) (1,062)
Net gains/(losses) on consolidation and disposal of interests in businesses (b) 64 (563)
Exploration and evaluation costs (576) (747)
Profit/(loss) relating to interests in undeveloped projects 8 (36)
Operating profit 3,615 11,346
Share of profit after tax of equity accounted units 361 625
Impairment reversals after tax of investments in equity accounted units (a) - 589
Profit before finance items and taxation 3,976 12,560
Finance items
Net exchange losses on external debt and intragroup balances (3,538) (1,995)
Net losses on derivatives not qualifying for hedge accounting (88) (46)
Finance income 52 64
Finance costs (c) (750) (649)
Amortisation of discount (378) (382)
(4,702) (3,008)
(Loss)/profit before taxation (726) 9,552
Taxation (993) (3,053)
(Loss)/profit after tax for the year (1,719) 6,499
- attributable to owners of Rio Tinto (net (loss)/earnings) (866) 6,527
- attributable to non-controlling interests (853) (28)
Basic (loss)/earnings per share (d) (47.5)c 353.1c
Diluted (loss)/earnings per share (d) (47.5)c 351.2c
Status of financial information
This preliminary announcement does not constitute the Group's full financial
statements for 2015. This report is based on accounts which are in the process
of being audited and will be approved by the Board and subsequently filed with
the Registrar of Companies in the United Kingdom and the Australian Securities
and Investments Commission. Accordingly, the financial information for 2015 is
unaudited and is not statutory accounts within the meaning of Section 434 of
the United Kingdom Companies Act 2006.
Financial information for the year to 31 December 2014 has been extracted from
the full financial statements for that year prepared under the historical cost
convention, as modified by the revaluation of certain derivative contracts and
financial assets, the impact of fair value hedge accounting on the hedged
items and the accounting for post retirement assets and obligations, as filed
with the Registrar of Companies.
The Auditors' report on the full financial statements for the year to 31
December 2014 was unqualified and 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.
Notes to the Group income statement
(a) The carrying value of the Simandou project in Guinea has been
affected by the current market conditions and uncertainty over infrastructure
ownership and funding. As a result, the Group has decided that it would be
appropriate to record a pre-tax impairment charge of US$1,655 million to
exploration and evaluation intangible assets and a pre-tax impairment charge
of US$194 million to property, plant and equipment to fully write-down the
long-term assets of the project and a charge of US$7 million in relation to
inventories. A further pre-tax charge of US$183 million has been recognised
as a financial liability for contractual arrangements made in relation to the
development of the project. The Group will expense the cost of further studies
as incurred.
During the year, the carrying value of Energy Resources of Australia Ltd (ERA)
was impaired, following a Rio Tinto Board decision to support ERA's decision
not to progress any future study or development of Ranger 3 Deeps. The cash
inflows from processing low grade stockpile ore are not expected to be
sufficient to meet the cost of rehabilitation and therefore the property,
plant and equipment and intangible assets of ERA have been fully impaired,
resulting in a US$260 million pre-tax charge.
The Roughrider uranium project completed an Order of Magnitude study in late
2015 which provided an updated view of the development concept and geological
model. The cash-generating unit is tested annually for impairment as it
contains goodwill. The impairment test resulted in a pre-tax impairment
charge of US$116 million to fully write off goodwill and a pre-tax impairment
charge of US$113 million to exploration and evaluation intangible assets,
which were capitalised as a result of the Hathor Exploration acquisition in
2012.
Other impairment charges during the year reflect challenging economic
conditions at business units in the Group's Aluminium and Copper and Coal
product groups.
In 2014 the Group incurred a pre-tax impairment charge (net of reversals) of
US$1,062 million related to an impairment charge in relation to Molybdenum
Autoclave Process in the Group's Copper and Coal product group (US$559
million) and impairment charge net of reversals of US$503 million related to
certain Aluminium product group assets.
Rio Tinto also recorded a post-tax impairment reversal of investments in
equity accounted units of US$589 million in its Aluminium product group.
(b) Net gains on disposal and consolidation of interests in businesses in
2015 related mainly to the reduction in shareholding of SouthGobi Resources
Ltd during 2015, the sale of the Group's interest in Murowa Diamonds and
Sengwa Colliery on 17 June 2015 and the Aluminium product group divestments of
ECL on 9 July 2015 and Alesa on 24 November 2015. Refer to 'Acquisitions and
disposals' on page 41.
Net losses on disposal and consolidation of interests in businesses during
2014 related mainly to the disposal of the Clermont Joint Venture on 29 May
2014 and of Rio Tinto Coal Mozambique on 7 October 2014.
(c) Finance costs in the income statement are net of amounts capitalised
of US$254 million (2014: US$470 million).
(d) For the purposes of calculating basic earnings per share, the
weighted average number of Rio Tinto plc and Rio Tinto Limited shares
outstanding during the year was 1,824.7 million (2014: 1,848.4 million), being
the weighted average number of Rio Tinto plc shares
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