REG - Rio Tinto - Rio Tinto 2017 annual results <Origin Href="QuoteRef">RIO.L</Origin> - Part 2
07/02/2018 07:05
- Part 2: For the preceding part double click ID:nRSG1467Ea
100.0 249 333 422 530 1,936 2,189
Escondida 30.0 248 517 507 364 3,369 3,565
Grasberg joint venture (f) 138 174 42 89 1,137 1,151
Oyu Tolgoi & Turquoise Hill (g) 901 322 344 450 4,725 3,804
Diamonds (h) 85 97 132 164 441 655
Product group operations 1,621 1,443 1,447 1,597 11,608 11,364
Evaluation projects/other 1 (2) 5 4 135 166
Total Copper & Diamonds 1,622 1,441 1,452 1,601 11,743 11,530
Energy & Minerals
Rio Tinto Coal Australia (i)/(q) 84 (107) 152 297 1,040 1,807
Iron Ore Company of Canada 58.7 202 75 157 151 988 1,018
Rio Tinto Iron & Titanium (j) 119 97 219 189 3,881 3,662
Rio Tinto Minerals 100.0 28 31 65 53 523 508
Dampier Salt 68.4 13 11 22 23 150 146
Uranium (k) 21 30 37 25 (327) (143)
Product group operations 467 137 652 738 6,255 6,998
Simandou iron ore project (l) - - - - 17 13
Evaluation projects/other - 4 - 1 41 38
Total Energy & Minerals 467 141 652 739 6,313 7,049
Other Operations (m) (35) (11) 32 34 (328) 203
Product Group Total 4,691 3,355 4,980 5,269 50,611 50,923
Intersegment transactions 206 142
Net assets/(liabilities) of disposal groups held for sale (r) 370 (7)
Other items (n) 70 (46) 42 51 (2,631) (2,181)
Less: equity accounted units (EAU) (417) (651) (647) (526)
Total 4,344 2,658 4,375 4,794 48,556 48,877
Add back: Proceeds from sale of property, plant and equipment and intangibles 138 354
Total capital expenditure per cash flow statement 4,482 3,012
Less: Net debt (3,845) (9,587)
Equity attributable to owners of Rio Tinto 44,711 39,290
Notes to financial information by business unit
Business units are classified according to the Group's management structure. Certain comparative amounts have been
reallocated to appropriately represent changes in management responsibility.
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 operation 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).
i) On 1 September, 2017, Rio Tinto disposed of its 100 per cent shareholding in Coal & Allied Industries Limited to
Yancoal Australia Limited.
As at 31 December 2016, this included 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 held a 67.6 per cent, 80 per cent and 55.6
per cent interest respectively, with management rights, in Hunter Valley Operations, Mount Thorley and Warkworth. 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.
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 85 per
cent interest in Simfer S.A. the company that manages the Simandou project in Guinea. The Group therefore has a 45.05 per
cent indirect interest in Simfer S.A. These entities are consolidated as subsidiaries and together referred to as the
Simandou iron ore project.
Notes to financial information by business unit (continued)
m) Other Operations include Rio Tinto's 100 per cent interest in the curtailed Gove alumina refinery and Rio Tinto Marine.
n) Central office costs, central Growth & Innovation costs and other central items are reported in Other items. The loss
in Other items includes restructuring, project and other one-off costs of $177 million (pre-tax) in 2017. The increased
loss also reflects an increase in Information System & Technology spend and further investment in the Commercial Centre in
Singapore and capability to support the Group's mine to market productivity programme.
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$192 million for the disposal of
100 per cent interest in the Mount Pleasant thermal coal project to MACH Energy Australia Pty Ltd on 5 August 2016.
r) Assets and liabilities held for sale at 31 December 2017 comprise of Rio Tinto's interest in the Dunkerque aluminium
smelter and certain other separate assets.
Assets and liabilities held for sale at 31 December 2016 comprised of Rio Tinto's interests in the Blair Athol coal project
and certain other separate assets.
Review of operations
Iron Ore
2017 2016 Change
Pilbara production (million tonnes - Rio Tinto share) 271.3 270.7 -
Pilbara production (million tonnes - 100%) 329.8 329.5 -
Pilbara shipments (million tonnes - Rio Tinto share) 272.0 268.9 +1%
Pilbara shipments (million tonnes - 100%) 330.1 327.6 +1%
Gross sales revenue (US$ millions) 18,251 14,605 +25%
Underlying EBITDA (US$ millions) 11,520 8,526 +35%
Pilbara underlying FOB EBITDA margin* 68% 63%
Underlying earnings (US$ millions) 6,692 4,611 +45%
Net cash generated from operating activities (US$ millions) 8,466 5,959 +42%
Capital expenditure (US$ millions) (1,201) (868) +38%
Free cash flow (US$ millions) 7,265 5,091 +43%
Iron Ore Company of Canada and Simandou are reported within Energy & Minerals, reflecting management responsibility.
* The Pilbara underlying FOB EBITDA margin is defined as Pilbara underlying EBITDA divided by Pilbara revenues, excluding
freight revenue.
Performance
The Iron Ore group's underlying EBITDA of $11,520 million and underlying earnings of $6,692 million in 2017 were 35 per
cent and 45 per cent higher, respectively, than 2016. The group benefited from higher prices, reflected in the 20 per cent
rise, on average, in the Platts 62 per cent index, further cash cost savings and productivity improvements.
Pre-tax cash cost improvements in the Iron Ore group were $341 million in 2017 and have now delivered $1.7 billion of
cumulative savings compared with the 2012 base. These savings are reflected in a further reduction in Pilbara unit cash
costs to $13.4 per tonne in 2017 (2016: $13.7 per tonne). Increased productivity, lower headcount and a reduction in
consumables contributed to this positive trend and offset the impact of slightly higher energy costs and a stronger
Australian dollar. Pilbara operations delivered a free on board (FOB) EBITDA margin of 68 per cent in 2017, compared with
63 per cent in 2016.
Gross sales revenues for Pilbara operations in 2017 of $18,143 million included freight revenue of $1,464 million (2016:
$886 million).
Net cash generated from operating activities of $8,466 million benefited from higher prices and lower operating costs
through the continued realisation of cost savings initiatives and improved productivity. These positive trends fed through
to free cash flow of $7,265 million, which was $2,174 million higher than 2016, more than offsetting the 38 per cent rise
in capital expenditure, partly attributable to the construction of Silvergrass which was commissioned in the fourth
quarter.
Markets
Sales of 330.1 million tonnes (Rio Tinto share 272.0 million tonnes) were one per cent higher than 2016 sales, reflecting
ongoing productivity improvements being made to the rail network, along with increased flexibility across the
infrastructure system.
Approximately 67 per cent of sales in 2017 were priced with reference to the current month average, 17 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 fixed terms on the spot market. Approximately 67 per cent of 2017 sales were made on a
cost and freight (CFR) basis, with the remainder sold free on board (FOB).
Achieved average pricing in 2017 was $59.6 per wet metric tonne on an FOB basis (2016: $49.3 per wet metric tonne). This
equates to $64.8 per dry metric tonne (2016: $53.6 per dry metric tonne), which compares with the average FOB Platts price
of $64.1 per dry metric tonne for 62 per cent iron Pilbara fines (2016: $53.6 per dry metric tonne).
Operations
Pilbara operations produced 329.8 million tonnes (Rio Tinto share 271.3 million tonnes) in 2017, in line with 2016: a
stronger performance in the second half offset the impacts of adverse weather conditions in the first quarter and
accelerated rail maintenance in the second quarter. In addition there was a planned two week shutdown at Hope Downs 4 in
December 2017, in line with the focus on value over volume.
New projects and growth options
Commissioning of the Silvergrass conveyor system is complete and the plant had processed around two million tonnes by the
end of 2017. Production ramp-up will continue in 2018.
The automation of the Pilbara train system (AutoHaulTM) continues to make strong progress with greater than 60 per cent of
all train kilometres now completed in autonomous mode with a driver on board for supervision. The project is on schedule to
be completed by the end of 2018.
The Koodaideri project feasibility study was approved for $30.9 million in May 2017. The feasibility study will focus on
obtaining necessary consent and permits and increasing orebody knowledge.
2018 shipments guidance
Rio Tinto's Pilbara shipments in 2018 are expected to be between 330 and 340 million tonnes (100 per cent basis). This is
subject to market conditions and any weather constraints, and partly reflects continued rail maintenance required in 2018.
Aluminium
2017 2016 Change
Production (Rio Tinto share)
Bauxite (000 tonnes) 50,796 47,703 +6%
Alumina (000 tonnes) 8,131 8,192 -1%
Aluminium (000 tonnes) 3,551 3,600 -1%
Gross sales revenue (US$ millions) 11,005 9,458 +16%
Underlying EBITDA (US$ millions) 3,423 2,472 +38%
Underlying EBITDA margin (integrated operations) 35% 28%
Underlying earnings (US$ millions) 1,583 947 +67%
Net cash generated from operating activities (US$ millions) 2,648 2,278 +16%
Capital expenditure - excluding EAUs (US$ millions) (1,269) (795) +60%
Free cash flow (US$ millions) 1,380 1,471 -6%
To allow production numbers to be compared on a like-for-like basis, production from asset divestments completed in 2016
have been excluded from the Rio Tinto share of production data but assets sold in 2017 remain in the comparative.
The Gove alumina refinery is closed and reported separately from Aluminium within Other Operations.
Performance
The Aluminium group's underlying EBITDA of $3,423 million and underlying earnings of $1,583 million increased by 38 per
cent and 67 per cent, respectively. The improved pricing environment was partially offset by a strengthening of the
Australian and Canadian dollars, as well as by increases in the prices of raw materials - most notably caustic soda,
petroleum coke and tar pitch - relating mainly to the same underlying drivers supporting the higher aluminium and alumina
prices. Volume creep, cost improvements and value-added product initiatives executed by the product group over the course
of 2017 totalled $198 million, and more than offset the negative impact of the raw material input costs, which were $149
million higher than 2016. These initiatives resulted in a sector-leading performance with a rise in the EBITDA margin from
integrated operations to 35 per cent.
The Aluminium group has now delivered $1.6 billion of cash cost improvements compared with the 2012 base.
Net cash flow from operating activities increased by 16 per cent with capital expenditure rising by 60 per cent as
construction at Amrun accelerated in 2017. This led to a six per cent decline in free cash flow generation with the higher
capex partly offset by the strong EBITDA performance.
Markets
The 2017 cash LME aluminium price averaged $1,969 per tonne, an increase of 23 per cent on 2016. Market premia increased
in all regions: in the US, the mid-West market premium averaged $199 per tonne in 2017, compared with an average of $169
per tonne in 2016, an 18 per cent rise.
Overall, the group achieved an average realised aluminium price of $2,231 per tonne in 2017 (2016: $1,849 per tonne). This
includes premia for value-added products (VAP), which represented 57 per cent of primary metal sold in 2017 (2016: 54 per
cent) and generated attractive product premia averaging $221 per tonne of VAP sold (2016: $223 per tonne) on top of the
physical market premia.
The strong bauxite production performance, combined with robust demand from China, enabled the group to increase its share
of third party bauxite shipments by ten per cent to 32.3 million tonnes (2016: 29.3 million tonnes).
Operations
Central to the aluminium group's performance has been the continuous drive to creep the capacity of its assets through
productivity at minimal cost, to enhance margin, while always maintaining a focus on value over volume. Bauxite production
increased six per cent, with Gove 23 per cent higher and Weipa up five per cent, reflecting the successful execution of
this strategy. This enabled the group to ship 32 million tonnes of bauxite to third parties in 2017, a ten per cent
increase compared with 2016, further reinforcing Rio Tinto's position as the global leader in the seaborne bauxite trade.
Gross sales revenues for bauxite in 2017 increased six per cent to $2,019 million and included freight revenues of $266
million (2016: $202 million).
Alumina production for 2017 was in line with 2016, with a strong performance at Yarwun partially offset by lower production
at the Queensland Alumina refinery due to major maintenance. There was a continued focus on productivity enhancements
throughout the operations. These actions, together with higher realised prices, led the Alumina business to achieve EBITDA
of $454 million.
Aluminium production of 3.6 million tonnes in 2017 was one per cent lower than 2016. Higher than average production creep
of one per cent achieved at the group's wholly-owned Canadian smelters was offset by a curtailment at the Boyne smelter in
Australia, prompted by higher power prices, as well as by a production incident at the non-managed Sohar smelter in Oman.
Primary Aluminium earnings of $954 million were 106 per cent higher than 2016.
On 10 January 2018, Rio Tinto announced it had received a binding offer for the sale of the Aluminium Dunkerque smelter in
France for $500 million, subject to final adjustments. The sale is expected to complete in the second quarter of 2018,
subject to satisfactory completion of consultations with key stakeholders.
New projects and growth options
The $1.9 billion Amrun bauxite project on the Cape York Peninsula in north Queensland is advancing to plan. All wharf
modules are now installed and the process plant beneficiation modules and transfer tower are in location. Upcoming
activities include completion of the stacker, reclaimer assembly and ship loader assembly. The project remains on schedule
for first shipment in the first half of 2019.
The $0.7 billion1 bauxite project to expand the production capacity of the Compagnie des Bauxites de Guinée (CBG) to 18.5
million tonnes per annum1 remains on schedule with first shipment from the expansion project expected in the fourth quarter
of 2018.
2018 production guidance
Rio Tinto's share of production in 2018 is expected to be between 49 and 51 million tonnes of bauxite, 8.0 to 8.2 million
tonnes of alumina and 3.5 to 3.7 million tonnes of aluminium (guidance to be adjusted following completion of the sale of
the Aluminium Dunkerque smelter).
1 100 per cent basis. Rio Tinto's share of capex and production is 45 per cent.
Copper & Diamonds
2017 2016 Change
Production (Rio Tinto share)
Mined copper (000 tonnes) 478.1 523.3 -9%
Refined copper (000 tonnes) 197.2 250.1 -21%
Diamonds (000 carats) 21,627 17,953 +20%
Gross sales revenue (US$ millions) 4,842 4,524 +7%
Underlying EBITDA (US$ millions) 1,904 1,387 +37%
Underlying EBITDA margin 39% 31%
Underlying earnings / (loss) (US$ millions) 263 (18) n/a
Net cash generated from operating activities (US$ millions)1 1,695 977 +73%
Capital expenditure - excluding EAUs (US$ millions) (1,374) (924) +49%
Free cash flow (US$ millions) 319 69 +362%
1 Net cash generated from operating activities excludes the operating cash flows of equity accounted units (Escondida) but
includes dividends from the equity accounted units.
Performance
The Copper & Diamonds group recorded underlying EBITDA of $1,904 million, 37 per cent higher than 2016, and underlying
earnings of $263 million, compared to a loss of $18 million in 2016. Higher prices, continued success with cash cost
reductions and the final insurance settlement ($101 million post-tax, with an additional $45 million recognised in net
earnings) relating to the Manefay slide at Kennecott in 2013 more than offset the one-off impacts of the Escondida strike
($176 million) and a deferred tax asset write-down at Grasberg ($144 million).
The group delivered free cash flow of $319 million (inclusive of dividends received from Escondida) despite a 49 per cent
increase in capital expenditure as activity ramped up at the Oyu Tolgoi Underground Project. All managed operations were
free cash flow positive in 2017, with the exception of Oyu Tolgoi due to investment in the Underground Project.
The group achieved $160 million of pre-tax cash cost improvements during 2017, bringing total savings delivered across the
Copper & Diamonds group since 2012 to $1.4 billion.
Markets
Average LME copper prices increased 27 per cent to 281 cents per pound and the gold price increased one per cent to $1,257
per ounce compared with 2016.
Rough diamond demand was solid in 2017: factories in India increased manufacturing capacity as the market normalised
following Indian banknote reform in 2016, and the outlook in key emerging markets improved. This resulted in sustained
re-stocking activity throughout the pipeline for most of the year.
The total impact of price changes on the Copper & Diamonds group, including the effects of provisional pricing movements,
resulted in an increase in underlying earnings of $480 million compared with 2016.
At 31 December 2017, the Group had an estimated 250 million pounds of copper sales that were provisionally priced at 304
cents per pound. The final price of these sales will be determined during the first half of 2018. This compares with 235
million pounds of open shipments at 31 December 2016, provisionally priced at 250 cents per pound.
Operations - Copper
Mined copper production was nine per cent lower than 2016, mainly due to the impact of the strike at Escondida in the first
quarter of 2017. Mined copper production at Kennecott reflected lower grades partially offset by higher mill throughput
while production from the Oyu Tolgoi open pit reduced as anticipated due to lower head grades, as phases 2 and 3, which
were sources of higher grade, were fully depleted by the end of 2016.
In January and February 2017, the Indonesian government 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 Freeport
Indonesia's ("PT-FI") operating rights, including its right to continue to export concentrate without restriction, and, as
a result, had a significant impact on Rio Tinto's share of production in 2017. Rio Tinto's full participation beyond 2021
is likely to be delayed due to the application of force majeure provisions in the joint venture agreement between Rio Tinto
and PT-FI.
In March 2017, the Indonesian government amended the regulations and issued a permit to PT-FI that allowed concentrate
exports to resume in April 2017. PT-FI is applying for an extension of its export permit, which currently expires on 16
February 2018.
Approximately 5.7 thousand tonnes of copper and no gold production in 2017 has been attributed to Rio Tinto.
Operations - Diamonds
Diamond production was 20 per cent higher than 2016 with higher carat production at Argyle due to the additional processing
of higher grade alluvial tailings, and an increase in carats recovered at Diavik due to higher recovered grades.
New projects and growth options
New contractors continue to mobilise at the Oyu Tolgoi Underground Project with the total project workforce at over 6,600
at the end of 2017, 89 per cent of whom are Mongolian nationals. Lateral development is on plan, the sinking of Shaft 2 is
complete and completion of Shaft 5 sinking is expected by the end of first quarter of 2018. Six accommodation buildings in
the Oyut II camp are now complete. An annual project review was completed in the fourth quarter, and construction of the
first drawbell is expected in mid-2020.
Commissioning of the Los Colorados Extension project began in the second half of 2017, delivering incremental annual
capacity of approximately 200 thousand tonnes of copper (100 per cent basis) at full capacity.
In December 2017, Rio Tinto approved a $368 million commitment (Rio Tinto share 55 per cent or $202 million) to further
advance the Resolution Copper project in the United States. The funding will improve infrastructure and facilitate mine
planning as part of the pre-feasibility study.
Development of the A21 pipe at Diavik remains on schedule and within budget.
Impairment
A post-tax impairment charge of $138 million was recognised at Argyle attributable to lower production volumes, a smaller
than expected contribution from productivity improvements and lower realised prices.
2018 production guidance
Rio Tinto's expected share of mined copper production for 2018 is expected to be between 510 and 610 thousand tonnes.
Refined copper production is expected to be between 225 to 265 thousand tonnes.
Diamond production guidance for 2018 is between 17 and 20 million carats.
Energy & Minerals
2017 2016 Change
Production (Rio Tinto share)
Hard coking coal (000 tonnes) 7,704 8,141 -5%
Semi-soft coking coal (000 tonnes) 2,020 4,102 -51%
Thermal coal (000 tonnes) 13,933 16,727 -17%
Iron ore pellets and concentrates (000 tonnes) 11,166 10,661 +5%
Titanium dioxide slag (000 tonnes) 1,315 1,048 +25%
Borates (000 tonnes) 517 503 +3%
Salt (000 tonnes) 5,090 5,180 -2%
Uranium (000 lbs) 6,650 6,342 +5%
Gross sales revenue (US$ millions) 7,764 6,734 +15%
Underlying EBITDA (US$ millions) 2,803 1,806 +55%
Underlying EBITDA margin 36% 27%
Underlying earnings (US$ millions) 1,242 612 +103%
Net cash generated from operating activities (US$ millions) 1,939 1,370 +42%
Capital expenditure (US$ millions) (467) (141) +231%
Free cash flow (US$ millions) 1,467 1,232 +19%
To allow production numbers to be compared on a like-for-like basis, production from asset divestments completed in 2016
have been excluded from the Rio Tinto share of production data but assets sold in 2017 remain in the comparative.
Iron Ore Company of Canada and Simandou are reported within Energy & Minerals, reflecting management responsibility.
Performance
Underlying EBITDA for the Energy & Minerals group was $2,803 million, 55 per cent higher than 2016, while underlying
earnings at $1,242 million were more than double the level of 2016. The group benefited from higher prices, primarily coal,
iron ore and the majority of products at Rio Tinto Iron & Titanium, along with higher volumes and cash cost improvements
across many of the operations. These more than offset stronger local currencies and the impact of Cyclone Debbie which
affected coal production in early 2017. Coal & Allied's thermal coal operations are included up to their sale on 1
September 2017: the 2016 comparative therefore includes an additional four months of Coal & Allied earnings, equivalent to
$109 million.
Pre-tax cash cost improvements in the Energy & Minerals group were $116 million in 2017: the product group has now
delivered $1.5 billion of cumulative savings compared with the 2012 base.
Gross sales revenues for the product group in 2017 of $7,764 million were 15 per cent higher than 2016 as a result of
higher prices and higher sales volumes across most products with the exception of coal which was impacted by the cyclone
and the disposal of Coal & Allied.
Net cash generated from operating activities of $1,939 million was 42 per cent higher than 2016, benefiting from higher
prices and further cost improvements. The 2016 comparative included cash flows generated from Coal & Allied for the last
four months of $136 million. The increase in capital expenditure included the development of the Wabush 3 open pit mine at
Iron Ore Company of Canada. 2016 capital expenditure was presented net of the $192 million proceeds from the sale of the
Mount Pleasant thermal coal assets. The resulting free cash flow achieved during the year of $1,467 million was 19 per cent
higher than in 2016.
Markets
Gross sales revenues for Rio Tinto Coal Australia in 2017 of $2,829 million (2016: $2,634 million) were seven per cent
higher than 2016, despite the sale of Coal & Allied in September 2017. The group achieved hard coking coal prices of $169
per tonne, on average, in 2017 on an FOB basis (2016: $119 per tonne). Average prices realised for thermal coal were $78
per tonne on an FOB basis in 2017 (2016: $60 per tonne).
Market conditions for titanium dioxide continued to improve in 2017, with strengthening pigment prices supported by low
inventory and tight supply. Consequently, feedstock demand has improved year-on-year. Improved conditions have also been
evident in the zircon market.
Borates demand growth was primarily driven by the agriculture and construction sectors in 2017. Offtake across most regions
held firm, although borates demand in China was impacted by environmental-related shutdowns during the third quarter.
The uranium market remained oversupplied in 2017, with many market players along the value chain reporting excess
inventories. The spot price fell from $26 per pound in the first quarter to below $21 per pound for much of the year until
capacity curtailment announcements boosted spot prices as the year drew to a close. Adverse policy shifts in South Korea
and Japan, as well as an increasingly competitive energy market in the US, have dampened the expected demand growth in
these markets.
Operations - Energy
Hard coking coal production in 2017 was five per cent lower than 2016 due to the impact of Cyclone Debbie in the first
quarter of 2017.
As announced on 1 September 2017, Rio Tinto completed the sale of Coal & Allied to Yancoal Australia for total
consideration of $2.69 billion, which included Coal & Allied's interests in the Hunter Valley Operations, Mount Thorley and
Warkworth mines. The sale, coupled with mine production sequencing changes at Hunter Valley Operations and Mount Thorley
Warkworth, resulted in semi-soft coking coal and thermal coal production being lower than 2016 by 51 per cent and 17 per
cent respectively.
Uranium production was five per cent higher than 2016, reflecting lower production at Energy Resources of Australia as the
operations continued to process existing stockpiles, which was more than offset by higher production at Rössing due to
higher grades.
Operations - Iron Ore Company of Canada (IOC)
Rio Tinto's share of IOC pellet and concentrate production of 11.2 million tonnes was five per cent higher than 2016, with
pellet demand continuing to be strong and product mix being optimised to meet customer demand. The development of the
Wabush 3 open pit mine, approved in the first quarter of 2017, is progressing as planned and is expected to be in
production in the second half of 2018.
Operations - Minerals
Titanium dioxide slag production was 25 per cent higher than 2016, reflecting higher market demand.
The respective movements in the production of borates and salt were driven by market demand and the impact of adverse
weather at Dampier Salt in the first half of 2017.
New projects and growth options
The Group has significant optionality in titanium dioxide feedstocks, subject to market conditions. One of nine furnaces at
Rio Tinto Fer et Titane remains idle, along with one of four furnaces at Richards Bay Minerals (RBM). The focus remains on
maximising the productivity of the furnaces currently in operation, and a decision to re-start idle furnaces will be based
on maximising value over volume.
Work continued on the feasibility study for the Zulti South mine expansion at RBM in South Africa, which has the potential
to maintain RBM's low-cost smelting capacity and zircon production. The project remains one of the best undeveloped mineral
sand deposits in the industry, given its large ilmenite resource with high rutile and zircon content in the overall mineral
suite.
The Jadar project in Serbia is a lithium-borate deposit discovered by Rio Tinto in 2004. Findings so far are encouraging,
and prefeasibility assessments are ongoing to establish the economic business case for the project and to advance its
environmental and socioeconomic impact assessments. On 24 July 2017, Rio Tinto signed a Memorandum of Understanding with
the Government of Serbia to form a joint working group to progress the study and permitting phase of the project.
Rio Tinto and Chinalco continue to hold discussions following the signing of a non-binding agreement on 28 October 2016 for
Rio Tinto to sell its entire stake in the Simandou project in Guinea to Chinalco. The Heads of Agreement (HOA) sets out the
proposed principal terms of the sale with the aim of signing a binding agreement.
Impairments
Rössing was impaired by $177 million (post-tax) due to oversupply in the uranium market resulting in structural changes to
forecast prices.
2018 production guidance
Guidance for Rio Tinto's expected share of 2018 production is 7.5 to 8.5 million tonnes of hard coking coal, 3.8 to 4.5
million tonnes of thermal coal, 11.5 to 12.5 million tonnes of iron ore pellets and concentrates, 0.5 million tonnes of
boric oxide equivalent production, 1.2 to 1.4 million tonnes of titanium dioxide slag, and 6.2 to 7.2 million pounds of
uranium.
Other Operations
2017 2016
Underlying EBITDA (US$ millions) (116) (95)
Underlying loss (US$ millions) (138) (88)
Capital expenditure (US$ millions) 35 11
Other operations relates to the Group's shipping operations and its legacy sites including the Gove alumina refinery, where
production was curtailed on 28 May 2014.
A post-tax impairment charge of $257 million was recognised relating to the Roughrider uranium deposit in Canada.
Roughrider's recoverable amount was determined to be nil following a decision in the first half of 2017 to cease further
expenditure on the project.
Other items
2017 2016
Underlying EBITDA (US$ millions) (736) (411)
Underlying loss (US$ millions) (483) (241)
Capital expenditure (US$ millions) (70) 46
Central office costs, central Growth & Innovation costs and other central items are reported in Other items. The increased
loss in Other items includes restructuring, project and other one-off costs of $177 million (pre-tax) in 2017. It also
reflects an increase in Information System & Technology spend and further investment in the Commercial Centre in Singapore
and capability to support the Group's mine to market productivity programme.
Exploration & evaluation
2017 2016
Central exploration post-tax charge (US$ millions) (178) (147)
Central exploration & evaluation expenditure in 2017 (post divestments and tax) resulted in a charge to underlying earnings
of $178 million.
The pre-tax exploration & evaluation spend across the Group totalled $445 million in 2017. This included evaluation spend
of $227 million in the Product Groups, mostly in Copper.
Rio Tinto has a strong portfolio of projects with activity in 16 countries across some eight commodities in Australia,
Chile, Kazakhstan, Mongolia, Papua New Guinea, Peru, Serbia, United States and Zambia. Mine-lease exploration continued at
a number of Rio Tinto managed businesses including Pilbara Iron, Richards Bay Minerals, Oyu Tolgoi and Weipa. The
exploration expenditure was primarily focused on copper.
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 $ million impact on
2017 full year 2017
underlying earningsof a 10% change in prices/exchange rates
Aluminium $1,969/t 592
Copper 281c/lb 242
Gold $1,257/oz 30
Iron ore (62% Fe FOB) $64.1/dmt 1,037
Hard coking coal (realised) $169/t 69
Australian dollar against the US dollar 0.77 674
Canadian dollar against the US dollar 0.77 160
Oil (Brent) $54/bbl 54
Capital projects
Rio Tinto has a programme of high-quality projects delivering industry-leading returns across a broad range of
commodities.
Completed in 2017
Investment in the Silvergrass iron ore mine in the Pilbara, Australia, to maintain the Pilbara blend. $0.3bn $0.05bn The $338m expansion is expected to add 10 million tonnes of annual capacity. Commissioning was completed in the fourth quarter of 2017.
Construction of a desalination facility to ensure continued water supply and sustain operations at Escondida (Rio Tinto 30%), Chile. $1.0bn(RT share) - Approved in July 2013, the project provides a long-term sustainable supply of water for the operations. The project reached completion on budget in December 2017.
Remediation of the east wall at Rio Tinto Kennecott, US. $0.3bn - Following the pit wall slide in 2013, mine operations focused on remediation from the slide and the east wall of Bingham Canyon, including significant de-weighting and de-watering activities.
Ongoing and approved
Copper & Diamonds
Project funding for Grasberg, Indonesia, from March 2017 to December 2017. $0.1bn(RT share) - Approval in 2017 to continue investment in 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.
Investment to extend mine life at Rio Tinto Kennecott, US, beyond 2019. $0.7bn $0.4bn Funding for the continuation of open pit mining via the push back of the south wall: the project largely consists of simple mine stripping activities.
Development of A21 pipe at the Diavik Diamond Mine in Canada (Rio Tinto 60%). $0.2bn(RT share) $0.02bn(RT share) Approved in November 2014, the development of the A21 pipe is expected to sustain production levels. Dike construction and de-watering are complete. 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 $4.3bn The project was approved in May 2016. An annual project review was completed in the fourth quarter of 2017 and construction of the first drawbell is expected in mid-2020. Lateral development is on plan, Shaft 2 sinking is complete and Shaft 5 sinking is expected to be complete by the end of first
quarter of 2018.
Aluminium
Investment in the Amrun bauxite mine on the Cape York Peninsula in north Queensland, Australia, with a planned initial output of 22.8 million tonnes a year. $1.9bn $1.1bn Approved in December 2015, the project is advancing to plan. 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 capacity from 14.5 to 18.5 million tonnes a year. Rio Tinto's share of capex is $0.3bn. $0.7bn $0.3bn Approved in 2016. Financing completed in November 2016. First incremental shipment expected in the fourth quarter of 2018.
Investment in the Amrun bauxite mine on the Cape York Peninsula in north Queensland, Australia, with a planned initial
output of 22.8 million tonnes a year.
$1.9bn
$1.1bn
Approved in December 2015, the project is advancing to plan. 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 capacity from 14.5 to 18.5 million tonnes a
year. Rio Tinto's share of capex is $0.3bn.
$0.7bn
$0.3bn
Approved in 2016. Financing completed in November 2016. First incremental shipment expected in the fourth quarter of 2018.
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 Guidance and Transparency Rules of the Financial Conduct Authority and the Listing Rules of the Australian
Securities Exchange) to release publicly any updates or revisions to any forward-looking statement contained herein to
reflect any change in Rio Tinto's expectations with regard thereto or any change in events, conditions or circumstances on
which any such statement is based.
Nothing in this 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.
LEI: 213800YOEO5OQ72G2R82
Classification: 1.1. Annual financial and audit reports
Contacts
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www.riotinto.com
Follow @riotinto on Twitter
Media Relations, United KingdomIlltud HarriT +44 20 7781 1152M +44 7920 503 600 David OuthwaiteT +44 20 7781 1623M +44 7787 597 493 David Luff Media Relations, AustraliaJonathan RoseT +61 3 9283 3088M +61 447 028 913 Investor Relations, AustraliaNatalie WorleyT +61 3 9283 3063M +61 409 210 462 Rachel StorrsT +61 3 9283 3628M +61 417 401 018
T + 44 20 7781 1177
M + 44 7780 226 422 Investor Relations, United KingdomJohn 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
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