REG - Rio Tinto - Rio Tinto announces first half underlying earnings <Origin Href="QuoteRef">RIO.L</Origin> - Part 2
29/10/2014 11:01
- Part 2: For the preceding part double click ID:nRSG5022Oa
amortisation of discount related to provisions. Earnings attributed to business units do
not include amounts that are excluded in arriving at Underlying earnings.
(d) The Group holds 65 per cent of Robe River Iron Associates, of which 30 per cent is held through a 60 per cent owned
subsidiary. The Group's net beneficial interest is, therefore, 53 per cent.
(e) Presented on an integrated operations basis splitting activities between Bauxite and Alumina, Primary Metal 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. Following reintegration in 2013, the four aluminium smelters and
the Gove bauxite mine previously grouped within Pacific Aluminium in Other Operations are included within the Aluminium
group. The Gove alumina refinery is reported within Other Operations.
(f) Under the terms of a contractual agreement, Rio Tinto is entitled to 40 per cent of additional material mined as a
consequence of expansions and developments of the Grasberg facilities since 1998.
(g) Rio Tinto's interest in Oyu Tolgoi LLC is held indirectly through its 50.8 per cent investment in Turquoise Hill
which in turn owns 66 per cent of Oyu Tolgoi. The results of Oyu Tolgoi prior to commissioning are included within
evaluation projects / other for the six months ended 30 June 2013.
(h) Rio Tinto completed the divestment of its 57.7 per cent interest in Palabora Mining Company on 31 July 2013 and of
its 80 per cent interest in the Northparkes mine on 1 December 2013.
(i) Includes Rio Tinto's 80 per cent interest in Coal & Allied, through which Rio Tinto holds its beneficial interests
in Bengalla, Mount Thorley and Warkworth of 32 per cent, 64 per cent and 44.5 per cent respectively.
(j) Principal interests are the Benga project, a 65:35 joint venture with Tata Steel Limited, which is equity accounted,
and the wholly owned Zambeze coal project.
(k) Includes Rio Tinto's interests in Argyle (100 per cent), Diavik (60 per cent) and Murowa (77.8 per cent).
(l) Includes Rio Tinto's interests in Rio Tinto Fer et Titane ('RTFT') (100 per cent), QIT Madagascar Minerals (80 per
cent) and Richards Bay Minerals ('RBM', attributable interest of 74 per cent).
(m) Other Operations include Rio Tinto's 100 per cent interest in the Gove alumina refinery (refer to note e) and Rio
Tinto Marine. During 2013, Rio Tinto completed the sale of Constellium and the Sebree aluminium smelter.
(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 equity accounted units.
(o) Operating assets of subsidiaries comprise net assets excluding post retirement assets and liabilities, net of tax,
and are before deducting net debt. Operating assets are stated after deduction of non-controlling interests, which are
calculated by reference to the net assets of the relevant companies (i.e. inclusive of such companies' debt and amounts due
to or from Rio Tinto Group companies). In addition, Oyu Tolgoi's operating assets are shown net of Turquoise Hill's public
shareholders' interest in intragroup receivables from Oyu Tolgoi, previously shown in Other Copper. Comparative amounts
have been adjusted accordingly.
(p) Comprising Rio Tinto's interests in the Blair Athol thermal coal mine and assets and liabilities relating to the
anticipated disposal of Sør-Norge Aluminium. Net assets held for sale at 31 December 2013 comprised the Clermont and Blair
Athol thermal coal mines, and the Zululand Anthracite Colliery (ZAC) which is no longer reported as held for sale. Amounts
are presented after deducting non-controlling interests, including the non-controlling interests' share of third party net
debt and balances owed with Rio Tinto Group subsidiaries.
Review of operations
Iron Ore
First half 2014 First half 2013 Change
Production (million tonnes - Rio Tinto share) 109.9 100.1 +10%
Production (million tonnes - 100%) 139.5 127.2 +10%
Gross sales revenue (US$ millions) 12,596 11,797 +7%
Underlying EBITDA (US$ millions) 8,092 7,635 +6%
Underlying earnings (US$ millions) 4,683 4,273 +10%
Cash flows from operations (US$ millions) 7,879 7,415 +6%
Capital expenditure (US$ millions) 2,069 3,353 -38%
The Simandou iron ore project is reported within Diamonds & Minerals, reflecting management responsibility.
Performance
The Iron Ore group's underlying earnings of $4,683 million in 2014 first half were ten per cent higher than 2013 first
half. This uplift was attributable to record sales volumes in the Pilbara, cost savings initiatives (which enhanced
earnings by $181 million or $254 million pre-tax), a weaker Australian dollar and the absence of a $128 million one-off
iron ore royalty payable following a court decision in the first half of 2013. This positive momentum was achieved despite
the impact of lower prices which deflated earnings by $974 million.
The 38 per cent decline in capital expenditure reflects the completion of the port and rail element of the 290 Mt/a Pilbara
expansion in 2013 and near-completion of the 290 Mt/a mine expansions.
Markets
2014 first half global sales of 142 million tonnes (100 per cent basis) set a new record and were 20 per cent higher than
2013 first half, as the Group reached a 290 Mt/a run rate in the Pilbara two months ahead of schedule. Sales exceeded
production due to the drawdown of stockpiled iron ore inventory built at Pilbara mine sites in previous years to facilitate
a ramp-up of the expanded port and rail facilities to 290 Mt/a.
Operations
2014 first half global iron ore production of 139.5 million tonnes (Rio Tinto share 109.9 million tonnes) also set a new
record. A significant proportion of the additional tonnes have gone directly into Pilbara Blends, the largest traded iron
ore products by volume and the industry reference iron ores in Asian steel markets.
At Iron Ore Company of Canada (IOC), saleable production was five per cent lower than in 2013 first half due to an
unusually cold winter. Sales were constrained by frozen material: as a result, pellet sales were ten per cent lower and
concentrate sales were 20 per cent lower than in 2013 first half.
New projects and growth options
On 13 May 2014, Rio Tinto announced that its Pilbara iron ore system of mines, rail and ports had reached a run rate of 290
Mt/a, two months ahead of schedule.
The rail duplication and track work required for the 360 Mt/a expansion is now complete. Critical 360 Mt/a port
infrastructure remains on track for completion by the end of the first half of 2015.
In November 2013, Rio Tinto set out its breakthrough pathway to optimise the growth of mine capacity towards 360 Mt/a at a
target all-in capital intensity of between $120-130 per tonne (100 per cent basis or low-US$100s a tonne Rio Tinto share),
significantly lower than originally planned. A series of low-cost brownfield expansions will bring on additional tonnes to
feed the expanded infrastructure. From a base run rate of 290 Mt/a in May 2014, annual mine production capacity is planned
to increase by more than 60 million tonnes between 2014 and 2017. The majority of the low-cost growth will be delivered in
the next two years, with mine production of more than 330 million tonnes (100 per cent basis) expected from the Pilbara in
2015.
In May 2014, the full incremental capacity of the second phase of the Concentrator Expansion Project at IOC was delivered
with the commissioning of the additional ball mill.
2014 shipping and production guidance
Rio Tinto expects 2014 global shipments of approximately 300 million tonnes (100 per cent basis). 2014 production is
expected to be 295 million tonnes (100 per cent basis) from its global operations in Australia and Canada, subject to
weather constraints. Around five million tonnes of iron ore inventory is expected to be drawn down at the Pilbara mines
during the year.
Aluminium
First half 2014 First half 2013 Change
Production (Rio Tinto share)
Bauxite (000 tonnes) 20,188 20,522 -2%
Alumina (000 tonnes) 3,650 3,363 +9%
Aluminium (000 tonnes) 1,671 1,677 -
Gross sales revenue (US$ millions) 5,752 6,294 -9%
Underlying EBITDA (US$ millions) 1,097 870 +26%
Underlying earnings (US$ millions) 373 214 +74%
Cash flows from operations (US$ millions) 297 456 -35%
Capital expenditure (US$ millions) 752 1,087 -31%
The Gove alumina refinery is on care and maintenance and reported separately from Aluminium within Other Operations.
Performance
The Aluminium group's underlying earnings of $373 million were 74 per cent higher than in 2013 first half, and EBITDA
margins improved further. The main drivers were growing momentum from the cost reduction initiatives, a weaker Australian
and Canadian dollar and a further rise in market and product premiums, with 61 per cent of the Group's primary metal sales
sold as value added product generating a superior price. This was achieved despite a nine per cent decline in LME prices
over the period which lowered earnings by $265 million.
Cash cost improvements lifted earnings by $162 million ($228 million pre-tax). The savings included greater production
efficiencies and lower prices of raw materials, lower functional costs and increased production from Queensland Alumina
(QAL), Yarwun, AP60 and Alma which lowered the unit cash cost of production.
Markets
The 2014 first half cash LME aluminium price averaged $1,753 per tonne, a decrease of nine per cent on 2013 first half.
Market premiums for aluminium are at record levels in all regions, and are expected to remain strong in the near term. With
growing demand and tight physical markets, LME inventories have begun to decline. Much of the remaining inventory continues
to be tied up in financing deals due to higher forward prices and low interest rates.
Bauxite prices remain strong, underpinned by growing demand and the Indonesian bauxite ban that remains in place.
Operations
The Gove bauxite mine has been operating as an export business since the curtailment of the alumina refinery in May 2014.
Bauxite production and export capacity at Gove are expected to ramp up from current capacity of 6 Mt/a to 8 Mt/a by the end
of 2015, following upgrades to export infrastructure. Group bauxite production was two per cent lower than in 2013 first
half as Gove adjusted production to reflect the staged curtailment of the refinery.
First half alumina production was up nine per cent, reflecting stronger production at Yarwun and QAL which had both been
impacted by ex-tropical cyclone Oswald in the first half of 2013. Production at Yarwun is expected to reach full capacity
during the second half of 2015 as refinery design and construction challenges are progressively addressed.
Aluminium production for 2014 first half was in line with the same period of 2013. Productivity gains across the portfolio,
coupled with production from the new AP60 smelter, offset the loss of production from Shawinigan which closed in November
2013.
Further actions were taken to streamline the portfolio with the announcement on 3 July 2014 that Hydro Aluminium ASA would
acquire the Aluminium group's 50 per cent interest in the SØRAL smelter in Norway.
New projects and growth options
In February 2014, the Group announced that a review of major capital projects had identified a project overrun in relation
to the Kitimat Modernisation Project. The overrun evaluation is now complete and has identified the requirement for
additional capital of $1.5 billion to complete the project. This was approved by the Board in August 2014, taking the total
approved capital cost of the project to $4.8 billion. First production from the Kitimat Modernisation Project is expected
during the first half of 2015.
Aligned to the Aluminium group's bauxite growth strategy, the South of Embley project, a 22.5 Mt/a, tier one investment
opportunity in Cape York, Queensland, with mining costs expected to be in the first quartile, continues under evaluation.
Required regulatory permits are in place and the project is in advanced stage of study.
2014 production guidance
Rio Tinto's share of bauxite and aluminium production for 2014 is expected to be 41 million tonnes and 3.4 million tonnes,
respectively. Rio Tinto's share of alumina production is expected to be 7.6 million tonnes. This excludes alumina
production from the Gove alumina refinery, which moved to care and maintenance in May 2014, and is reported within Other
Operations.
Copper
First half 2014 First half 2013 Change
Production (Rio Tinto share)
Mined copper (000 tonnes) 323.0 263.0 +23%
Refined copper (000 tonnes) 170.4 135.9 +25%
Mined molybdenum (000 tonnes) 3.4 2.7 +27%
Mined gold (000 oz) 217 99 +119%
Refined gold (000 oz) 122 104 +17%
Gross sales revenue (US$ millions) 2,961 3,121 -5%
Underlying EBITDA (US$ millions) 1,177 896 +31%
Underlying earnings (US$ millions) 594 348 +71%
Cash flows from operations* (US$ millions) 554 331 +67%
Capital expenditure (US$ millions) 1,011 1,580 -36%
*Cash flows from operations exclude operating cash flows from equity accounted units (Escondida)
but include dividends from equity accounted units.
Performance
The Copper group's underlying earnings of $594 million were 71 per cent higher than 2013 first half. This strong
performance reflected increased volumes at Kennecott Utah Copper (KUC) following the recovery from the pit wall slide in
April 2013, delivery of further cash cost savings and lower exploration and evaluation spend. This momentum more than
offset the impact of lower prices and a $22 million loss on disposal of the Pebble project in Alaska. Cash cost savings
enhanced earnings by $206 million, or $289 million pre-tax, and were in addition to the $514 million of pre-tax savings
achieved in 2013.
Cash flows from operations of $554 million were 67 per cent higher than 2013 first half due to recovery at KUC and the
ramp-up of operations and sales at Oyu Tolgoi, which have more than offset the impact of divestments in 2013. The rate of
customer collections at Oyu Tolgoi accelerated in 2014 first half and monthly sales exceeded production which supports
inventory returning to appropriate levels by the end of 2014.
The Copper group remains focused on delivering its clear strategy with the immediate objective of improving the quality of
its current earnings. During the half the focus continued in three key areas: enhancing productivity at all operations,
improving cost performance and simplifying the portfolio around four tier one assets while building a pipeline of growth
options to make the most of the attractive long term industry fundamentals.
Good progress has been made on simplifying the portfolio. In addition to the $1.8 billion of divestments in 2013, the
Copper group announced:
· In April 2014, a gifting of its 19.1 per cent shareholding in Northern Dynasty Minerals Ltd owner of the Pebble
Project, to two local Alaskan charitable foundations.
· In July 2014, the divestment of its interest in the Sulawesi nickel project in Indonesia.
· In July 2014, that Turquoise Hill entered a share purchase agreement with National United Resources Holdings Limited
for the sale of a 29.95 per cent interest in South Gobi Resources Ltd.
Markets
Average prices in 2014 first half were lower than 2013 first half. Copper declined nine per cent to 312 cents per pound,
gold decreased 15 per cent to $1,290 per ounce and molybdenum declined two per cent to $12.10 per pound.
The total impact of price changes on the Copper group, including the effects of provisional pricing movements, resulted in
a decrease in underlying earnings of $91 million compared with 2013 first half.
At 30 June 2014, the Group had an estimated 266 million pounds of copper sales that were provisionally priced at US 317
cents per pound. The final price of these sales will be determined during the second half of 2014. This compared with 254
million pounds of open shipments at 31 December 2013, provisionally priced at US 333 cents per pound.
Operations
Mined copper production increased 23 per cent on a like-for-like basis, driven by higher grades and concentrator recoveries
at KUC and the ramp-up at Oyu Tolgoi.
At KUC, first half production of copper and gold contained in concentrates improved significantly on the same period in
2013. This reflected the recovery from the pit wall slide in April 2013, sustained improvements in grades at the mine,
higher throughput, and improved recoveries at the concentrator following completion of the flotation expansion. Molybdenum
production was 27 per cent higher compared with 2013 first half due to higher grades and throughput. Production of refined
copper at KUC was brought forward in anticipation of the 65-day smelter shutdown planned to start in September, which is
expected to lead to lower cathode production in the second half of 2014.
Mined copper production at Escondida decreased two per cent on the first half of 2013, driven by lower ore grades, which
was partially offset by higher mill throughput.
First half production at Oyu Tolgoi was 61.5 thousand tonnes of copper and 179 thousand ounces of gold in concentrates (Rio
Tinto share 20.6 thousand tonnes and 60 thousand ounces, respectively). Customer collections from the Chinese bonded
warehouse accelerated, with the sale of 64.7 thousand tonnes of copper and 154 thousand ounces of gold in concentrates (100
per cent basis) recognised in the first half of 2014.
New projects and growth options
Growth opportunities in the portfolio are centred on development options at Resolution and La Granja and the second stage
of development at Oyu Tolgoi. This requires the resolution of all outstanding shareholder issues, the finalisation and
approval of the feasibility study by all shareholders including the Government of Mongolia, the agreement of a
comprehensive funding plan including project finance and the receipt of all relevant permits before further investment will
be undertaken. The outstanding shareholder issues include the satisfactory resolution of the recent tax claims and the
potential breach of the Investment Agreement. Delays to the restart of the development of the underground project could
have an adverse impact on the carrying value of Oyu Tolgoi and result in impairment.
On 23 June 2014, Oyu Tolgoi LLC received an audit report from the Mongolian Tax Authority claiming unpaid taxes, penalties
and disallowed entitlements associated with the initial development of the Oyu Tolgoi mine. On 25 June, Turquoise Hill, a
50.8 per cent owned subsidiary of Rio Tinto, notified shareholders that a notice of dispute had been filed with the
Government of Mongolia. All parties continue to work together to reach a common understanding of these issues.
Project finance commitments have been extended to 30 September 2014.
2014 production guidance
Rio Tinto expects its share of mined copper production to be approximately 585,000 tonnes and refined copper production to
be 300,000 tonnes.
Energy
First half 2014 First half 2013 Change
Production (Rio Tinto share)
Hard coking coal (000 tonnes) 3,888 3,552 +9%
Semi-soft coking coal (000 tonnes) 1,839 2,186 -16%
Thermal coal (000 tonnes) 11,618 11,030 +5%
Uranium (000 lbs) 1,099 4,744 -77%
Gross sales revenue (US$ millions) 2,355 2,592 -9%
Underlying EBITDA (US$ millions) 211 402 -48%
Underlying loss (US$ millions) (19) (52) +63%
Cash flows from operations (US$ millions) 193 278 -31%
Capital expenditure (US$ millions) 106 510 -79%
Performance
The Energy group's underlying loss of $19 million compared with 2013 first half loss of $52 million. A programme of
aggressive cost and productivity improvements, which saw record half year thermal coal production, boosted earnings by $91
million ($128 million pre-tax) while benefits associated with weaker local currencies added a further $130 million. This
was offset by significantly lower prices, which reduced earnings by $205 million, and a reduced contribution following
suspension of uranium processing operations at Energy Resources of Australia (ERA). Operating cash flows were driven by
lower EBITDA.
Markets
At the end of the first half of 2014 thermal coal prices had declined to the lowest level since October 2009 with downward
price pressure the result of global oversupply. Despite this, demand for Rio Tinto's products from the major markets of
Japan, Korea and Taiwan remained strong.
The coking coal market has also been impacted by oversupply in 2014 first half, with prices now stable but low relative to
prior years. Demand from India continues to grow in line with its increasing steel demand.
Uranium spot prices are at levels not experienced since June 2005. As existing long term contracts expire, further
curtailments and closures are expected to occur. Any recovery is likely to be dampened by record inventory levels.
Operations
Hard coking coal production in Australia was ten per cent higher than the first half of 2013. This was largely driven by
increased production at the Kestrel mine, where the coal handling preparation plant had been shut for upgrade works in the
first half of 2013 as part of the extension project completed later that year.
Semi-soft coking coal production was 16 per cent lower than the first half of 2013. This reflects changes in the production
mix to maximise higher margin thermal coal.
Australian thermal coal production increased by six per cent compared with 2013 first half due to productivity gains in the
Hunter Valley and additional volumes produced from a processing plant by-product stream at Hail Creek.
First half production in Mozambique was affected by rail and port constraints, as well as stoppages and operational changes
in response to security considerations in the first quarter. On 30 July 2014, Rio Tinto announced that it reached an
agreement to sell the Benga coal mine and other projects in the Tete province of Mozambique, to International Coal Ventures
Private Limited for $50 million.
First half uranium production declined 77 per cent on the same period of 2013 with both ERA and Rössing experiencing leach
tank failures in December 2013. Processing operations were suspended at ERA and were progressively restarted from 5 June
following receipt of regulatory approvals. At Rössing, processing operations were reduced in the first quarter due to the
December leach tank failure and in the second quarter following a planned maintenance shutdown.
2014 production guidance
In 2014, Rio Tinto expects its share of thermal coal production to be 17.5 million tonnes which excludes 2.5 million tonnes
of production from the Clermont mine prior to the divestment. Rio Tinto's share of production of Australian hard coking
coal and semi-soft coking coal is expected to be 7.4 million tonnes and 3.0 million tonnes, respectively.
Rio Tinto's share of uranium production is expected to be between 4.3 and 5.1 million pounds. This follows operational
changes at Rössing in response to current market conditions. Progression to full processing capacity at ERA is anticipated
in the third quarter.
Diamonds & Minerals
First half 2014 First half 2013 Change
Production (Rio Tinto share)
Titanium dioxide (000 tonnes) 762 888 -14%
Borates (000 tonnes) 259 248 +4%
Diamonds (000 carats) 7,482 7,370 +2%
Salt (000 tonnes) 3,374 3,255 +4%
Gross sales revenue (US$ millions) 1,979 2,046 -3%
Underlying EBITDA (US$ millions) 567 550 +3%
Underlying earnings (US$ millions) 160 192 -17%
Underlying earnings pre-Simandou (US$ millions) 184 216 -15%
Cash flows from operations (US$ millions) 424 334 +27%
Capital expenditure (US$ millions) 241 552 -56%
The Simandou iron ore project is reported within Diamonds & Minerals, reflecting management responsibility.
Performance
The Diamonds & Minerals group's underlying earnings of $160 million were 17 per cent lower than 2013 first half. 2014 first
half earnings include the impact of tax settlements in Rio Tinto Diamonds of $25 million relating largely to prior years.
Excluding this, and the impact of other tax changes, earnings were nine per cent higher than 2013 first half. This
reflected favourable exchange rates, higher diamond prices, lower exploration and evaluation costs, a moderate increase in
titanium dioxide feedstock volumes and $43 million of cash cost improvements ($60 million pre-tax), partly offset by lower
prices for zircon, titanium dioxide feedstocks, borates and metallics. In absolute terms, cash operating costs were $188
million lower than 2013 first half including a $100 million benefit from exchange rate movements. Cash flows from
operations of $424 million were 27 per cent higher than 2013 first half, reflecting higher EBITDA and improved working
capital management.
Markets
The market for titanium dioxide and zircon has shown signs of stabilisation as industry-wide inventories have continued
their return towards historical levels.
Demand for borates has been stable, with a modest increase in 2014 first half primarily due to higher demand from
agriculture and from the US housing industry.
During 2014 first half, industry diamond prices moved up by eight per cent. In the medium to long run, strong demand growth
is expected, especially from India and China, as disposable incomes rise, leading to higher consumer luxury demand.
Operations
Titanium dioxide feedstock production was 14 per cent lower than the first half of 2013 reflecting soft market demand.
Production continues to be optimised to align with market demand and, as a result, the planned rebuild of one of nine
furnaces at Rio Tinto Fer et Titane remains postponed.
Borates production was four per cent higher than in 2013 first half in response to higher sales demand and in preparation
for commissioning of the new modified direct dissolving of kernite process plant in the third quarter of 2014.
First half diamond production was two per cent higher than the same period of 2013 with a strong operational performance at
Diavik offsetting marginally lower carats at Argyle, reflecting the move from open pit to underground mining and the
processing of lower grade tailings in the first quarter of 2014 as underground production ramped up.
New projects and growth options
The feasibility study for the Zulti South extension at Richards Bay Minerals in South Africa is expected to be completed
towards the end of 2014. If approved, commissioning is scheduled for 2017 with an anticipated capital cost of around $400
million.
The Argyle underground mine remains on track to reach full capacity in 2015, with the second crusher commissioned in July
2014. This is designed to extend the mine life of Argyle until at least 2020.
The feasibility study to develop the A21 kimberlite pipe at Diavik Diamond Mine is expected to be complete in 2014. If
approved, production will commence in the fourth quarter of 2018.
On 26 May 2014, Rio Tinto and its partners, Chinalco and the International Finance Corporation, signed the Investment
Framework with the Government of Guinea for blocks 3 and 4 of the Simandou iron ore project. This provides the legal and
commercial foundation for the project. The Investment Framework was ratified by the Guinean National Assembly in June 2014,
followed by Supreme Court review and the Presidential promulgation. The project partners are continuing to work towards the
completion of a feasibility study and the establishment of a funding consortium to build the infrastructure. These two
elements will provide the basis for disciplined capital allocation decisions.
2014 production guidance
In 2014, Rio Tinto's share of production is expected to be 1.5 million tonnes of titanium dioxide feedstocks, 0.5 million
tonnes of boric oxide equivalent and 16 million carats of diamonds.
Other Operations
First half 2014 First half 2013 Change
Production (Rio Tinto share)
Alumina (000 tonnes) 676 1,069 -37%
Gross sales revenue (US$ millions) 195 1,414 -86%
Underlying EBITDA (US$ millions) (233) (195) -19%
Underlying earnings (US$ millions) (182) (158) -15%
Capital expenditure (US$ millions) (35) 220 n/a
The Gove alumina refinery is reported in Other Operations. The curtailment of production was completed on 28 May 2014 and
the refinery has now moved to care and maintenance.
Central exploration
First half 2014 First half 2013 Change
US$ millions
Central exploration (post-tax) (63) (75) -16%
Divestments (6) - n/a
Post-tax charge (69) (75) +8%
Central exploration expenditure in 2014 first half (post divestments and post-tax) resulted in a charge to underlying
earnings of $69 million, largely consistent with 2013 first half.
Price & exchange rate sensitivities
The following sensitivities give the estimated effect on underlying earnings assuming that each individual price or
exchange rate moved in isolation. The relationship between currencies and commodity prices is a complex one and movements
in exchange rates can affect movements in commodity prices and vice versa. The exchange rate sensitivities quoted below
include the effect on operating costs of movements in exchange rates but exclude the effect of the revaluation of foreign
currency working capital. They should therefore be used with care.
Average published price/exchange rate for 2014 first half 10% change Effect on full year 2014 underlying earnings$ millions
Iron ore (62% Fe FOB) $103/t +/-$10/t* 1,215
Aluminium $1,753/t +/-$175/t 444
Copper 312c/lb +/-31c/lb 322
Gold $1,290/oz +/-$129/oz 51
Thermal coal (average spot) $76/t +/-$8/t 121
Coking coal (benchmark) $132/t +/-$13/t 90
Australian dollar 0.91 +/-9.1USc 515
Canadian dollar 0.91 +/-9.1USc 251
*As a result of the implementation of MRRT in Australia, the upside and downside impact of a ten per cent change
in price and exchange rates are not necessarily equal.
DIRECTORS' REPORT
for the half year ended 30 June 2014
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 2014 and
likely future developments are given on pages 1 to 21. Important events that have occurred during the period and up until
the date of this report are set out below.
On 13 January 2014, Rio Tinto acquired 510,983,220 common shares of Turquoise Hill under Turquoise Hill's rights offering
at a total cost of C$1,292,787,546.60 or C$2.53 per share. The purchase represented approximately 50.8 per cent of the
common shares offered under the rights offering. The rights offering was fully subscribed. Turquoise Hill used a portion of
the funds it received under the rights offering to repay all amounts outstanding under the US$1.8 billion interim funding
facility and the US$600 million secured bridge funding facility each provided to Turquoise Hill by Rio Tinto.
On 28 January 2014, Rio Tinto Mining and Exploration Limited (RTMEL) received 44,126,780 common shares of Minera IRL
Limited (IRL), representing approximately 19.44 per cent of the issued and outstanding common shares of IRL. The shares
formed part of the consideration agreed to in the 2006 option agreement on the Ollachea Gold Project between RTMEL and IRL.
The consideration for each share was C$0.1790. The shares were issued from IRL's treasury and were not purchased by RTMEL
via a market transaction. RTMEL may increase or decrease the investment in shares depending on its evaluation of the
business, prospects and financial condition of IRL, the market for IRL's securities, general economic and tax conditions
and other factors. Additionally, should RTMEL not sell any of the shares for a period of one year, RTMEL shall be entitled
to a cash incentive payment.
On 12 February 2014, Rio Tinto entered into an option agreement with LNG Canada, a joint venture comprising Shell Canada
Energy, Phoenix Energy Holdings Limited (an affiliate of Petro-China Investment (Hong Kong) Limited), Kogas Canada LNG Ltd.
(an affiliate of Korea Gas Corporation) and Diamond LNG Canada Ltd. (an affiliate of Mitsubishi Corporation) to acquire or
lease a wharf and associated land at its port facility at Kitimat, British Columbia, Canada. LNG Canada is proposing to
construct and operate a natural gas liquefaction plant and marine terminal export facility at Kitimat. The agreement
provides LNG Canada with a staged series of options payable against project milestones. The financial arrangements are
commercially confidential.
On 7 April 2014, Rio Tinto announced its intention to gift its 19.1 per cent shareholding in Northern Dynasty Minerals Ltd
(Northern Dynasty), owner of the Pebble Project, to two local Alaskan charitable foundations. The decision followed the
strategic review announced last year of Rio Tinto's interest in Northern Dynasty which concluded the Pebble Project did not
fit with Rio Tinto's strategy. The shares in Northern Dynasty were divided equally between the Alaska Community Foundation
to fund educational and vocational training and the Bristol Bay Native Corporation Education Foundation, which supports
educational and cultural programmes in the region.
On 30 April 2014, Rio Tinto filed a complaint in the United States District Court for the Southern District of New York
against the following defendants: Vale, S.A., Beny Steinmetz, BSG Resources Limited, BSG Resources (Guinea) Ltd. aka BSG
Resources Guinée Ltd, BSGR Guinea Ltd. BVI, BSG Resources Guinée SARL aka BSG Resources (Guinea) SARL aka VBG-Vale BSGR
Guinea, Frederic Cilins, Michael Noy, Avraham Lev Ran, Mamadie Touré, and Mahmoud Thiam. The Complaint relates to the loss
of half of Rio Tinto's mining concession in the Simandou region of south-east Guinea in 2008. Rio Tinto is asking the Court
to award compensatory, consequential, exemplary and punitive damages to Rio Tinto in an amount to be determined at trial.
On 13 May 2014, Rio Tinto announced that its Pilbara iron ore system of mines, rail and ports had reached a run rate of 290
million tonnes a year (Mt/a), two months ahead of schedule.
On 26 May 2014, the Government of Guinea and its partners, Rio Tinto, Chinalco and the IFC, signed the Investment Framework
("IF") for blocks 3 and 4 of Simandou. The signing provides the legal and commercial foundation for the project.
On 29 May 2014, Rio Tinto completed the sale of its 50.1 per cent interest in the Clermont Joint Venture to GS Coal Pty
Ltd, a company jointly owned by Glencore and Sumitomo Corporation, for US$1.015 billion. Under the terms of the sale,
Glencore has now taken over management of Clermont mine, which produces thermal coal in central Queensland.
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 (R and N) 1 September 2008
Executive directors
Sam Walsh, chief executive 5 June 2009
Chris Lynch, chief financial officer 1 September 2011
Non-executive directors
John Varley (senior independent director) (A, R and N) 1 September 2011
Robert Brown (N and S) 1 April 2010
Michael Fitzpatrick (A, R and N) 6 June 2006
Ann Godbehere (A and N) 9 February 2010
Richard Goodmanson (R, N and S) 1 December 2004
Lord Kerr (N and S) 14 October 2003
Anne Lauvergeon (N and S) 15 March 2014
Paul Tellier (A, R and N) 25 October 2007
Simon Thompson (N and S) 1 April 2014
Vivienne Cox stepped down from the board on 15 April 2014, having been a director since February 2005.
Notes
(A) Audit committee
(R) Remuneration committee
(N) Nominations committee
(S) Sustainability Committee
Dividend
A 2013 final dividend was paid on 10 April 2014 to holders of Rio Tinto plc and Rio Tinto Limited ordinary shares and Rio
Tinto plc ADR holders. The 2013 final dividend, equivalent to 108.5 US cents per share, was determined by directors on 13
February 2014. Rio Tinto plc shareholders received 65.82 pence per share and Rio Tinto Limited shareholders received 120.14
Australian cents per share, based on the applicable exchange rates on 11 February 2014. Rio Tinto plc ADR holders received
109.18 US cents per ADR, based on the exchange rate on 3 April 2014 to convert from pounds sterling to US dollars
The 2014 interim dividend, equivalent to 96.00 US cents per share, will be paid on 11 September 2014 to holders of Ordinary
shares and ADRs. Rio Tinto plc shareholders will receive 56.90 pence per share and Rio Tinto Limited shareholders will
receive 103.09 Australian cents per share based on the applicable exchange rates on 5 August 2014. ADR holders receive
dividends in US dollars, which will be converted from pounds sterling by reference to the exchange rate applicable on 4
September 2014. The dividend will apply to Rio Tinto plc and ADR shareholders and to Rio Tinto Limited shareholders on the
register at the close of business on 15 August 2014.
Principal risks and uncertainties
The principal risks and uncertainties that could materially affect Rio Tinto's results and operations are set out on pages
14 to 17 of the 2013 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.
(i) External risks
Commodity prices and global demand for the Group's products are expected to remain uncertain.
Past strong demand for the Group's products in China could be affected by future developments in that country.
Rio Tinto is exposed to fluctuations in exchange rates.
Political, legal and commercial changes in the places where the Group operates.
Community disputes in the countries and territories in which the Group operates.
Increased regulation of greenhouse gas emissions could adversely affect the Group's cost of operations.
Regulations, standards and stakeholder expectations regarding health, safety, environment and community evolve over time
and unforeseen changes could have an adverse effect on the Group's business and reputation.
(ii) Strategic risks
The Group's exploration and development of new projects might be unsuccessful.
Rio Tinto may fail to successfully execute divestments and acquisitions.
(iii) Financial risks
The Group's reported results could be adversely affected by the impairment of assets and goodwill.
The Group's liquidity and cash flow expectations may not be realised, inhibiting planned expenditure.
Failure to reduce costs both in operations and projects may result in reduced margins and threaten the viability of our
capital projects.
(iv) Operational risks
Estimates of ore reserves are based on uncertain assumptions that, if changed, could result in the need to restate ore
reserves.
Labour disputes could lead to lost production and/or increased costs.
Some of the Group's technologies are unproven and failures could adversely impact costs and/or productivity.
The Group may be exposed to major failures in the supply chain for specialist equipment and materials.
Joint ventures, strategic partnerships or non-managed operations may not be successful and may not comply with the Group's
standards.
The Group's operations are vulnerable to a range of interruptions, not all of which are covered fully by insurance.
The Group depends on the continued services of key personnel.
The Group's costs of close-down, reclamation and rehabilitation could be higher than expected.
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 57 to 67 of the
2013 Annual report which is available on the Rio Tinto Group website www.riotinto.com.
Publication of half year results
In accordance with the UK Financial Conduct Authority's Disclosure & 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 44 and forms part of this
report.
The Directors' report is made in accordance with a resolution of the board.
Jan du Plessis
Chairman
7 August 2014
Capital projects
Rio Tinto has a programme of high-quality projects delivering industry-leading returns across a broad range of
commodities.
In production
Iron ore - expansion of the Pilbara mines, ports and railways from 237Mt/a to 290Mt/a. Rio Tinto's share of total approved capex is $8.4 bn. $9.8bn $1.2bn The integrated mines, rail and ports reached a run-rate of 290Mt/a in mid-May 2014, two months ahead of schedule. The Nammuldi mine expansion is expected to be complete in the fourth quarter of 2014.
Aluminium - modernisation of ISAL smelter in Iceland, including a leading-edge casting facility to produce value-added billet. $0.5bn - The project was completed in the first half of 2014, with an increase in annual production capacity from 190kt to 205kt.
Ongoing and approved
Iron Ore
Expansion of the Pilbara port, rail and power supply capacity to 360Mt/a. Rio Tinto's share of total approved capex is $3.5 bn. $5.9bn $1.6bn The phase two expansion to 360Mt/a includes investment in the port, rail and power supply and an investment in autonomous trains.
Investment to extend the life of the Yandicoogina mine in the Pilbara to 2021 and expand its nameplate capacity from 52 Mt/a to 56 Mt/a. $1.7bn $0.7bn Approved in June 2012, the investment includes a wet processing plant to maintain product specification levels and provide a platform for future potential expansion.
Investment to develop the Deposit B ore body at West Angelas in the Pilbara to sustain production levels and enable an expansion from 29 Mt/a to 35 Mt/a. Rio Tinto's share of capex is $317m. $0.6bn $0.3bn The investment includes a low capital intensity option to increase capacity by an expected 6Mt/a as part of the breakthrough plan announced in November 2013.
Aluminium
Modernisation and expansion of Kitimat smelter in British Columbia, Canada, which is expected to increase annual capacity from 280kt to 420kt. $4.8bn $1.9bn Further capital of $1.5 billion was approved by the Board in August 2014. First production from the modernisation is expected during the first half of 2015.
Copper
Development of Organic Growth Project 1 (OGP1) and the Oxide Leach Area Project (OLAP) at Escondida (Rio Tinto 30%), Chile. $1.4bn(RT share) $0.3bn Approved in February 2012, OGP1 primarily relates to replacing the Los Colorados concentrator with a new 152kt per day plant, allowing access to high grade ore. Initial production is expected in the first half of 2015. OLAP maintains oxide leaching capacity.
Construction of a desalination facility to ensure continued water supply and sustain operations at Escondida (Rio Tinto 30%), Chile. $1.0bn(RT share) $0.9bn Approved in July 2013, the project is designed to provide a sustainable supply of water for the new OGP1 copper concentrator.Commissioning is scheduled in 2017.
Grasberg project funding for 2012 to 2016 $0.9bn(RT share) $0.4bn 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 in part be influenced by its share of production over the 2012 to 2016 period.
Investment over next four years to extend mine life at Kennecott Utah Copper, US from 2018 to 2030. $0.7bn $0.3bn The project was approved in June 2012. Ore from the south wall push back will be processed through existing mill facilities. The investment is expected to enable production at an average of 180kt of copper, 185koz of gold and 13.8kt of molybdenum a year from 2019 through 2030.
Grasberg project funding for 2012 to 2016
$0.9bn(RT share)
$0.4bn
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 in part be influenced
by its share of production over the 2012 to 2016 period.
Investment over next four years to extend mine life at Kennecott Utah Copper, US from 2018 to 2030.
$0.7bn
$0.3bn
The project was approved in June 2012. Ore from the south wall push back will be processed through existing mill
facilities. The investment is expected to enable production at an average of 180kt of copper, 185koz of gold and 13.8kt of
molybdenum a year from 2019 through 2030.
About Rio Tinto
Rio Tinto is a leading international mining group headquartered in the UK, combining Rio Tinto plc, a London and New York
Stock Exchange listed company, and Rio Tinto Limited, which is listed on the Australian Securities Exchange.
Rio Tinto's business is finding, mining, and processing mineral resources. Major products are aluminium, copper, diamonds,
gold, industrial minerals (borates, titanium dioxide and salt), iron ore, thermal and metallurgical coal and uranium.
Activities span the world and are strongly represented in Australia and North America with significant businesses in Asia,
Europe, Africa and South America.
Forward-looking statements
This announcement includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements other than statements of historical facts included in this announcement, including, without
limitation, those regarding Rio Tinto's financial position, business strategy, plans and objectives of management for
future operations (including development plans and objectives relating to Rio Tinto's products, production forecasts and
reserve and resource positions), are forward-looking statements.
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 Investor Relations, EMEA/AmericasMark ShannonT +44 20 7781 1178M +44 7917 576597 David OvingtonT +44 20 7781 2051M +44 7920 010 978 Grant DonaldT +44 20 7781 1262M +44 7920 Media Relations, Australia/AsiaDavid LuffT +61 3 9283 3620M +61 419 850 205 Bruce TobinT +61 3 9283 3612M +61 419 103 454 Investor Relations, Australia/AsiaChristopher MaitlandT +61 3 9283 3063M +61 459 800 131
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