Rio Tinto Plc – First Quarter Production Results

Rio Tinto

Rirst Quarter Production Results

Rio Tinto Chief Executive Jakob Stausholm, said: “We achieved an overall solid operating performance in the first quarter. We have maintained guidance ranges in all our products, with site teams successfully managing the effects of significant rainfall, in particular at our Australian iron ore assets.

“It has been a period of deep reflection for the company, and I have personally spent a significant amount of time listening, learning and taking actions, in particular to better manage Traditional Owner partnerships and cultural heritage. I have appointed a new leadership team and the transition is progressing well. We have set out clear priorities to develop a stronger Rio Tinto. Our focus is to become the best operator, strive for impeccable ESG credentials, excel in development and secure a strong social licence. This ambition will enable us to continue to deliver superior returns to shareholders, invest in sustaining and growing our portfolio, and make a broader contribution to society.”

Production*		Q1 2021	vs Q1 2020		vs Q4 2020
Pilbara iron ore shipments (100% basis)	Mt	77.8	+7	%	-12	%
Pilbara iron ore production (100% basis)	Mt	76.4	-2	%	-11	%
Bauxite	Mt	13.6	-2	%	+2	%
Aluminium	kt	803	+3	%	-1	%
Mined copper	kt	120.5	-9	%	-9	%
Titanium dioxide slag	kt	279	-5	%	+3	%
IOC iron ore pellets and concentrate	Mt	2.3	-8	%	-14	%

  *Rio Tinto share unless otherwise stated

Q1 Operational update

• Health, safety and well-being remains our top priority. Our all injury frequency rate (AIFR) of 0.35 improved versus the first quarter of 2020 (0.40). However, we recognise there is no room for complacency and continue to focus on providing strong support for our employees, contractors and host communities, while maintaining critical COVID-19 controls.

• Pilbara iron ore shipments of 77.8 million tonnes (100% basis) were 7% higher than the first quarter of 2020. Production of 76.4 million tonnes (100% basis) was 2% lower, driven by above average wet weather in the mines through February and fixed plant reliability. Labour resource availability and weather challenges disrupted maintenance. Tropical Cyclone Seroja impacted mine and port operations in April. Full year iron ore guidance remains unchanged.

• Bauxite production of 13.6 million tonnes was 2% lower than the first quarter of 2020 due to wet weather in Eastern Australia. The port at the Amrun mine closed for 14 days due to large swells and cyclones. Full year bauxite guidance remains unchanged.

• Aluminium production of 0.8 million tonnes was 3% higher than the first quarter of 2020, with the Becancour smelter, Quebec operating at full capacity and Kitimat, British Columbia nearing the end of its pot relining cycle.

• Mined copper production of 120.5 thousand tonnes was 9% lower than 2020, with lower recoveries and throughput at Escondida and Kennecott partly offset by the anticipated higher grade from the Oyu Tolgoi open pit. Kennecott saw a marginal increase in head grade as it begins the transition into higher grades from the south wall ore, with grades expected to gradually increase through 2021. Oyu Tolgoi shipments have been affected by Chinese border restrictions due to increased cases of COVID-19 in Mongolia. We continue to work closely with authorities and our customers to manage the risk of supply chain disruptions.

• Titanium dioxide slag production of 279 thousand tonnes was 5% lower than 2020 due to a planned furnace rebuild at the Rio Tinto Fer et Titane (RTFT) metallurgical complex in Quebec resulting in operation of 8 out of 9 furnaces.

• Production of pellets and concentrate at Iron Ore Company of Canada (IOC) was 8% lower than 2020 due to the impacts of weather, loading unit availability on mine feed and reduced concentrator mill availability. There was a fire at one of the two reclaimers at the port on 31 March. Full year production guidance remains unchanged.

• On 8 April, we released   Taxes P aid : O ur E conom ic C ontribution 2020 , showing that we made a total direct economic contribution of $47 billion in the countries and communities where we operate, including $8.4 billion of taxes and royalties.

• As part of our Climate Strategy, in the first quarter of this year, we entered into two partnerships to progress our work to decarbonise our value chain. Together with Paul Wurth S.A. and SHS-Stahl-Holding-Saar GmbH & Co., we are exploring the viability of transforming iron ore pellets into low-carbon hot briquetted iron, a low-carbon steel feedstock, using green hydrogen generated from hydro-electricity in Canada. At our Boron site in California, we are exploring the deployment of Heliogen's breakthrough solar technology which will use heat from the sun to generate and store carbon-free energy to power the mine's industrial processes. Further details in the Climate change and our value chain section below.

Production guidance

Rio Tinto share, unless otherwise stated	2020 Actuals	Q1 2021 Actuals	2021 Unchanged
Pilbara iron ore (shipments, 100% basis) (Mt)	331	77.8	325 to 340
Bauxite (Mt)	56	13.6	56 to 59
Alumina (Mt)	8.0	2.0	7.8 to 8.2
Aluminium (Mt)	3.2	0.8	3.1 to 3.3
Mined copper (kt)	528	120.5	500 to 550
Refined copper (kt)	155	59.2	210 to 250
Diamonds (M carats)1	3.7	1.0	3.0 to 3.8
Titanium dioxide slag (Mt)	1.1	0.3	~1.1 to 1.3
IOC iron ore pellets and concentrate (Mt)	10.4	2.3	10.5 to 12.0
Boric oxide equivalent (Mt)	0.5	0.1	~0.5

¹ Diamonds 2021 guidance and actuals are for Diavik only for comparability, following Argyle closure in 2020. Unadjusted Diamonds production for 2020 was 14.7 million carats, including both Diavik and Argyle operations.

• We will continue to monitor and adjust production levels and product mix to meet customer requirements in line with our value over volume strategy, government-imposed restrictions related to COVID-19 and any other potential COVID-19 related disruptions.

• Iron ore shipments and bauxite production guidance remain subject to weather and market conditions. Iron ore guidance remains subject to risks associated with tying in approximately 90 million tonnes of replacement mine capacity at existing hubs in Robe Valley, West Angelas and Western Turner Syncline Phase 2 as well as the start-up of Gudai-Darri.

• The future impact on our Pilbara iron ore operations, mine developments and heritage approach from the reform of the Aboriginal Heritage Act 1972 (WA) remains unknown. We will maintain a high level of engagement with Traditional Owners regarding current and proposed plans for mining activities.  We continue to work through scenarios in an iterative manner as cultural assessments and mine designs progress, with a broad range of options subject to heritage and environmental approvals, given the flexibility in our Pilbara network.

Operating costs

• Pilbara iron ore 2021 unit cost guidance of $16.7-$17.7 per tonne remains unchanged. Operating cost guidance is based on A$:US$ exchange rate of 0.77.

• Copper C1 unit cost guidance in 2021 is unchanged at 60-75 US cents/lb.

EBITDA Sensitivities: previously published for 2020, next update on 28 July 2021

	Average price/rate for 2020	($m) impact on full year 2020 underlying EBITDA of 10% price/rate change
Copper	281c/lb	370
Aluminium	$1,702/t	577
Gold	$1,770/oz	62
Pilbara iron ore (FOB)*	$98.9/dmt	2,318
A$	0.69US$	617
C$	0.75US$	201
Oil (Brent)	$42/bbl	85

*FOB based on monthly freight-adjusted 62% iron fines CFR

Note: The sensitivities give the estimated effect on underlying EBITDA, 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 include the effect on operating costs but exclude the effect of revaluation of foreign currency working capital. Please use them with care.

Investments, growth and development projects 

• We have proactively managed COVID-19 challenges as well as some wet weather impacts in Australia, and overall project delivery is satisfactory. Uncertainty continues to exist around local situations, border access, availability and movement of people and goods. Capital expenditure remains unchanged at around $7.5 billion each year from 2021 to 2023.

• Exploration and evaluation operating expense in the first quarter of 2021 was $157 million, $13 million higher than the first quarter of 2020, with continued progress in Australia, and ramp-up of activities in Europe and Central Asia following easing of COVID-19 restrictions.

Pilbara replacement projects

• Gudai-Darri progress continues with production ramp-up on track for early 2022.

• First ore from the Robe River Joint Venture sustaining production projects (West Angelas C, D and Mesa B, C and H at Robe Valley) is still expected in 2021, consistent with previous guidance.

• Construction continues to progress at Western Turner Syncline Phase 2, with the project maintaining first ore in 2021.

Oyu Tolgoi underground project

Technical progress

• Work on the underground Material Handling System 1 advanced in line with the definitive estimate¹ outlined in December, with sustainable production expected in October 2022 and development capital of $6.75 billion. Progress on shafts 3 and 4, and other planned works, have however been significantly affected by COVID-19. We will provide an update on panels 1 and 2 ramp-up, which shafts 3 and 4 support, when the work to understand any potential impact is complete.

• In addition to ongoing flight restrictions and government imposed lockdowns – including an “all-out readiness state” declared by the Mongolian State Emergency Commission in November 2020 and again in April 2021 – Oyu Tolgoi imposed a site-wide quarantine period and all underground construction was temporarily halted for two weeks in March following the detection of two positive cases of COVID-19 on site. The impact of these additional restrictions is ongoing and still to be determined. 

• Underground access has resumed, but work on shafts 3 and 4 will remain shut-down throughout April, and pending easing of restrictions. Site resourcing has been limited due to COVID-19 constraints, with travel restrictions, quarantine and fatigue management likely to continue through May. In addition, international border controls will continue to limit the availability of skilled shaft sinking resources resulting in delays to the progress of shafts 3 and 4.

• Site-wide COVID-19 testing is in place and preparations for a vaccination programme are progressing.

Other updates

• On 9 April, we announced we had entered into a binding Heads of Agreement with Turquoise Hill Resources (TRQ) for an updated funding plan for the completion of the Oyu Tolgoi underground project. The funding plan addresses the estimated remaining funding requirement of approximately $2.3 billion, building on and replacing the arrangements established in the Memorandum of Understanding that Rio Tinto and TRQ previously entered into on 9 September 2020. Rio Tinto and TRQ have agreed to jointly obtain an order dismissing the current arbitration on a without prejudice basis, including an order vacating the interim measures order.

• The Mongolian Tax Authority required payment from Oyu Tolgoi for the full amount of the 2018 assessment (2013-2015 years) and 2020 assessment (2016-2018 years) – a total of approximately $356m in respect of all of the disputed items. In line with Mongolian legislation, Oyu Tolgoi has paid these amounts in full. However, Oyu Tolgoi continues to dispute them through arbitration.

Other key projects and exploration and evaluation

• The Zulti South project in South Africa remains on full suspension.

• At the Kemano hydropower tunnel project in British Columbia, Canada, site activities were significantly reduced from December 2020 due to a COVID-19 outbreak in the region. The majority of construction work has resumed from March 2021, but the COVID-19 situation in British Columbia continues to impact the return to a full restart.

• At the Resolution project in Arizona, we are reviewing the impact of the US Department of Agriculture's announcement directing the US Forest Service to withdraw the Notice of Availability and rescind the Final Environmental Impact Statement (EIS) and draft Record of Decision. We are committed to ongoing stakeholder engagement in our effort to seek consent to progress the project consistent with the International Council on Mining and Metals (ICMM) Statement on Indigenous Peoples and Mining.

• At the Winu project in Western Australia, drilling and fieldwork activities continue. First ore is expected in 2024, subject to regulatory approvals, Traditional Owner and other consents and COVID-19 restrictions. We continue to further develop our ground holdings in the Paterson region with an expanded 2021 exploration programme planned for the Citadel project, where we now hold a 65% interest.

• At the Simandou iron ore project in Guinea, preliminary results from the first phase of the technical optimisation of the infrastructure components are now being received from Chinese design institutes. Activity at the mine is ramping up, with a focus on identifying opportunities to optimise costs and construction schedule. Social and Environmental Impact Assessment (SEIA) implementation continues.

• The feasibility study at the Jadar lithium-borate project in Serbia is progressing to plan. An investment decision is scheduled for later this year, subject to permitting and other approvals, and granting of an exploitation license.

1 The level of accuracy of the remaining capital and schedule within the definitive estimate is at a better level than feasibility study. The 2020 estimate assumed COVID-19 restrictions in 2021 that were no more stringent than those experienced in September 2020 and noted that should COVID-19 constraints continue beyond 2021 or should the COVID-19 situation escalate further in 2021 leading to tougher restrictions, additional costs and schedule impacts will arise.

Since the definitive estimate, Mongolia has implemented additional restrictions in response to community transmission cases, and in March 2021 the first cases of COVID-19 were identified at Oyu Tolgoi resulting in temporary site shutdown, quarantine measures and further travel and movement restrictions. The impact of these additional restrictions, which are beyond those experienced in September 2020, is ongoing and still to be determined. 

All figures in this report are unaudited. All currency figures in this report are US dollars, and comments refer to Rio Tinto's share of production, unless otherwise stated.

Sustainability highlights

We continue to advance our sustainability agenda. In February, we enhanced our disclosures via a suite of materials that accompanied our 2020 Annual Report including: Climate Change report , Scope 1, 2 and 3 emissions calculation methodology , Industry Association Disclosure , and Sustainability Fact Book .

A key change to our Remuneration Policy in 2021 has been the introduction of environmental, social, governance (ESG) measures into the Short Term Incentive Plans (STIP). These targets (page 173 of our Annu al Report ) – which now make up 15% of total STIP – are related to our climate change initiatives towards the achievement of our 2030 targets and scope 3 goals, diversity and inclusion and governance of our cultural heritage. Our 2021 ESG incentives approach is set out on page 145 of our Annual Report.

Communities & Social Performance (CSP)

To help strengthen our relationship with host communities around the world, including Traditional Owners in Australia, we are taking a number of actions globally as highlighted in our CSP Seminar focused on cultural heritage – materials can be found here .

Key highlights from the quarter are outlined below, with further information available on our website .

Cultural heritage

In the Pilbara, we have now reviewed more than 1,300 sites, with 54 million dry tonnes of iron ore removed from Reserves. Our iron ore reserves totalled 3 billion tonnes at the end of 2020 across the Pilbara. We are further integrating heritage considerations into mine planning and development studies and embedding the lessons learned in Western Australia to relevant operations globally.

We continue to actively support the long overdue reform of the Aboriginal Heritage Act 1972 (WA), making clear our support for a right of appeal by Traditional Owners in relation to approvals to impact cultural heritage sites on their country. We are also engaging with the Chamber of Minerals and Energy in Western Australia, the Minerals Council of Australia and the ICMM, sharing the lessons that we have learned from Juukan Gorge.

Our communities expertise

We are currently expanding our CSP Area of Expertise. This will enhance our technical capacity and strengthen our standards, assurance and reporting processes.

In the first quarter, we launched internal development initiatives to increase awareness and training on community and heritage issues, and in the first half we will launch the first modules of the CSP Foundations training programme conducted by the University of Queensland's Centre for Social Responsibility in Mining. This programme will upskill our teams on the Rio Tinto Communities Standard requirements. In the second half of the year, 'Agreement Making' and 'Cultural Heritage' programmes will be delivered to provide a deeper understanding of current good practice.

With our $50 million investment to advance professional and leadership employment opportunities and accelerate the career development of Indigenous Australians in our business, we have been able to double the number of Indigenous managers in our business and increase university student applications in Australia by ~60% versus last year. We are encouraged by the number of Indigenous candidates coming forward to be a part of this important journey.

Indigenous Advisory Group

We have committed to establishing an Indigenous Advisory Group (IAG) to help us to better manage policies and positions that are important to Indigenous Australia and our business. The IAG will provide context for our Indigenous strategy in Australia along with coaching, mentoring and advice to senior leadership including the Board.

Other key community initiatives in the quarter

In February we announced we had awarded contracts valued at over $385 million to local Western Australian and Pilbara Aboriginal businesses to support the latest development of the Greater Tom Price Operations. Construction of the Western Turner Syncline Phase 2 expansion commenced in early 2020 and to date, more than 85% of spending has been awarded to Western Australian and Pilbara Aboriginal businesses.We currently employ more than 50% of workers living in Tom Price and this latest development will support a workforce of over 1,000 people at peak construction. We also announced a contribution of $15 million (A$20 million) to the Western Australian government to help fund a new hospital at Tom Price in the Pilbara. Our contribution to replace the current 54-year old Tom Price District hospital forms part of the company's ongoing commitment to the region.

Climate change and our value chain

Rio Tinto is committed to being part of the transition to a low-carbon future. The commodities we produce are essential to this transition and cannot be substituted in many important applications. In the first quarter, we announced new scope 3 goals and two partnerships. We also developed innovative solutions to reduce waste, found new ways to meet demand for emerging commodities like lithium, and enhanced the transparency of our products, as outlined below.

As a supporter of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, we also announced that we will work towards disclosures consistent with the evolving CA100+ benchmark and intend to put our annual TCFD-aligned reporting to an advisory vote at our 2022 annual general meetings.

Decarbonisation initiatives

• On 16 February, we announced a partnership with Paul Wurth S.A. and SHS-Stahl-Holding-Saar GmbH & Co. KGaA (SHS) to explore the viability of transforming iron ore pellets into low-carbon hot briquetted iron, a low-carbon steel feedstock, using green hydrogen generated from hydro-electricity in Canada. The feasibility study is expected to be complete in late 2021, with an investment decision on a hydrogen based direct reduction plant at industrial scale expected to follow.

• On 24 March, we announced a partnership with energy technology company, Heliogen to explore the deployment of breakthrough solar technology at our borates mine in Boron, California. The technology will use heat from the sun to generate and store carbon-free energy – via steam generation combined with the heat storage in rock salts – for the industrial processes. Operations are planned to commence in 2022, subject to permits and approvals. The installation at Boron will be used to evaluate the potential deployment at other Rio Tinto operations.

• On 1 April, we announced we had joined Japan's Green Value Chain Platform Network (GVC Network), a collaboration established by the Japanese Ministry of the Environment to lead transparent decarbonisation efforts in the country. GVC Network member companies work to set science-based targets for emissions reduction that are economically feasible and effective for the achievement of their Scope 1, 2 and 3 targets.

Product stewardship initiatives

• On 3 February, we announced the launch of START™ – the first sustainability label for aluminium using blockchain technology. START is now available for aluminium purchased from our managed operations, with 27 customers signed up to use the technology. Additionally, we have again become the world's first company to be re-certified against the Performance Standard by the Aluminium Stewardship Initiative (ASI). Our Canadian operations were the first in the world to be ASI-certified in 2018.

• On 8 March, we announced construction of a new plant that will recover tellurium, a critical mineral used in solar panels, from copper refining at our integrated Kennecott operations in Utah. We are investing $2.9 million in the plant, which will have a capacity of approximately 20 tonnes of tellurium per year. We expect to commence production in the fourth quarter of 2021.

• On 10 March, we announced our first commercial sale of high-performance aluminium-scandium alloy from our North American operations to Amaero, a leader in metal additive manufacturing. We will continue to deliver alloy billets made of responsibly produced, low-carbon aluminium from our hydro-powered Canadian smelters and high-purity scandium oxide from Rio Tinto Fer et Titane (RTFT) metallurgical complex in Sorel-Tracy, Quebec.

• On 7 April, we announced the successful production of battery-grade lithium carbonate at our demonstration plant at Boron, California. This is the next step in scaling up a breakthrough lithium production scale plant with an initial capacity of at least 5,000 tonnes per year, to recover the critical mineral and extract additional value out of waste piles. Additionally, in the quarter we launched two new products aimed at the agricultural sector to meet growing demand for boron and zinc, both important crop micronutrients in the fertiliser sector.

Our markets

We expect robust global economic growth in the near term, fuelled by strong fiscal spending and monetary policy and expanding vaccine deployment as the year progresses. We remain watchful of risks, in particular inflationary pressures and associated adjustments to interest rates by monetary authorities.

• China's industrial economy continues with strong momentum. Last year's stimulus programmes gave rise to a sustainable recovery in property and infrastructure construction. Policy focus is now shifting from supply (investment) to demand (consumption) – growth is therefore expected to pivot towards consumption of goods and services.

• Growth in the United States has improved due to the rapid progress of vaccinations and government policy support. Stimulus packages combined with a re-emerging consumer are expected to support strong growth in the near term. The prospect of an infrastructure bill enhances the outlook further but may bring inflationary pressures.

• Europe's economic recovery remains subdued due to lock-downs and a slower roll-out of vaccination programmes. However, growth is expected to improve progressively with the roll out of the Recovery Fund (€750bn over 5 years) which should support investment in infrastructure, transport, energy and construction.

• Steel prices in China finished the quarter at decade highs as construction activity and steel demand in the first quarter exceeded both 2020 and 2019. Strong steel demand and margins, at their highest since 2018, have lifted demand for higher quality (i.e. Pilbara Blend fines) and direct charge (i.e. Pilbara Blend lump) iron ore products. China's renewed focus on reducing steelmaking emissions will likely restrain steel exports in 2021, supporting margins globally.

• The aluminium price has rallied following a recovery in global demand and investor inflows. Logistical constraints combined with some inventories being tightly held has resulted in tighter physical markets.

• Copper prices in the first quarter are up over 50% versus the same time last year, having reached a nine-year high in the quarter. The rally came on the back of strong demand in China, recovering demand elsewhere and ongoing disruptions to mine and scrap supply, all amplified by strong investor interest.

COVID-19

Our absolute priority remains to provide significant levels of support and care for our employees, contractors, and host communities, as we continue to prioritise controls including health questionnaires and temperature screening. We have kept all our operations running throughout the pandemic with rapid implementation of health and hygiene controls from the outset, working in close collaboration with governments. Although the vaccine rollout brings some optimism, we have experienced a resurgence of the virus in some regions where we operate including Mongolia, the Americas, South Africa and Europe. We are supporting government vaccination campaigns, including the deployment of vaccination clinics in some regions.

• At Oyu Tolgoi, we continue to work closely with the Government of Mongolia and health authorities, and apply the strictest measures, including quarantine and testing for all employees before access to site, as the Mongolia State Emergency Commission has declared an all-out readiness state in April. A site-wide lockdown was enforced in March for two weeks due to two positive COVID-19 cases. During this period, the entire workforce was tested (~10,000 negative PCR tests). This event required quick mobilisation to set up the camp for self-isolation controls. Preparations for a vaccination programme are progressing.

• In Canada, we are supporting government vaccination efforts in the Saguenay-Lac-Saint-Jean region, at our Diavik operation in the Northwest Territories and at our operation in Kitimat, British Columbia.

• In the US, at our Boron site in California, we have provided access to daily testing to all site personnel, while strict controls remain in place to mitigate transmission risk and protect our employees. We are also supporting government efforts on vaccination implementation in Kern county and for local communities to ensure that our employees can easily access vaccination if they choose to do so. At our Kennecott  operations in Utah and Resolution Copper project in Arizona, vaccination plans are progressing well in line with the government rollout.

• With the outbreaks in the eastern states of Australia, we are closely monitoring State border closures and applying site access controls and travel management protocols. At our iron ore and salt assets in the Pilbara, Western Australia, our frontline port and health workers have been made eligible to receive the vaccination should they choose to do so. The remainder of the workforce will be offered the vaccination in line with the Western Australian Government rollout.

• We are actively managing the risks to seafarers from restrictions on crew changeovers due to COVID-19 measures in place across various countries. We continue to work with the industry, our shipowner partners, and regulators to facilitate crew changes and protect crew welfare.

Full details of initiatives taken to date can be found on our website .