REG - Rio Tinto - Rio Tinto 2016 full year results <Origin Href="QuoteRef">RIO.L</Origin> - Part 2
08/02/2017 07:05
- Part 2: For the preceding part double click ID:nRSH3110Wa
Other Operations (n) (11) (36) 34 32 227 (14)
Product Group Total 3,355 5,382 5,269 5,039 51,162 51,958
Intersegment transactions 142 242
Net assets of disposal groups held for sale (r) (7) 182
Other items (46) 65 51 68 (2,420) (1,250)
Less: equity accounted units (EAU) (651) (859) (526) (462)
Total 2,658 4,588 4,794 4,645 48,877 51,132
Add back: Proceeds from sale of property, plant and equipment and intangibles 354 97
Total capital expenditure per cash flow statement 3,012 4,685
Less: Net debt (9,587) (13,783)
Equity attributable to owners of Rio Tinto 39,290 37,349
Notes to financial information by business unit
Business units are classified according to the Group's management structure.
The financial information by business unit has been recast in accordance with
the organisational restructure announced on 21 June 2016. The main impacts are
as follows: Iron Ore Company of Canada has moved from the Iron Ore Product
Group to the Energy & Minerals Product Group; Coal businesses have moved from
the previous Copper & Coal Product Group to the Energy & Minerals Product
Group; and Diamonds businesses have moved from the previous Diamonds &
Minerals Product Group to the Copper & Diamonds Product Group.
a) Gross sales revenue includes the sales revenue of equity accounted units
on a proportionately consolidated basis (after adjusting for sales to
subsidiaries) in addition to consolidated sales. Consolidated sales revenue
includes subsidiary sales to equity accounted units which are not included in
gross 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, 50 per
cent holding of Hope Downs Joint Venture and 65 per cent holding of Robe River
Iron Associates. The Group's net beneficial interest in Robe River Iron
Associates is 53 per cent as 30 per cent is held through a 60 per cent owned
subsidiary and 35 per cent is held through a 100 per cent owned subsidiary.
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) Through a joint venture agreement with Freeport-McMoRan Inc. (Freeport),
Rio Tinto is entitled to 40 per cent of material mined above an agreed
threshold 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), where TRQ's principal
asset is its 66 per cent investment in Oyu Tolgoi LLC, which owns the Oyu
Tolgoi copper-gold mine.
h) 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 on 17 June 2015.
i) As at 31 December 2016, includes Rio Tinto's 100 per cent shareholding in
Coal & Allied Industries Limited and its wholly-owned subsidiaries. Rio
Tinto as a 100 per cent owner of Coal & Allied holds a 67.6 per cent, 80 per
cent and 55.6 per cent respectively, with management rights, in Hunter Valley
Operations, Mount Thorley and Warkworth.
As at 31 December 2015, this represented 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.
Mitsubishi has moved from holding a 20 per cent stake in Coal & Allied (as at
31 December 2015) to holding a direct 32.4 per cent stake in the Hunter Valley
Operations.
On 1 March 2016, Coal & Allied disposed of its 40 per cent interest in
Bengalla Joint Venture and on 5 August 2016, Coal & Allied disposed of its 100
per cent interest in the Mount Pleasant project. Both were included up until
their respective disposal dates.
On 24 January 2017, Rio Tinto announced it had reached a binding agreement for
the sale of its 100 per cent shareholding in Coal & Allied Industries Limited
to Yancoal Australia Limited.
The transaction is subject to certain conditions precedent being satisfied,
including approvals from the Australian Government, Chinese regulatory
agencies and the New South Wales Government.
Notes to financial information by business unit (continued)
As a result of the shareholding levels of various Chinese state-owned entities
in each of Yankuang, Yanzhou and Chinalco (Aluminium Corporation of China),
and Chinalco being a 10.1 per cent shareholder in the Rio Tinto Group, Yancoal
Australia is considered to be a related party of Rio Tinto for the purposes of
the UK Listing Rules and the ASX Listing Rules. Accordingly, approval is also
required from a majority of independent Rio Tinto shareholders (that is, not
including Chinalco and any other entities considered to be associates of
Chinalco under the UK Listing Rules).
Subject to all approvals and other conditions precedent being satisfied, it is
expected that the transaction will complete in the second half of 2017.
j) Includes Rio Tinto's interests in Rio Tinto Fer et Titane (100 per cent),
QIT Madagascar Minerals (QMM, 80 per cent) and Richards Bay Minerals
(attributable interest of 74 per cent).
k) Includes Rio Tinto's interests in Energy Resources of Australia (68.4 per
cent) and Rössing Uranium Limited (68.6 per cent).
l) Simfer Jersey Limited, a company incorporated in Jersey in which the
Group has a 53 per cent interest, has an 80.75 per cent interest in Simfer
S.A. the company that operates the Simandou mining project in Guinea. The
Group therefore has a 42.8 per cent indirect interest in Simfer S.A. These
entities are consolidated as subsidiaries and together referred to as the
Simandou iron ore project.
m) On 2 September 2016, Rio Tinto disposed of its interest in Zululand
Anthracite Colliery (ZAC), which was previously reported within Coal
Evaluation projects/other.
n) Other Operations include Rio Tinto's 100 per cent interest in the Gove
alumina refinery and Rio Tinto Marine.
o) 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.
p) 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).
q) Capital expenditure in 2016 for Rio Tinto Coal Australia includes net
proceeds of US$192 million for the disposal of 100 per cent interest in the
Mount Pleasant thermal coal project to MACH Energy Australia Pty Ltd on 5
August 2016.
r) Assets and liabilities held for sale at 31 December 2016 comprise Rio
Tinto's interests in the Blair Athol coal project and certain assets related
to cancelled projects at Rio Tinto Kennecott.
Assets and liabilities held for sale at 31 December 2015 comprised Rio Tinto's
interests in the Blair Athol coal project, Carbone Savoie (disposed of on 31
March 2016), Bengalla (disposed of on 1 March 2016), and Molybdenum Autoclave
Process assets.
Review of operations
Iron Ore
2016 2015 Change
Pilbara production (million tonnes - Rio Tinto share) 270.7 252.7 +7%
Pilbara production (million tonnes - 100%) 329.5 309.9 +6%
Pilbara shipments (million tonnes - Rio Tinto share) 268.9 260.3 +3%
Pilbara shipments (million tonnes - 100%) 327.6 318.5 +3%
Gross sales revenue (US$ millions) 14,605 13,952 +5%
Underlying EBITDA (US$ millions) 8,526 7,675 +11%
Underlying earnings (US$ millions) 4,611 3,940 +17%
Net cash generated from operating activities (US$ millions) 5,644 5,844 -3%
Capital expenditure (US$ millions) (868) (1,608) -46%
Free cash flow (US$ millions) 4,776 4,236 +13%
Iron Ore Company of Canada and Simandou are reported within Energy & Minerals,
reflecting management responsibility.
Performance
The Iron Ore group's underlying earnings of $4,611 million in 2016 were 17 per
cent or $671 million higher than 2015. The group benefited from higher prices,
reflected in the six per cent rise, on average, in the Platts 62 per cent
index, higher sales volumes, the realisation of further cost savings and lower
non-cash costs.
Pre-tax cash cost improvements in the Iron Ore group were $315 million in 2016
and have now delivered $1.4 billion of cumulative savings compared with the
2012 base. This is reflected in a reduction in Pilbara unit cash costs to
$13.7 per tonne in 2016 (2015: $14.9 per tonne). Higher volumes, reduced fuel
prices, lower selling costs and increased productivity also contributed to the
positive trend. Pilbara operations delivered a free on board (FOB) EBITDA
margin of 63 per cent in 2016, compared with 60 per cent in 2015.
Gross sales revenues for Pilbara operations in 2016 of $14,605 million
included freight revenue of
$886 million (2015: $918 million).
Net cash generated from operating activities of $5,644 million benefited from
strong shipments from the Pilbara, combined with lower operating costs through
realised cost savings initiatives and improved productivity.
Free cash flow of $4,776 million was $540 million higher than 2015,
attributable to the improvement in operating cash flow from higher prices and
enhanced cost savings, coupled with the 46 per cent decline in capital
expenditure following completion of the Pilbara infrastructure expansion in
2015.
Markets
Sales of 327.6 million tonnes (Rio Tinto share 268.9 million tonnes) in 2016
were three per cent higher than 2015, attributable to the newly expanded
infrastructure and minimal disruption from weather events.
Approximately 64 per cent of sales in 2016 were priced with reference to the
current month average, 20 per cent with reference to the prior quarter's
average index lagged by one month, five per cent with reference to the current
quarter average and 11 per cent were sold on the spot market. Approximately 62
per cent of 2016 sales were made on a cost and freight (CFR) basis, with the
remainder sold free on board (FOB).
Achieved average pricing in 2016 was $49.3 per wet metric tonne on an FOB
basis (2015: $48.4 per wet metric tonne). This equates to $53.6 per dry metric
tonne (2015: $52.6 per dry metric tonne), which compares with the average FOB
Platts price of $53.6 per dry metric tonne for 62 per cent iron Pilbara fines
(2015: $50.4 per dry metric tonne).
Operations
Pilbara operations produced 329.5 million tonnes (Rio Tinto share 270.7
million tonnes) in 2016, six per cent higher than in 2015, attributable to the
ramp-up of expanded mines, operational productivity improvements and minimal
disruption from weather events.
New projects and growth options
On 2 August 2016, the Group approved $338 million to complete the development
of Silvergrass, to maintain the Pilbara blend and reduce unit costs. The
initial phase of the Nammuldi Incremental Tonnes project, NIT1, (with a five
million tonne per annum capacity) commenced production in the fourth quarter
of 2015 and the second phase, NIT2, (taking annual mine capacity from five to
ten million tonnes) was delivered in October 2016. With the $338 million
approval, the road haulage used in the NIT projects will be replaced by a
conveyor, which is expected to take annual mine capacity from 10 to 20 million
tonnes from the second half of 2017, with full production expected in 2018.
The AutoHaul project will continue to progress during 2017 with extensive
running of trains in automated mode, but with a driver remaining on board
until all safety and reliability systems are thoroughly demonstrated.
2017 shipments guidance
Rio Tinto's Pilbara shipments in 2017 are expected to be between 330 and 340
million tonnes (100 per cent basis), subject to weather conditions.
Aluminium
2016 2015 Change
Production (Rio Tinto share)
Bauxite (000 tonnes) 47,703 43,677 +9%
Alumina (000 tonnes) 8,192 7,788 +5%
Aluminium (000 tonnes) 3,646 3,322 +10%
Gross sales revenue (US$ millions) 9,458 10,117 -7%
Underlying EBITDA (US$ millions) 2,472 2,742 -10%
Underlying earnings (US$ millions) 947 1,118 -15%
Net cash generated from operating activities (US$ millions) 2,074 2,413 -14%
Capital expenditure - excluding EAUs (US$ millions) (795) (1,601) -50%
Free cash flow (US$ millions) 1,267 817 +55%
The Gove alumina refinery is curtailed and reported separately from Aluminium
within Other Operations.
Performance
The Aluminium group had a strong operational performance, with higher
production achieved in all three products compared with 2015. Annual
production records were set at several sites, including Weipa and Gove for
bauxite, Yarwun, Jonquière and São Luis for alumina, and ten smelters,
including Kitimat, for aluminium.
The group's underlying earnings of $947 million decreased 15 per cent compared
with 2015, primarily driven by a decline in prices and in particular market
premia, which, together, lowered earnings by
$507 million. However, through higher than targeted cash cost reductions,
productivity improvements and volume increases the group was able to partly
offset this impact and generated an EBITDA margin from integrated operations
of 28 per cent (2015: 31 per cent).
Free cash flow generation increased by 55 per cent to $1,267 million. This was
due to resilient EBITDA performance despite the weak market environment,
together with further working capital improvements and reduced capital
expenditure, following the completion of the Kitimat smelter expansion in
2015.
Pre-tax cash cost improvements in the Aluminium group were $481 million in
2016, exceeding the $300 million target by more than 50 per cent. The group
has now delivered $1.6 billion of cumulative savings compared with the 2012
base.
Markets
The 2016 cash LME aluminium price averaged $1,605 per tonne, a decrease of
three per cent on 2015. Market premia in all regions fell from their record
highs in early 2015. In the US, the Mid-West market premium averaged $162 per
tonne in 2016, compared with an average $271 per tonne in 2015, a 40 per cent
decrease.
Overall, the group achieved an average realised aluminium price of $1,849 per
tonne in 2016 (2015: $2,058 per tonne). This includes premia for value-added
products (VAP), which represented 54 per cent of primary metal produced in
2016 and generated attractive product premia averaging $223 per tonne of VAP
sold (2015: $251 per tonne) on top of the physical market premia.
The strong production performance and healthy demand from China enabled the
group to increase its share of third party bauxite shipments by ten per cent
to 29.3 million tonnes (2015: 26.6 million tonnes). Bauxite prices decreased
during the year in line with the weaker aluminium market environment.
Operations
Bauxite production of 47.7 million tonnes was nine per cent higher than 2015.
Annual production records were achieved at both Weipa and Gove, with both
operations benefiting from increased plant throughput through productivity
initiatives. These higher volumes, together with a continued focus on cash
cost reductions, absorbed 74 per cent of the bauxite price decline and led to
a 50 per cent FOB EBITDA margin for the bauxite business in 2016, broadly
unchanged from 2015. Bauxite underlying earnings declined nine per cent to
$493 million in 2016.
Gross sales revenues for bauxite in 2016 decreased seven per cent to $1,913
million and included freight revenues of $202 million (2015: $205 million).
Alumina production increased five per cent compared with 2015, primarily due
to operational improvements driving record production at the Yarwun refinery,
with the Jonquière and São Luis refineries also achieving annual records. The
transformation of the Alumina business gathered momentum during 2016, and
resulted in the Alumina business significantly reducing its cash costs and
delivering positive EBITDA and free cash flow despite the price decrease.
Overall, the Alumina business recorded a loss of $121 million, compared with a
loss of $187 million in 2015.
Aluminium production was ten per cent higher than 2015, due largely to
Kitimat, which produced at nameplate capacity for a third consecutive quarter.
Record annual production was achieved at ten smelters. The Primary Metal
business (Canada, Europe, Middle East) managed to entirely offset the price
decrease incurred during 2016 through enhanced volumes and reduced cash costs.
Primary Metal earnings declined by ten per cent to $402 million, while
earnings from Pacific Aluminium (Australia, New Zealand) decreased by 58 per
cent to $62 million.
On 23 November 2016, Rio Tinto announced it had reached an agreement to sell
its assets at Lochaber, Scotland to SIMEC for consideration totalling $410
million (£330 million). The sale was finalised on 16 December 2016.
New projects and growth options
The expanded Kitimat smelter reached nameplate capacity of 420 thousand tonnes
per annum in April 2016, driving its production costs down into the first
decile of the industry cost curve.
The $1.9 billion Amrun bauxite project on the Cape York Peninsula in north
Queensland is progressing to schedule in both engineering and construction.
All major contracts have been committed as planned. Site establishment
continues with the construction accommodation village operational to 470 beds.
The 40 kilometre main access road was completed in December 2016, with the
river terminals expected to be operational in the first quarter of 2017. 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.
The $0.7 billion2 bauxite project to expand the production of the Compagnie
des Bauxites de Guinée (CBG) to 18.5 million tonnes per annum2 met all
approval conditions for execution in November 2016. The first shipment from
the expansion project is expected in June 2018. The expansion is currently in
the early phases of execution.
2017 production guidance
Rio Tinto's expected share of production is 48 to 50 million tonnes of
bauxite, 8.0 to 8.2 million tonnes of alumina and 3.5 to 3.7 million tonnes of
aluminium.
1 Refer to the statements related to this production target on page 2.
2 100 per cent basis. Rio Tinto's share of capex is 45 per cent.
Copper & Diamonds
2016 2015 Change
Production (Rio Tinto share)
Mined copper (000 tonnes) 523.3 504.4 +4%
Refined copper (000 tonnes) 250.1 213.0 +17%
Diamonds (000 carats) 17,953 17,316 +4%
Gross sales revenue (US$ millions) 4,524 5,592 -19%
Underlying EBITDA (US$ millions) 1,387 1,833 -24%
Underlying (loss) / earnings (US$ millions) (18) 370 -105%
Net cash generated from operating activities (US$ millions)1 987 1,575 -37%
Capital expenditure - excluding EAUs (US$ millions) (924) (806) +15%
Free cash flow (US$ millions) 78 791 -90%
To allow production numbers to be compared on a like-for-like basis,
production from asset divestments completed in 2015 have been excluded from
the Rio Tinto share of production data but assets sold in 2016 remain in the
comparative.
1 Net 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 & Diamonds group recorded an underlying loss of $18 million and
delivered free cash flow of $78 million, with all managed operations making a
positive free cash flow contribution. This was net of investment in
development capital and exploration and evaluation spend of more than $900
million across the business and proceeds from asset sales of around $100
million, including the sale of undeveloped land in the community of Daybreak
near the Kennecott mine which completed in July 2016.
The decline in earnings compared with 2015 was principally driven by lower
prices and includes
$114 million of one-off non-cash asset write-downs which concludes the asset
portfolio review at Rio Tinto Kennecott. Operationally, there were lower sales
volumes of copper, gold and molybdenum, which were partially offset by further
cost savings at Kennecott, Oyu Tolgoi and improved operational performance in
Diamonds.
The group achieved $278 million of pre-tax cash cost improvements during 2016,
bringing total savings delivered across the Copper & Diamonds group since 2012
to $1.3 billion.
Markets
Average LME copper prices declined 11 per cent to 221 cents per pound and gold
increased eight per cent to $1,250 per ounce.
Overall demand for rough diamonds recovered in 2016 from a cyclical downturn
in the previous year, varying significantly across product segments.
The total impact of price changes on the Copper & Diamonds group, including
the effects of provisional pricing movements, resulted in a decrease in
underlying earnings of $79 million compared with 2015.
At 31 December 2016, the Group had an estimated 235 million pounds of copper
sales that were provisionally priced at 250 cents per pound. The final price
of these sales will be determined during the first half of 2017. This compares
with 252 million pounds of open shipments at 31 December 2015, provisionally
priced at 217 cents per pound.
Operations - Copper
Mined copper production was four per cent higher than in 2015, primarily
attributable to an increase at Kennecott, as mining progressed through an area
of higher grades. This was partly offset by lower volume at Escondida, due to
lower grades and slightly reduced mill throughput. Mined copper production at
Oyu Tolgoi was in line with 2015, as the impact of lower grades was offset by
higher throughput, a new record for the mill. Copper production at Grasberg
was below the agreed threshold and accordingly, Rio Tinto's share of joint
venture production for 2016 was revised in the fourth quarter to zero.
Kennecott continues to toll third party concentrate to optimise smelter
utilisation, with 315 thousand tonnes received for processing in 2016. Tolled
copper concentrate, which is smelted and returned to customers, is excluded
from reported production figures.
Operations - Diamonds
Diamonds production was four per cent higher than in 2015 at both mines.
Argyle benefited from the ramp-up of the underground mine, with higher ore
throughput partially offset by a lower recovered grade.
Higher carats were produced at Diavik due to higher ore throughput which
offset lower grades.
Copper & Diamonds portfolio
The simplification of the Copper & Diamonds portfolio and disposal of non-core
assets progressed in 2016.
On 30 June 2016, Rio Tinto announced that it had transferred its 53.8 per cent
shareholding in Bougainville Copper Limited to independent trustee Equity
Trustees Limited, which was subsequently distributed between the Autonomous
Bougainville Government for the benefit of all the Panguna landowners and the
people of Bougainville, and the Independent State of Papua New Guinea.
During the second half of 2016, subsidiary Turquoise Hill Resources
progressively disposed of its remaining interest in SouthGobi Resources Ltd.
In August 2016, following a strategic review, Rio Tinto announced it would not
proceed with the development of the Bunder diamond project in India. On 7
February 2017, Rio Tinto announced it had decided to gift Bunder to the
Government of Madhya Pradesh. Under a Government of Madhya Pradesh order
signed in January 2017, the Government will accept ownership and take on
responsibility for the Bunder assets.
New projects and growth options
On 6 May 2016, Rio Tinto, the Government of Mongolia and Turquoise Hill
Resources announced the approval of the $5.3 billion development of the Oyu
Tolgoi underground mine. Following this approval, over $4 billion of project
financing was drawn down, one of the largest project financing facilities in
the industry. Contractor mobilisation ramped up during the second half of
2016, with over 2,000 personnel mobilised, 87 per cent of whom are Mongolian
nationals. Works on underground mine development, the accommodation camp,
conveyor to surface decline, sinking of shaft #2 and shaft #5 and critical
facilities continued to progress. The focus is on completing the underground
crusher and de-watering system to enable increased lateral development rates.
At Escondida, the new concentrator (OGP1, a 152 thousand tonne per day
concentrator) was commissioned and ramped up to nameplate capacity during the
second half of 2016. On 30 June 2016, the Escondida Owners Council approved
the Los Colorados Extension project for $180 million (100 per cent basis).
First production is expected late in the first half of 2017, adding
incremental annual capacity of approximately 200 thousand tonnes of copper in
the near term.
2017 production guidance
Rio Tinto's expected share of production is 525 to 665 thousand tonnes of
mined copper,
185 to 225 thousand tonnes of refined copper and 19 to 24 million carats of
diamonds.
The 2017 production guidance includes an expected share from the Grasberg
joint venture, which is operated by PT-Freeport Indonesia (PT-FI), a
subsidiary of Freeport-McMoRan Inc. On 12 January 2017, the Government of
Indonesia issued new mining regulations to address exports of unrefined
metals, including copper concentrates, and other matters related to the mining
sector. These regulations impact PT-FI's operating rights, including its right
to continue to export concentrate without restriction, and may have a
significant impact on Rio Tinto's share of production in 2017. Rio Tinto's
participation beyond 2021 may also be affected due to the application of force
majeure provisions in the joint venture agreement between Rio Tinto and
PT-FI.
PT-FI continues to engage with Indonesian government officials and has advised
that if it is prohibited from exporting copper concentrate it would be
required to reduce production to match domestic smelting capacity, resulting
in near-term actions to reduce its workforce, significantly reduce costs and
suspend future investments on its underground development projects and new
smelter. PT-FI has indicated that it will consider legal action to enforce its
contractual rights should it fail to reach a mutually satisfactory agreement
with the Indonesian government.
Energy & Minerals
2016 2015 Change
Production (Rio Tinto share)
Hard coking coal (000 tonnes) 8,141 7,859 +4%
Semi-soft coking coal (000 tonnes) 4,102 3,647 +12%
Thermal coal (000 tonnes) 17,254 18,638 -7%
Iron ore pellets and concentrates (000 tonnes) 10,661 10,388 +3%
Titanium dioxide (000 tonnes) 1,048 1,089 -4%
Borates (000 tonnes) 503 476 +6%
Salt (000 tonnes) 5,180 5,539 -6%
Uranium (000 lbs) 6,342 4,907 +29%
Gross sales revenue (US$ millions) 6,734 7,140 -6%
Underlying EBITDA (US$ millions) 1,803 1,235 +46%
Underlying earnings (US$ millions) 610 175 +249%
Net cash generated from operating activities (US$ millions) 1,431 1,482 -3%
Capital expenditure (US$ millions) (141) (552) -74%
Free cash flow (US$ millions) 1,294 925 +40%
Iron Ore Company of Canada and Simandou are reported within Energy & Minerals,
reflecting management responsibility.
Performance
Underlying earnings for the Energy & Minerals group were $610 million, two and
a half times higher than 2015, as it benefited from higher volumes, continued
momentum in the cost improvement programme and weaker exchange rates. The
group experienced a mixed pricing environment for its products in 2016, with
average price rises in iron ore and, in particular, coal offsetting weaker
pricing for titanium dioxide feedstocks, zircon, borates and uranium.
Pre-tax cash cost improvements in the Energy & Minerals group were $342
million in 2016: the product group has now delivered $1.4 billion of
cumulative savings compared with the 2012 base.
Gross sales revenues for the product group in 2016 of $6,734 million included
freight revenue of $320 million (2015: $481 million).
Net cash generated from operating activities of $1,431 million was three per
cent lower than 2015 as the benefit of the cost improvements was offset by the
absence of the one-off reduction in working capital achieved in 2015. The
decline in capital expenditure reflected continued capital discipline across
the product group and the net proceeds from the sale of the Mount Pleasant
thermal coal assets of $192 million.
Free cash flow was $1,294 million, 40 per cent higher than 2015, reflecting
the Mount Pleasant proceeds and the reduction in ongoing capital expenditure.
Markets
Coal prices rebounded in the second half of 2016, with benchmark coking coal
prices averaging $114 per tonne and spot thermal coal prices averaging $66 per
tonne.
Gross sales revenues for Rio Tinto Coal Australia in 2016 of $2,634 million
(2015: $2,757 million) included freight revenue of $43 million (2015: $62
million). The group achieved coking coal prices of $152 per tonne, on average,
in the second half of 2016 on an FOB basis compared with $79 per tonne in the
first half of 2016. Average prices realised for thermal coal were $69 per
tonne on an FOB basis in the second half of 2016 compared with $51 per tonne
in the first half of 2016.
Thermal coal revenues of $1,101 million in 2016 (2015: $1,456 million)
represented 3.1 per cent of the Rio Tinto Group total (2015: 4.0 per cent).
Titanium dioxide feedstock demand remained subdued throughout 2016 as the
industry continued to absorb excess inventories, although there are signs of
underlying demand improvement for both sulphate and chloride feedstock. The
market for zircon has recently stabilised following an initial period of weak
demand in China.
Demand for borates has remained stable globally, with robust demand in the
Americas and India partly offset by weaker growth in China and weather-related
demand constraints in south-east Asia.
Uranium prices fell through the latter half of 2016, due to lacklustre demand
growth and oversupply. The demand outlook was muted as Japan made slow
progress restarting its off-line reactors, additional reactor closures were
announced in the US and no new Chinese reactors were approved in 2016. Strong
uranium production and surplus secondary material have exacerbated the price
weakness and it will likely take some time for the market to rebalance and
prices to recover
Operations - Energy
Hard coking coal production was four per cent higher in 2016, primarily due to
longwall and plant outperformance at Kestrel.
Semi-soft coking coal production was 12 per cent higher than 2015 due to mine
production sequencing at Hunter Valley Operations and Mt Thorley Warkworth.
Thermal coal production was seven per cent lower than 2015, with increased
tonnage from Hail Creek, Kestrel and Mt Thorley Warkworth partially offsetting
lower attributable volumes following the restructure of Coal & Allied and the
divestment of Bengalla in early 2016.
On 1 March 2016, Rio Tinto completed the sale of its interest in the Bengalla
Joint Venture to New Hope Corporation Limited for $599 million (net of working
capital adjustments, transaction costs and cash disposed of in the Joint
Venture).
On 5 August 2016, Rio Tinto completed the sale of its Mount Pleasant thermal
coal assets to MACH Energy Australia Pty Ltd for $221 million plus royalties,
of which $192 million (net of transaction costs) was received during the
year.
On 2 September 2016, Rio Tinto completed the sale of its 74 per cent interest
in Zululand Anthracite Colliery to Menar Holding.
On 24 January 2017, Rio Tinto announced that it had reached a binding
agreement for the sale of its wholly-owned subsidiary Coal & Allied Industries
Limited to Yancoal Australia Limited for up to
$2.45 billion. As set out in note (i) on page 14, the transaction is subject
to certain conditions precedent being satisfied, including approvals from the
Australian Government, Chinese regulatory agencies and the New South Wales
Government. Subject to all approvals and other conditions precedent being
satisfied, it is expected that the transaction will complete in the second
half of 2017.
Operations - Iron Ore Company of Canada (IOC)
IOC pellet production of 9.8 million tonnes (Rio Tinto share 5.8 million
tonnes) was five per cent higher than 2015, while saleable concentrate
production of 8.4 million tonnes (Rio Tinto share 4.9 million tonnes) was in
line with 2015 production. The three per cent improvement in total saleable
production also resulted in a two per cent rise in sales to 18.3 million
tonnes (Rio Tinto share 10.8 million tonnes).
Operations - Minerals
Titanium dioxide slag production was four per cent lower as Rio Tinto Iron &
Titanium continues to optimise production to align to demand and draw down
remaining inventories. 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.
The respective movements in the production of borates and salt were driven by
market demand.
New projects and growth options
Work continues on the feasibility study for the Zulti South development at
RBM, which is one of the best undeveloped assets in the mineral sands
industry.
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 28 October 2016, Rio Tinto and Chinalco signed a non-binding agreement to
sell Rio Tinto's entire stake in the Simandou project in Guinea to Chinalco.
2017 production guidance
In 2017, Rio Tinto's share of production is expected to be 17 to 18 million
tonnes of thermal coal, 3.3 to 3.9 million tonnes of semi-soft coking coal,
7.8 to 8.4 million tonnes of hard coking coal, 11.4 to 12.4 million tonnes of
saleable production of iron ore pellets and concentrates, 1.1 to 1.2 million
tonnes of titanium dioxide slag, 0.5 million tonnes of boric oxide equivalent
and 6.5 to 7.5 million pounds of uranium. Guidance for coal will be updated
following completion of the sale of Coal & Allied to Yancoal which is expected
to take place in the second half of 2017.
Other Operations
2016 2015
Gross sales revenue (US$ millions) - 13
Underlying EBITDA (US$ millions) (92) (81)
Underlying loss (US$ millions) (86) (88)
Capital expenditure (US$ millions) 11 36
Other operations relates to legacy sites including the Gove alumina refinery,
where production was curtailed on 28 May 2014. In 2016, the closure provision
relating to the Gove refinery increased by
$282 million: these costs were excluded from underlying earnings.
Other items
2016 2015
Underlying EBITDA (US$ millions) (411) (546)
Underlying loss (US$ millions) (241) (375)
Capital expenditure (US$ millions) 46 (65)
Central office costs, central Growth & Innovation costs and other central
items are reported in Other items. The decline in the underlying loss in 2016
compared with 2015 was largely due to lower Growth & Innovation costs
following the reorganisation in 2016. In 2016, the Group divested some
corporate office buildings which, net of corporate capital expenditure, gave
rise to a cash inflow of $46 million.
Exploration & evaluation
2016 2015
Post-tax charge (US$ millions) (147) (211)
Central exploration & evaluation expenditure in 2016 (post divestments and
tax) resulted in a charge to underlying earnings of $147 million. The decline
in the 2016 charge compared with 2015 was largely due to lower costs at the La
Granja project in Peru.
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 2016 $ million impact on full year 2016 underlying earningsof a 10% change in prices/exchange rates
Aluminium $1,605/t 469
Copper 221c/lb 238
Gold $1,250/oz 36
Iron ore (62% Fe FOB) $53.6/dmt 879
Hard coking coal (benchmark) $114/t 49
Thermal coal (average spot) $66/t 81
Australian dollar against the US dollar 0.74 604
Canadian dollar against the US dollar 0.76 229
Oil $44/bbl 53
Capital projects
Rio Tinto has a programme of high-quality projects delivering industry-leading
returns across a broad range of commodities.
In production
Investment in Nammuldi Incremental Tonnes (NIT) projects in the Pilbara, to maintain the Pilbara blend. $0.2bn - NIT1, with a five million tonne annual capacity, commenced production in the fourth quarter of 2015. NIT2, which took annual
mine capacity from five to ten million tonnes, was delivered in October 2016, six weeks ahead of schedule.
Ongoing and approved
Copper & Diamonds
Construction of a desalination facility to ensure continued water supply and sustain operations at Escondida (Rio Tinto 30%), Chile. $1.0bn(RT share) $0.1bn(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 99 per cent complete, with commissioning scheduled in 2017.
Grasberg project funding to 2017. $0.2bn(RT share) $0.1bn(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 period of investment.
Remediation of the east wall at Rio Tinto Kennecott, US. $0.3bn - 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. There is a small amount of dewatering activity scheduled
to be completed in 2017.
Investment to extend mine life at Rio Tinto Kennecott, US beyond 2019. $0.7bn $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.
Development of A21 pipe at the Diavik Diamond Mine in Canada (Rio Tinto 60%). $0.2bn(RT share) $0.1bn(RT share) 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 mid-2018.
Development of the Oyu Tolgoi underground mine in Mongolia (Rio Tinto 34%), where average copper grades of 1.66 per cent are more than three times higher than the open pit. $5.3bn $5.1bn Approved in May 2015, first production from the underground is expected in 2020. Contractor mobilisation commenced in the third
quarter of 2016. Work on the underground mine development, accommodation camp, conveyor to surface decline, sinking of shaft #2
and shaft #5 and critical facilities are continuing to progress. The focus is on completing the underground crusher and de
-watering system to enable increased lateral development rates.
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 year.1 $1.9bn $1.7bn Approved in December 2015, output includes an expected 10 million tonne increase in annual exports with production commencing in
the first half of 2019.
Investment in the Compagnie des Bauxites de Guinée (CBG) bauxite mine to expand from 14.5 to 18.5 million tonnes a year. Rio Tinto's share of capex is $0.3bn. $0.7bn(100%) $0.6bn(100%) Approved in 2016. Financing completed in November 2016. First incremental shipment expected in June 2018.
Iron ore
Development of the Silvergrass iron ore mine in the Pilbara, to maintain the Pilbara blend. $0.3bn $0.3bn The $338m approval in August 2016 expected to add 10 million tonnes of annual capacity with commissioning anticipated for the
second half of 2017.
Iron ore
Development of the Silvergrass iron ore mine in the Pilbara, to maintain the
Pilbara blend.
$0.3bn
$0.3bn
The $338m approval in August 2016 expected to add 10 million tonnes of annual
capacity with commissioning anticipated for the second half of 2017.
1 Refer to the statements related to this production target on page 2.
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 Nick ParkinsonT +44 20 7781 1552M +44 7810 657 556
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
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