Rio Tinto(RIO) - 2024 Q2 - Quarterly Report

2024 Half Year Results Financial Highlights Rio Tinto reported a stable financial performance for the first half of 2024, with Underlying EBITDA of $12.1 billion, a 3% increase year-over-year, Net earnings attributable to owners rose by 14% to $5.8 billion, and despite a 25% decrease in free cash flow to $2.8 billion due to increased capital expenditure, the company maintained its interim ordinary dividend at 177 US cents per share, reflecting a 50% payout ratio Key Financial Metrics - H1 2024 vs H1 2023 | Metric | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | | Net cash from operating activities (US$M) | 7,056 | 6,975 | 1% | | Free cash flow (US$M) | 2,843 | 3,769 | (25)% | | Consolidated sales revenue (US$M) | 26,802 | 26,667 | 1% | | Underlying EBITDA (US$M) | 12,093 | 11,728 | 3% | | Net earnings (US$M) | 5,808 | 5,117 | 14% | | Underlying EPS (US cents) | 354.3 | 352.9 | —% | | Ordinary dividend per share (US cents) | 177.0 | 177.0 | —% | | Underlying ROCE | 19% | 20% | | - The CEO highlighted that the company is at an inflection point in its growth, driven by disciplined investments, a step change in the aluminium business, consistent production in Pilbara iron ore, and growing cash flow from the Oyu Tolgoi copper mine[8] - The company's copper equivalent production is projected to grow by approximately 2% in 2024, with an ambition for around 3% compound annual growth from 2024 to 2028 from existing operations and projects[8] Progress Against Four Objectives The company reported progress across its four key objectives: being the best operator, impeccable ESG, excelling in development, and maintaining its social licence, with key achievements including stable safety rates, increased production in copper and bauxite through the Safe Production System (SPS), advancements in major growth projects like Simandou and Rincon, and significant investments in decarbonisation and community partnerships - Best Operator: The Safe Production System (SPS) is now deployed at 26 sites, contributing to a 15% increase in mined copper production at Oyu Tolgoi and a 10% increase in bauxite production compared to H1 2023[12] - Impeccable ESG: The company is advancing its goal to reduce Scope 1 and 2 GHG emissions by 50% by 2030, with H1 2024 capital expenditure on decarbonisation at $69 million, and key initiatives including developing Australia's largest solar farm and signing a major wind power deal for its Gladstone operations[12] - Excel in Development: Significant progress was made on key growth projects, including the ramp-up of the Oyu Tolgoi underground mine, advancing construction of the Simandou iron ore project, and nearing first production at the Rincon lithium starter plant in Argentina[18] - Social Licence & People: Gender diversity increased to 25.0%, with female senior leaders reaching 31.0%, and the company launched a global community perception monitoring program, "Local Voices", to improve community engagement[14][18] Financial Performance Analysis The Group's financial performance remained robust, with Underlying EBITDA increasing by $0.4 billion to $12.1 billion, driven by favorable exchange rates, lower energy costs, and controlled operating cash unit costs, which offset lower commodity prices and general inflation, while Net earnings rose to $5.8 billion from $5.1 billion, benefiting from a significant positive swing in impairment charges, and Cash flow from operations was stable at $7.1 billion, while free cash flow decreased due to a 34% rise in capital expenditure to $4.0 billion, reflecting increased investment in growth projects, and Net debt increased by $0.8 billion to $5.1 billion Underlying EBITDA Movement (H1 2023 to H1 2024) | Factor | Impact (US$bn) | | :--- | :--- | | 2023 first half underlying EBITDA | 11.7 | | Prices | (0.2) | | Exchange rates | 0.2 | | Volumes and mix | (0.1) | | General inflation | (0.4) | | Energy | 0.1 | | Operating cash unit costs | 0.2 | | Exploration and evaluation | 0.2 | | Non-cash costs/other | 0.4 | | 2024 first half underlying EBITDA | 12.1 | Net Earnings Movement (H1 2023 to H1 2024) | Factor | Impact (US$bn) | | :--- | :--- | | 2023 first half net earnings | 5.1 | | Changes in underlying EBITDA | 0.4 | | Increase in depreciation & amortisation | (0.4) | | Decrease in interest & finance items | 0.3 | | Increase in tax on underlying earnings | (0.1) | | Increase in underlying earnings attr. to outside interests | (0.3) | | Changes in items excluded from underlying earnings | 0.7 | | 2024 first half net earnings | 5.8 | Cash Flow Summary (H1 2024 vs H1 2023) | Item | 2024 US$bn | 2023 US$bn | | :--- | :--- | :--- | | Net cash from operating activities | 7.1 | 7.0 | | Purchases of property, plant and equipment | (4.0) | (3.0) | | Free cash flow | 2.8 | 3.8 | | Dividends paid to equity shareholders | (4.1) | (3.7) | | Movement in net debt | (0.8) | (0.2) | - Net debt increased by $0.8 billion to $5.1 billion at 30 June 2024, with a net gearing ratio of 8% (up from 7% at year-end 2023)[40] Shareholder Returns Policy Dividend Policy and Declaration Rio Tinto maintains its shareholder returns policy, targeting total cash returns of 40% to 60% of underlying earnings through the cycle, and in line with this, the Board declared an interim ordinary dividend of 177.0 US cents per share, identical to the prior year, representing a 50% payout ratio of underlying earnings for the first half of 2024, with the total interim dividend amounts to $2.9 billion - The Board's policy is to return 40% to 60% of underlying earnings to shareholders in aggregate through the cycle, with potential for additional returns during periods of strong earnings[49] H1 2024 Interim Dividend | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Interim Ordinary Dividend (US cents per share) | 177.0 | 177.0 | | Total Interim Dividend (US$bn) | 2.9 | 2.9 | | Payout Ratio | 50% | 50% | Capital Projects Ongoing Projects The company is advancing several major capital projects, with the Simandou iron ore project in Guinea progressing at pace, with a total Rio Tinto share cost of $6.2 billion, the Oyu Tolgoi underground copper-gold mine in Mongolia ramping up, with a remaining spend of $0.7 billion, the AP60 smelter expansion in Quebec underway, and the Western Range project 70% complete, with first ore expected in 2025 Key Ongoing Capital Projects Status | Project | Total Capital Cost (Rio Tinto Share) | Capital Remaining (from 1 July 2024) | Status/Milestones | | :--- | :--- | :--- | :--- | | Iron Ore: Western Range | $1.3bn | $0.5bn | 70% complete, first ore on plan for 2025. | | Iron Ore: Simandou | $6.2bn | $5.3bn | First production expected in 2025, ramping up over 30 months. | | Aluminium: AP60 Expansion | $1.1bn | $0.9bn | Commissioning expected in H1 2026. | | Copper: Oyu Tolgoi Underground | $7.06bn (100%) | $0.7bn | First sustainable production achieved March 2023; ramp-up on target. | Future Options Rio Tinto is progressing a portfolio of future growth options, with the Rincon lithium starter plant in Argentina on track for first production by the end of 2024, the Jadar lithium project's spatial plan reinstated by the government in Serbia, allowing for continued stakeholder consultation, and the Rhodes Ridge iron ore pre-feasibility study ongoing and expected to be completed in 2025, while other key projects under evaluation include Resolution Copper (US), Winu (Australia), and La Granja (Peru) - Rincon Lithium (Argentina): The 3,000 tonne per annum starter plant is progressing to plan, with first production expected by the end of 2024, and the feasibility study for the full-scale operation is expected in Q3 2024[56][82] - Jadar Lithium (Serbia): The Government of Serbia reinstated the project's spatial plan, enabling a public dialogue supported by the release of draft Environmental Impact Assessment studies[82] - Rhodes Ridge Iron Ore (Australia): A $77 million pre-feasibility study is progressing, targeting an initial capacity of up to 40 million tonnes per year, with completion expected in 2025[55][82] Review of Operations Iron Ore The Iron Ore segment's underlying EBITDA decreased by 10% to $8.8 billion, primarily due to a 1% lower realised price and a 2% drop in Pilbara shipments, which were affected by a train collision, while the Pilbara underlying FOB EBITDA margin remained strong at 67%, and unit costs for H1 2024 were $23.2 per tonne, with full-year guidance unchanged Iron Ore Financial and Operational Metrics (H1 2024 vs H1 2023) | Metric | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | | Pilbara Production (Mt, 100%) | 157.4 | 160.5 | (2)% | | Pilbara Shipments (Mt, 100%) | 158.3 | 161.7 | (2)% | | Underlying EBITDA (US$M) | 8,807 | 9,792 | (10)% | | Pilbara underlying FOB EBITDA margin | 67% | 69% | | - Lower shipments were impacted by a train collision in May, which resulted in approximately six days of lost rail capacity[62][86] Aluminium The Aluminium segment delivered a strong performance, with underlying EBITDA increasing by 38% to $1.6 billion and the margin rising to 27%, driven by higher production volumes and moderating costs for key raw materials, which offset a 4% decline in the average realised aluminium price, while Bauxite production rose 10%, and aluminium production was up 3% Aluminium Financial and Operational Metrics (H1 2024 vs H1 2023) | Metric | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | | Bauxite Production ('000 tonnes) | 28,142 | 25,581 | 10% | | Aluminium Production ('000 tonnes) | 1,650 | 1,598 | 3% | | Underlying EBITDA (US$M) | 1,577 | 1,140 | 38% | | Underlying EBITDA margin | 27% | 21% | | - Bauxite production increased due to the implementation of the Safe Production System, particularly at Weipa, leading to higher plant utilisation and feed rates[89] Copper The Copper segment's financial results improved significantly, with underlying EBITDA rising 67% to $1.8 billion, driven by a 13% increase in mined copper production and a 32% increase in refined copper, supported by the steady ramp-up at Oyu Tolgoi and the Kennecott smelter's return to normal operations, while Free cash flow turned positive, aided by higher volumes and a stronger LME copper price Copper Financial and Operational Metrics (H1 2024 vs H1 2023) | Metric | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | | Mined Copper Production ('000 tonnes) | 327 | 290 | 13% | | Refined Copper Production ('000 tonnes) | 125 | 95 | 32% | | Underlying EBITDA (US$M) | 1,804 | 1,082 | 67% | | Free Cash Flow (US$M) | 127 | (512) | - | | C1 Unit Cost (US cents/lb) | 147 | 184 | (20)% | - The Oyu Tolgoi underground mine ramp-up is on track, with 27 new drawbells opened during the half, and the mine is expected to produce 500 thousand tonnes of copper per year from 2028 to 2036[67][68] Minerals The Minerals segment's underlying EBITDA was flat at $0.7 billion compared to H1 2023, as lower volumes for titanium dioxide and diamonds, along with a lower iron ore price, offset higher production at the Iron Ore Company of Canada (IOC), while Net cash from operations increased significantly to $0.3 billion, benefiting from insurance proceeds related to 2023 incidents Minerals Financial and Operational Metrics (H1 2024 vs H1 2023) | Metric | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | | IOC Production (Mt) | 4.8 | 4.6 | 4% | | Titanium Dioxide Slag Production ('000 t) | 492 | 589 | (16)% | | Diamonds Production ('000 carats) | 1,441 | 1,924 | (25)% | | Underlying EBITDA (US$M) | 687 | 689 | —% | | Underlying Earnings (US$M) | 77 | 179 | (57)% | - Underlying EBITDA and net cash from operations included $0.2 billion in insurance proceeds related to process safety incidents at RTIT and forest fires at IOC in 2023[115] Directors' Report Important Events The Directors' Report highlights key events in the first half of 2024, including the tragic plane crash involving Diavik team members, the agreement to sell the Lake MacLeod salt operation, and significant steps in decarbonization through large-scale renewable power purchase agreements for Gladstone operations, while also noting the payment of $8.5 billion in global taxes and royalties for 2023 and the installation of carbon-free aluminium smelting cells using ELYSIS technology - A tragic plane crash near Fort Smith, Canada, in January 2024 resulted in the deaths of four Diavik diamond mine team members and two airline crew[99] - The company signed two major renewable Power Purchase Agreements (PPAs) to supply its Gladstone operations, including for Australia's largest solar farm (1.1GW) and a 1.4GW wind energy project[119] - An agreement was made to sell the Lake MacLeod salt and gypsum operation for A$375 million (US$251 million) to Leichhardt Industrials Group[98] - The company will install carbon-free aluminium smelting cells at its Arvida smelter in Quebec, using the first technology licence from the ELYSIS joint venture[120] Unaudited Condensed Consolidated Interim Financial Statements Financial Statements Overview The unaudited condensed consolidated interim financial statements for the six months ended June 30, 2024, show a profit after tax of $5.9 billion, up from $4.9 billion in the prior period, with Net earnings attributable to owners were $5.8 billion, resulting in basic earnings per share of 357.9 cents, and Total assets stood at $101.9 billion, with total equity at $57.2 billion, prepared in accordance with IAS 34 Interim Financial Reporting Income Statement Summary (H1 2024 vs H1 2023) | Metric (US$M) | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Consolidated sales revenue | 26,802 | 26,667 | | Operating profit | 8,259 | 7,247 | | Profit before taxation | 8,115 | 6,930 | | Profit after tax for the period | 5,890 | 4,947 | | Net earnings (attributable to owners) | 5,808 | 5,117 | Balance Sheet Summary (As of June 30, 2024) | Metric (US$M) | 30 June 2024 | 31 Dec 2023 | | :--- | :--- | :--- | | Total assets | 101,887 | 103,549 | | Total liabilities | (44,723) | (47,208) | | Net assets | 57,164 | 56,341 | | Equity attributable to owners | 55,253 | 54,586 | Segmental Information The Group's performance is reported across four main segments: Iron Ore, Aluminium, Copper, and Minerals, with Iron Ore remaining the largest contributor with $8.8 billion in underlying EBITDA in H1 2024, followed by Copper ($1.8 billion) and Aluminium ($1.6 billion), and the report provides a detailed reconciliation from profit after tax to underlying EBITDA, which stood at $12.1 billion for the group Underlying EBITDA by Reportable Segment (H1 2024 vs H1 2023) | Segment (US$M) | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Iron Ore | 8,807 | 9,792 | | Aluminium | 1,577 | 1,140 | | Copper | 1,804 | 1,082 | | Minerals | 687 | 689 | | Reportable segments total | 12,875 | 12,703 | - Greater China remains the largest geographical market, accounting for 58.1% of consolidated sales revenue, consistent with the prior year[177] Impairment For the first half of 2024, the Group recognized a net impairment reversal of $55 million (post-tax), primarily driven by a $78 million pre-tax reversal for the Tiwai Point aluminium smelter in New Zealand, following the signing of new 20-year power arrangements, which contrasts with a net impairment charge of $828 million in H1 2023, mainly related to the Gladstone alumina refineries in Australia - A pre-tax impairment reversal of $78 million ($41 million post-tax) was recognized for the Tiwai Point aluminium smelter, triggered by new long-term power agreements securing its future[178][208] - A pre-tax impairment charge of $35 million ($23 million post-tax) related to the Group's share in the Porto Trombetas (MRN) bauxite mine in Brazil was included[178][182] - In the prior period (H1 2023), a significant pre-tax impairment charge of $1,175 million was recognized for the Gladstone alumina refineries (Yarwun and QAL) due to challenging market conditions and the anticipated costs of decarbonisation[185][211] Alternative Performance Measures (APMs) Definition and Reconciliation of APMs This section defines and reconciles non-IFRS measures used by management to assess business performance, with key APMs including Underlying EBITDA, Underlying Earnings, Free Cash Flow, Net Debt, and Underlying Return on Capital Employed (ROCE), and Underlying earnings for H1 2024 were $5.75 billion, slightly up from $5.72 billion in H1 2023, after excluding items like impairment charges and certain foreign exchange and derivative movements from net earnings Reconciliation of Net Earnings to Underlying Earnings (H1 2024) | Item (US$M) | Pre-tax | Taxation | Non-controlling interests | Net amount | | :--- | :--- | :--- | :--- | :--- | | Net earnings | 8,115 | (2,225) | (82) | 5,808 | | Impairment (reversals)/charges | (18) | (37) | — | (55) | | Foreign exchange and derivative losses/(gains) | 28 | 9 | (1) | 36 | | Change in closure estimates | (44) | 3 | — | (41) | | Underlying earnings | 8,081 | (2,250) | (81) | 5,750 | Key APM Results | Metric | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Free Cash Flow (US$M) | 2,843 | 3,769 | | Net Debt (US$M) | 5,077 | 4,350 | | Underlying ROCE | 19% | 20% |