REG - Rio Tinto - Rio Tinto 2017 half year results <Origin Href="QuoteRef">RIO.L</Origin> - Part 2
02/08/2017 07:30
- Part 2: For the preceding part double click ID:nRSB8514Ma
contractual obligations to Yancoal Australia Limited. A majority of Rio Tinto
independent shareholders approved the transaction at a general meeting of Rio Tinto plc and Rio Tinto Limited on 27 June
and 29 June 2017 respectively. Subject to all remaining conditions precedent being satisfied it is expected that the
transaction will complete in the third quarter 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 85 per
cent interest in Simfer S.A. the company that owns the Simandou mining 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.
(m) Other Operations include Rio Tinto's 100 per cent interest in the Gove alumina refinery and Rio Tinto Marine.
(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.
Notes to financial information by business unit (continued)
(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) Assets and liabilities held for sale at 30 June 2017 principally comprise Rio Tinto's interests in Coal & Allied and
certain contractual obligations, with depreciation (up until the transfer to asset held for sale) and capital expenditure
for the period included against the Rio Tinto Coal Australia line within the FIBU. Assets held for sale also include
certain separate assets at Rio Tinto Kennecott.
Review of operations
Iron Ore
First half 2017 First half 2016 Change
Pilbara production (million tonnes - Rio Tinto share) 128.7 131.3 -2%
Pilbara production (million tonnes - 100%) 157.0 160.8 -2%
Pilbara shipments (million tonnes - Rio Tinto share) 127.2 129.8 -2%
Pilbara shipments (million tonnes - 100%) 154.3 158.9 -3%
Gross sales revenue (US$ millions) 8,763 6,331 +38%
Underlying EBITDA (US$ millions) 5,607 3,438 +63%
Underlying earnings (US$ millions) 3,255 1,743 +87%
Net cash generated from operating activities (US$ millions) 4,209 2,580 +63%
Capital expenditure (US$ millions) (528) (358) +47%
Free cash flow (US$ millions) 3,682 2,222 +66%
Iron Ore Company of Canada and Simandou are reported within Energy & Minerals, reflecting management responsibility.
Performance
The Iron Ore group's underlying earnings of $3,255 million in 2017 first half were 87 per cent or $1,512 million higher
than 2016 first half. The group benefited from higher prices, reflected in the 42 per cent rise, on average, in the Platts
62 per cent index, and further cash cost savings.
Pre-tax cash cost improvements in the Iron Ore group were $156 million in 2017 first half and have now delivered $1.5
billion of cumulative savings compared with the 2012 base. This is reflected in a reduction in Pilbara unit cash costs to
$13.8 per tonne in 2017 first half (2016 first half: $14.3 per tonne). Increased productivity and timing of stockpile
rebuilds have contributed to the positive trend and offset the impact of lower volumes and slightly higher energy costs.
Pilbara operations delivered a free on board (FOB) EBITDA margin of 69 per cent in 2017 first half, compared with 58 per
cent in 2016 first half.
Gross sales revenues for Pilbara operations in 2017 first half of $8,723 million included freight revenue of $569 million
(2016 first half: $344 million).
Net cash generated from operating activities of $4,209 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 $3,682 million, which was $1,460 million higher than 2016 first half, more than offsetting the 47 per
cent rise in capital expenditure attributable to the ongoing construction of Silvergrass.
Markets
First half sales of 154.3 million tonnes (Rio Tinto share 127.2 million tonnes) were three per cent lower than the same
period of 2016 due to weather impacts in the first quarter and accelerated rail maintenance activity in the second
quarter.
Approximately 62 per cent of sales in 2017 first half were priced with reference to the current month average, 19 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 14 per cent were sold on the spot market. Approximately 64 per cent of 2017 first half sales were made
on a cost and freight (CFR) basis, with the remainder sold free on board (FOB).
Achieved average pricing in 2017 first half was $62.4 per wet metric tonne on an FOB basis (2016 first half: $44.5 per wet
metric tonne). This equates to $67.8 per dry metric tonne (2016 first half: $48.4 per dry metric tonne), which compares
with the average FOB Platts price of $68.2 per dry metric tonne for 62 per cent iron Pilbara fines (2016 first half: $48.1
per dry metric tonne).
Operations
Pilbara operations produced 157.0 million tonnes (Rio Tinto share 128.7 million tonnes) in the first half of 2017, two per
cent lower than the same period of 2016 reflecting adverse weather conditions in the first quarter and accelerated rail
maintenance activity in the second quarter.
Further rail maintenance will continue throughout the remainder of 2017, albeit at a lower level than in the second
quarter. The expenditure, a portion of which is capital, is included within the Group's existing guidance.
New projects and growth options
At the Silvergrass project, earthworks for the plant have been completed and installation of the conveyor is underway. Full
commissioning remains on target for the fourth quarter of this year.
The automation of the Pilbara train system (AutohaulTM) is continuing to progress well, with around 20 per cent of all
train kilometres now completed in autonomous mode, but with drivers on-board managing the remaining safety and reliability
systems. Improvements to system performance continue and the project is on schedule to be completed by the end of 2018.
2017 shipments guidance
Rio Tinto's Pilbara shipments in 2017 are expected to be around 330 million tonnes (100 per cent basis), subject to weather
conditions.
Aluminium
First half 2017 First half 2016 Change
Production (Rio Tinto share)
Bauxite (000 tonnes) 24,167 23,160 +4%
Alumina (000 tonnes) 4,070 4,107 -1%
Aluminium (000 tonnes) 1,777 1,797 -
Gross sales revenue (US$ millions) 5,368 4,553 +18%
Underlying EBITDA (US$ millions) 1,666 1,076 +55%
Underlying earnings (US$ millions) 759 377 +101%
Net cash generated from operating activities (US$ millions) 1,130 974 +16%
Capital expenditure - excluding EAUs (US$ millions) (458) (328) +40%
Free cash flow (US$ millions) 670 641 +5%
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 curtailed and reported separately from Aluminium within Other Operations.
Performance
The Aluminium group's underlying earnings of $759 million more than doubled compared with 2016 first half, driven by a
strong operational performance and a rise in alumina and aluminium LME prices. Further cash cost reductions, productivity
improvements and volume increases enhanced the group's EBITDA margin from integrated operations to 35 per cent (2016 first
half: 25 per cent).
Free cash flow generation was marginally higher than 2016 first half despite the higher capital expenditure as construction
at Amrun gathers pace. This was due to the resilient EBITDA performance.
Pre-tax cash cost improvements in the Aluminium group were $80 million in 2017 first half. The group has now delivered $1.7
billion of cumulative savings compared with the 2012 base.
Markets
The 2017 first half cash LME aluminium price averaged $1,880 per tonne, an increase of 22 per cent on 2016 first half.
Market premia increased in all regions: in the US, the mid-West market premium averaged $206 per tonne in 2017 first half,
compared with an average of $182 per tonne in 2016 first half, a 13 per cent rise.
Overall, the group achieved an average realised aluminium price of $2,151 per tonne in 2017 first half (2016 first half:
$1,805 per tonne). This includes premia for value-added products (VAP), which represented 57 per cent of primary metal
produced in 2017 first half and generated attractive product premia averaging $217 per tonne of VAP sold (2016 first half:
$226 per tonne) on top of the physical market premia.
The strong production performance, combined with healthy demand from China, enabled the group to increase its share of
third party bauxite shipments by seven per cent to 14.9 million tonnes (2016 first half: 13.9 million tonnes).
Operations
Bauxite production of 24.2 million tonnes was four per cent higher than 2016 first half following record production at both
Gove and Weipa. Bauxite underlying earnings declined by 12 per cent to $215 million in 2017 first half with the higher
volumes and continued focus on cash cost reductions partly offsetting the impacts of the stronger Australian dollar and
slightly lower prices.
Gross sales revenues for bauxite in 2017 first half were relatively flat at $957 million and included freight revenues of
$111 million (2016 first half: $96 million).
Alumina production was slightly lower than 2016 first half: a strong performance at Vaudreuil was offset by reduced
production at the Yarwun and Queensland alumina refineries due to weather disruptions and timing of major maintenance.
There was a continued focus on reducing cash costs and productivity enhancements throughout the operations. These actions,
together with higher realised prices, led the Alumina business to deliver positive free cash flow, EBITDA and underlying
earnings. Underlying earnings of $111 million in 2017 first half represented a strong turnaround from a loss of $83 million
in 2016 first half.
Aluminium production was stable half-on-half. Strong production was achieved across most smelters, offset by the partial
production curtailment at the Boyne Island smelter in Australia due to high power prices in Queensland in the first half of
2017. The rise in LME prices drove Aluminium earnings 200 per cent higher, with Primary Metal (Canada, Europe and Middle
East) earnings of $322 million, and Pacific Aluminium (Australia, New Zealand) earnings of $92 million.
New projects and growth options
The $1.9 billion Amrun bauxite project on the Cape York Peninsula in north Queensland is advancing to plan in both
engineering and construction. Key construction activities have commenced, including piling for the jetty and wharf, whilst
fabrication of the process plant is progressing well. The project remains on schedule for first shipment in the first half
of 2019.
The $0.7 billion1 bauxite project to expand the production capacity of the Compagnie des Bauxites de Guinée (CBG) to 18.5
million tonnes per annum1 met all approval conditions for execution in November 2016. The first shipment from the expansion
project is expected in October 2018. The expansion is currently in the execution phase.
2017 production guidance
Rio Tinto's expected share of production is 48 to 50 million tonnes of bauxite, 8.0 to 8.2 million tonnes of alumina and
3.5 to 3.7 million tonnes of aluminium.
1 100 per cent basis. Rio Tinto's share of capex and production is 45 per cent.
Copper & Diamonds
First half 2017 First half 2016 Change
Production (Rio Tinto share)
Mined copper (000 tonnes) 208.9 265.1 -21%
Refined copper (000 tonnes) 77.1 101.4 -24%
Diamonds (000 carats) 8,487 8,959 -5%
Gross sales revenue (US$ millions) 1,922 2,453 -22%
Underlying EBITDA (US$ millions) 771 666 +16%
Underlying (loss) (US$ millions) (69) (56) -23%
Net cash generated from operating activities (US$ millions)1 649 415 +56%
Capital expenditure - excluding EAUs (US$ millions) (585) (446) +31%
Free cash flow (US$ millions) 62 (28) n/a
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 $69 million, compared to a loss of $56 million in 2016 first
half. Higher prices, continued success with cash cost reductions and the final insurance settlement ($101 million) relating
to the Manefay slide at Kennecott in 2013 were outweighed by 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 $62 million despite a one third increase in capital expenditure as activity ramped up
at the Oyu Tolgoi Underground Project. All managed operations were free cash flow positive in 2017 first half, with the
exception of Oyu Tolgoi due to the investment in the Underground Project.
The group achieved $173 million of pre-tax cash cost improvements during 2017 first half, bringing total savings delivered
across the Copper & Diamonds group since 2012 to $1.4 billion.
Markets
Average LME copper prices increased 23 per cent to 262 cents per pound and gold increased one per cent to $1,238 per ounce
compared with 2016 first half.
Rough diamond demand was solid in 2017 first half as factories in India increased manufacturing capacity based on an
improved outlook in key emerging markets, resulting in re-stocking activity throughout the pipeline.
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 $174 million compared with 2016 first half.
At 30 June 2017, the group had an estimated 205 million pounds of copper sales that were provisionally priced at 262 US
cents per pound. The final price of these sales will be determined during the second half of 2017. This compares with 235
million pounds of open shipments at 31 December 2016, provisionally priced at 250 US cents per pound.
Operations - Copper
Mined copper production was 21 per cent lower than 2016 first half, mainly due to the impact of the strike at Escondida in
the first quarter of 2017. Higher mined copper production at Kennecott half-on-half reflected increased mining in the East
Wall ore body while production from the Oyu Tolgoi open pit reduced as anticipated due to lower head grades and the
drawdown of stockpiles.
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 Freeport
Indonesia's ('PT-FI') operating rights, including its right to continue to export concentrate without restriction. PT-FI
also experienced a high level of absenteeism of workers and a strike during April and May 2017. These will have 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 April 2017, Freeport reached agreement with the Indonesian government to resume concentrate exports (which had been
suspended) for a six-month period expiring in October 2017. During this period, Freeport will continue to negotiate with
the Indonesian government in relation to its operating licenses and investment stability. Discussions are continuing
between Freeport and the Indonesian government to reach a mutually satisfactory longer-term agreement.
Rio Tinto is reporting its metal share for the first half of 2017 as zero.
Operations - Diamonds
Diamond production was five per cent lower than 2016 first half due to lower ore volumes processed at Argyle following wet
weather and additional maintenance. This was partly offset by higher carats recovered at Diavik due to higher processed
volumes and an increase in recovered grades.
New projects and growth options
Contractor mobilisation at the Oyu Tolgoi Underground Project has continued to ramp up, with a workforce of over 2,650 on
site, 85 per cent of whom are Mongolian nationals. Construction of key underground facilities is on schedule, with
commissioning in progress and underground mine development advancing. The accommodation camp, conveyor to surface decline
and the sinking of shaft #2 and shaft #5 continue to progress. Construction of the first draw-bell is expected in
mid-2020.
First production from the Los Colorados Extension project has been delayed due to the impact of the strike at Escondida in
the first quarter of 2017. First tonnes are now expected in the third quarter of 2017, adding incremental annual capacity
of approximately 200 thousand tonnes of copper (100 per cent basis) in the near term.
Development of the A21 pipe at Diavik remains on schedule and within budget.
2017 production guidance
Rio Tinto's expected share of production is 500 to 550 thousand tonnes of mined copper,
185 to 225 thousand tonnes of refined copper and 19 to 24 million carats of diamonds.
Energy & Minerals
First half 2017 First half 2016 Change
Production (Rio Tinto share)
Hard coking coal (000 tonnes) 3,138 3,780 -17%
Semi-soft coking coal (000 tonnes) 1,575 2,067 -24%
Thermal coal (000 tonnes) 9,176 8,128 +13%
Iron ore pellets and concentrates (000 tonnes) 5,262 4,993 +5%
Titanium dioxide (000 tonnes) 647 481 +34%
Borates (000 tonnes) 256 250 +2%
Salt (000 tonnes) 2,327 2,555 -9%
Uranium (000 lbs) 3,111 3,020 +3%
Gross sales revenue (US$ millions) 3,855 2,960 +30%
Underlying EBITDA (US$ millions) 1,434 531 +170%
Underlying earnings (US$ millions) 652 82 +695%
Net cash generated from operating activities (US$ millions) 1,057 422 +150%
Capital expenditure (US$ millions) (145) (134) +8%
Free cash flow (US$ millions) 908 285 +219%
Iron Ore Company of Canada and Simandou are reported within Energy & Minerals, reflecting management responsibility.
Performance
Underlying earnings for the Energy & Minerals group were $652 million, nearly eight times higher than 2016 first half, as
the group benefited from higher prices, primarily coal and iron ore, and lower depreciation following the reclassification
of Coal & Allied to Assets held for sale from 1 February 2017.
Pre-tax cash cost improvements in the Energy & Minerals group were $41 million in 2017 first half: 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 first half of $3,855 million were 30 per cent higher than 2016 first
half as a result of higher prices.
Net cash generated from operating activities of $1,057 million was 150 per cent higher than 2016 first half as the higher
prices flowed through. These also boosted free cash flow which, at $908 million, was more than three times higher than 2016
first half.
Markets
Gross sales revenues for Rio Tinto Coal Australia in 2017 first half of $1,540 million (2016 first half: $1,125 million)
were 37 per cent higher than 2016 first half. Coal prices fell during 2017 first half from the levels seen at the end of
2016, but were significantly higher than 2016 first half. The group achieved coking coal prices of $177 per tonne, on
average, in 2017 first half on an FOB basis (2016 first half: $79 per tonne). Average prices realised for thermal coal were
$78 per tonne on an FOB basis in 2017 first half (2016 first half: $51 per tonne).
Thermal coal revenues of $732 million in 2017 first half (2016 first half: $611 million) represented 3.7 per cent of the
Rio Tinto Group total (2016 first half: 3.8 per cent).
Titanium dioxide feedstock demand recovered further in 2017 first half as the industry continued to absorb excess
inventories, coupled with underlying pigment demand improvement in all major regions. Zircon prices have increased due to
short-term supply tightness. Underlying demand remains largely flat, although nascent growth is observed in the North
American market.
Borates demand returned to growth mode in 2017 first half supported by construction-related industries in North America,
improving fundamentals in global agricultural markets and favourable underlying demand in both China, which is recovering
from a low base, and India.
Uranium prices remained low during the first half of 2017. The market remains oversupplied, with this situation expected to
remain for several years.
Operations - Energy
Hard coking coal production was 17 per cent below 2016 first half due to the impact of Cyclone Debbie on Hail Creek, where
pit access was restricted by water.
Semi-soft coking coal production was 24 per cent lower than 2016 first half, reflecting mine production sequencing changes
at Hunter Valley Operations and Mount Thorley Warkworth following lower market demand for semi-soft coking coal.
Thermal coal production was 13 per cent higher than 2016 first half (adjusted to exclude Bengalla production), due to mine
sequencing at Hunter Valley Operations as well as an increased focus on thermal coal production at Hail Creek as a result
of Cyclone Debbie.
Uranium production was three per cent higher than 2016 first half, reflecting lower production at Energy Resources of
Australia which was more than offset by higher production at Rössing.
On 26 June 2017, Rio Tinto confirmed Yancoal Australia as its preferred buyer of the Coal & Allied thermal coal assets,
after an improved offer from Yancoal of $2.69 billion. Rio Tinto shareholders have since approved the sale which is
expected to complete in the third quarter of 2017. In the first half of 2017, Coal & Allied reported gross sales revenue of
$784 million (2016 first half: $582 million) and free cash flow of $263 million (2016 first half: $97 million).
Operations - Iron Ore Company of Canada (IOC)
Rio Tinto's share of IOC pellet and concentrate production of 5.3 million tonnes was five per cent higher than 2016 first
half, with pellet demand continuing to be strong and product mix being optimised to meet customer demand.
Operations - Minerals
Titanium dioxide slag production was 34 per cent higher than 2016 first half, reflecting higher market demand. The rebuild
of a furnace at Rio Tinto Fer et Titane (RTFT) leaves only one of nine furnaces at RTFT idle, along with one of four
furnaces at Richards Bay Minerals (RBM). RTFT expects to operate eight furnaces for the remainder of the year, compared
with seven in 2016.
The respective movements in the production of borates and salt were driven by market demand and the impact of weather at
Dampier Salt in the first half of 2017.
New projects and growth options
The feasibility study for the Zulti South development at RBM is entering its final phase. The project has now secured all
the environmental permits needed for its development.
The Jadar project in Serbia is a lithium-borate deposit discovered by Rio Tinto in 2004. Project studies are ongoing to
determine the economic business case. On 24 July 2017, Rio Tinto announced that it had signed a Memorandum of Understanding
with the Government of Serbia in respect of the implementation of the Jadar project.
In light of current market conditions for uranium, no substantive expenditure is now budgeted, or planned, to evaluate the
Roughrider deposit in Canada. Due to the uncertainty over whether commercially viable quantities of mineral resources could
be identified at a future date, a post-tax impairment charge of
$257 million has been recorded to fully write-off the mineral interests recognised on acquisition.
Rio Tinto and Chinalco continue to hold discussions following the signing of a non-binding agreement on 28 October 2016 for
Rio Tinto to sell its entire stake in the Simandou project in Guinea to Chinalco.
2017 production guidance
In 2017, Rio Tinto's share of production is expected to be 17 to 18 million tonnes of thermal coal, 3.3 to 3.9 million
tonnes of semi-soft coking coal, 7.2 to 7.8 million tonnes of hard coking coal, 11.4 to 12.4 million tonnes of saleable
production of iron ore pellets and concentrates, 1.2 to 1.3 million tonnes of titanium dioxide slag, 0.5 million tonnes of
boric oxide equivalent and 6.5 to 7.5 million pounds of uranium. Guidance for coal will be updated following completion of
the sale of Coal & Allied to Yancoal which is expected to take place in the third quarter of 2017.
Other Operations
First half 2017 First half 2016
Underlying EBITDA (US$ millions) - (12)
Underlying loss (US$ millions) (34) (32)
Capital expenditure (US$ millions) 42 (1)
Other operations relates to legacy sites including the Gove alumina refinery, where production was curtailed on 28 May
2014.
Other items
First half 2017 First half 2016
Underlying EBITDA (US$ millions) (351) (255)
Underlying loss (US$ millions) (226) (159)
Capital expenditure (US$ millions) (6) 60
Central office costs, central Growth & Innovation costs and other central items are reported in Other items.
Exploration & evaluation
First half 2017 First half 2016
Post-tax charge (US$ millions) (76) (64)
Central exploration & evaluation expenditure in 2017 first half (post divestments and tax) resulted in a charge to
underlying earnings of $76 million.
Rio Tinto has a strong portfolio of projects with activity in 15 countries across some eight commodities. The bulk of the
exploration spend in this quarter was focused on copper targets 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, Richards Bay Minerals, Oyu Tolgoi, Kennecott and Weipa.
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 first half full year 2017
underlying earningsof a 10% change in prices/exchange rates
Aluminium $1,880/t 592
Copper 262c/lb 190
Gold $1,238/oz 28
Iron ore (62% Fe FOB) $68.2/dmt 1,057
Hard coking coal (benchmark) $285/t 68
Thermal coal (average spot) $81/t 85
Australian dollar against the US dollar 0.75 641
Canadian dollar against the US dollar 0.75 213
Oil (Brent) $53/bbl 47
DIRECTORS' REPORT
for the half year ended 30 June 2017
Review of operations and important events
A detailed review of the Group's operations, the results of those operations during the half year ended 30 June 2017 and
likely future developments are given on pages 1 to 23. Important events that have occurred during the period and up until
the date of this report are set out below.
Financial
On 8 February 2017, Rio Tinto announced the commencement of a $500 million share buy-back of Rio Tinto plc shares, expected
to complete over the period from 1 March 2017 to 31 December 2017. Any shares repurchased are cancelled. As at 1 August
2017, 7.4 million shares ($300 million) had been bought back by Rio Tinto plc.
On 5 April 2017, the Australian Commissioner of Taxation issued amended income tax assessments to Rio Tinto for the
calendar years 2010 to 2013, requiring Rio Tinto to pay additional tax of A$379 million plus interest of A$68 million, a
total of A$447 million. The Australian Tax Office has acknowledged that the amended assessments do not relate to tax
avoidance, and no penalties are payable. Rio Tinto has objected to the amended assessments.
On 10 April 2017, Rio Tinto unveiled details of the $4 billion paid in taxes and royalties and the more than $35 billion
direct economic contribution delivered to host communities in 2016.
On 23 June 2017, Rio Tinto announced that it had successfully completed its bond tender and redemption exercises announced
on 22 May 2017 and had reduced gross debt by a further $2.5 billion. Since the start of 2016 the nominal value of the
Group's outstanding bonds has reduced from approximately $21 billion to about $9.5 billion. The early redemption costs
reduced underlying earnings by approximately $180 million and cash flow from operating activities by approximately $259
million in the first half of 2017. These reductions will be offset by savings in future periods.
People
Executive Committee
With effect from April 2017, Rio Tinto appointed Philip Richards as Group Executive, Group General Counsel. Philip has
responsibility for our Legal, Governance and Risk functions and is a member of the Rio Tinto Executive Committee.
Board
On 10 February 2017, Rio Tinto appointed David Constable and Sam Laidlaw to the board with immediate effect and announced
that Simon Henry would join the board with effect from 1 July 2017. Mr Henry's appointment to the board was subsequently
brought forward and he was appointed a director with effect from 1 April 2017. It was also announced that Robert Brown and
Anne Lauvergeon would not seek re-election at the 2017 annual general meetings. Both stepped down from the board on 4 May
2017.
On 9 March 2017, the Group announced that its chairman, Jan du Plessis, is to retire after the completion of an orderly
succession process. A successor is expected to be announced before the end of 2017, with Mr du Plessis retiring as chairman
by no later than the 2018 annual general meeting in Australia.
On 20 June 2017, Rio Tinto announced that senior independent director John Varley had resigned as a non-executive director
and would step down from the board with immediate effect. Mr Varley was also chair of the Remuneration Committee.
On 26 June 2017, Rio Tinto announced that Ann Godbehere had been appointed senior independent director on the Rio Tinto
board, in which capacity she would lead the process under way to appoint a new chairman to succeed Jan du Plessis. Ann
joined the Remuneration Committee and remains the chair of the Audit Committee.Simon Thompson was appointed chair of the
Remuneration Committee. All of these appointments were with immediate effect.
Transactions
On 24 January 2017, Rio Tinto announced that it had entered into a binding agreement for the sale of its Australian wholly
owned subsidiary, Coal & Allied Industries Limited, to Yancoal Australia Limited ("Yancoal") for up to $2.45 billion. This
required shareholder approval as Yancoal is considered to be a related party of Rio Tinto as a consequence of Chinalco
being a 10.1 per cent shareholder in the Rio Tinto Group. Following competing bids by Glencore plc between 9 June and 23
June 2017, an improved revised offer from Yancoal was received on 25 June 2017, comprising total consideration of $2.69
billion. Following general meetings of Rio Tinto plc and Rio Tinto Limited on 27 June 2017 and 29 June 2017, respectively,
the transaction was approved by eligible shareholders, with 97.2 per cent of the votes cast voting in favour.
Directors
The directors serving on the boards of Rio Tinto plc and Rio Tinto Limited during and since the end of the half year are:
Notes Date of appointment
Chairman
Jan du Plessis (N and R) 1 September 2008
Executive directors
Jean-Sébastien Jacques, chief executive 17 March 2016
Chris Lynch, chief financial officer* 1 September 2011
Non-executive directors
Ann Godbehere (senior independent director) (A, R and N) 9 February 2010
Megan Clark (R, N and S) 20 November 2014
David Constable (N and S) 10 February 2017
Simon Henry (A and N) 1 April
2017
Sam Laidlaw (N and S) 10 February 2017
Michael L'Estrange (N and S) 1 September 2014
Paul Tellier (A, R and N) 25 October
2007
Simon Thompson (A, R, N and S)** 1 April 2014
Robert Brown and Anne Lauvergeon stepped down from the board on 4 May 2017, having been directors since 1 April 2010 and 15
March 2014, respectively. John Varley stepped down from the board on 20 June 2017, having been a director since September
2011.
*Chris Lynch was appointed to the board as a non-executive director on 1 September 2011: he became an executive director on
18 April 2013.
**On 28 July 2017 Simon Thompson joined the Audit Committee and stepped down from the Sustainability Committee.
Notes
(A) Audit Committee
(R) Remuneration Committee
(N) Nominations Committee
(S) Sustainability Committee
Dividend
A 2016 final dividend was paid on 6 April 2017 to holders of Rio Tinto plc and Rio Tinto Limited ordinary shares and Rio
Tinto plc ADR holders. The 2016 final dividend, equivalent to 125 US cents per share, was determined by the board on 8
February 2017. Rio Tinto plc shareholders received 100.56 pence per share and Rio Tinto Limited shareholders received
163.62 Australian cents per share, based on the applicable exchange rates on 7 February 2017. Rio Tinto plc ADR holders
received 125.63 US cents per ADR, based on the exchange rate on 30 March 2017 to convert from pounds sterling to US
dollars.
The 2017 interim dividend, equivalent to 110.00 US cents per share, will be paid on 21 September 2017 to holders of
ordinary shares and ADRs. Rio Tinto plc shareholders will receive 83.13 pence per share and Rio Tinto Limited shareholders
will receive 137.72 Australian cents per share based on the applicable exchange rates on 1 August 2017. ADR holders receive
dividends in US dollars, which will be converted from pounds sterling by reference to the exchange rate applicable on 14
September 2017. The dividend will apply to Rio Tinto plc and ADR holders and to Rio Tinto Limited shareholders on the
register at the close of business on 11 August 2017.
Principal risks and uncertainties
The principal risks and uncertainties that could materially affect Rio Tinto's results and operations are set out on pages
16 to 21 of the 2016 Annual report and are listed under the risk factor headings below. The Group's view of its principal
risks and uncertainties for the remaining six months of the financial year remains substantially unchanged. There may be
additional risks unknown to Rio Tinto and other risks, currently believed to be immaterial, which could turn out to be
material. These risks, whether they materialise individually or simultaneously, could significantly affect the Group's
business and financial results.
The Group will continue to monitor external areas of uncertainty and threat closely as well as remain vigilant on internal
controls, and incorporate any further developments as part of the full-year assessment of principal risks and
uncertainties.
(i) Financial risks
Market risks:
Commodity prices, driven by demand and supply for the Group's products, vary outside of expectations over time. Exchange
rate variations and geopolitical issues may offset or exacerbate this risk. Anticipating and responding to market movements
is inherently uncertain and outcomes may vary.
China's development pathway could impact demand for the Group's products outside of expectations.
Financial risks:
External events and internal discipline may impact Group liquidity.
Strategic risks:
Rio Tinto's ability to secure planned value by successfully executing divestments and acquisitions may vary.
The Group's ability to develop new projects successfully may vary.
(ii) Operational risks
HSEC risks:
Rio Tinto's operations and projects are inherently hazardous with the potential to cause illness or injury, damage to the
environment, disruption to a community or a threat to personal security.
Resources risks:
The success of the Group's exploration activity may vary. In addition, estimates of ore reserves are based on uncertain
assumptions that, if changed, could result in the need to restate ore reserves and mine plans.
Operations, projects and people risks:
Operational excellence is derived from high operational and human productivity. Productivity which is driven by
optimisation of the balance of people, process and systems may vary.
Attracting and retaining talent as the company and industry evolves presents a constant challenge.
(iii) Compliance risks
Stakeholder risks:
Strategic partnerships and third parties influence the Group's supply, operations and reputation. The Group's ability to
control the actions of these parties varies.
The Group's operations are located across a number of jurisdictions, which exposes the Group to a wide range of economic,
political, societal and regulatory environments.
Governance risks:
The Group's reputation and regulatory licences are dependent upon appropriate business conduct and are threatened by a
public allegation or regulatory investigation.
Corporate governance
The directors of Rio Tinto believe that highest standards of corporate governance are essential to its pursuit of greater
shareholder value and have continued to apply the standards discussed under "Corporate governance" on pages 55 to 66 of the
2016 Annual report which is available on the Rio Tinto Group website: riotinto.com.
Publication of half year results
In accordance with the UK Financial Conduct Authority's Disclosure Guidance & Transparency Rules and the Australian
Securities Exchange Listing Rules, the half year results will be made public and are available on the Rio Tinto Group
website.
Auditor's independence declaration
PricewaterhouseCoopers, the auditors of Rio Tinto Limited, have provided the auditor's independence declaration as required
under section 307C of the Corporations Act 2001 in Australia. This has been reproduced on page 59 and forms part of this
report.
The Directors' report is made in accordance with a resolution of the board.
Jan du Plessis
Chairman
2 August 2017
Capital projects
Rio Tinto has a programme of high-quality projects delivering industry-leading returns across a broad range of
commodities.
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) - Approved in July 2013, the project is designed to provide a long-term sustainable supply of water for the operations. It remains
on budget and has reached construction completion, with commissioning and ramp-up to be completed by the end of 2017.
Grasberg project funding from March to September 2017. $0.1bn(RT share) $0.05bn(RTshare) 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.
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. This activity was substantially completed in 2017 first
half.
Investment to extend mine life at Rio Tinto Kennecott, US beyond 2019. $0.7bn $0.5bn 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) $0.06bn(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 $4.8bn Approved in May 2016, first production from the underground is expected in 2020. Contractor mobilisation commenced in the third
quarter of 2016. Construction of key underground facilities is on schedule, with commissioning in progress and underground mine
development advancing. The accommodation camp, conveyor to surface decline and sinking of shaft #2 and shaft #5 continue to
progress.
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 $1.5bn 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 capacity from 14.5 to 18.5 million tonnes a year. Rio Tinto's share of capex is $0.3bn. $0.7bn $0.4bn Approved in 2016. Financing completed in November 2016. First incremental shipment expected in October 2018.
Iron ore
Development of the Silvergrass iron ore mine in the Pilbara, to maintain the Pilbara blend. $0.3bn $0.2bn The $338m approval in August 2016 is expected to add 10 million tonnes of annual capacity with commissioning anticipated for the
fourth quarter of 2017.
Iron ore
Development of the Silvergrass iron ore mine in the Pilbara, to maintain the Pilbara blend.
$0.3bn
$0.2bn
The $338m approval in August 2016 is expected to add 10 million tonnes of annual capacity with commissioning anticipated
for the fourth quarter 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 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.
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 Investor Relations, Australia/AsiaNatalie 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, 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
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