Rio Tinto - Investor Seminar
Rio Tinto well positioned to sustain strong returns
31 October 2019
Rio Tinto is well positioned to continue generating strong returns, building on a track record of $32 billion returned to shareholders since 2016, and the significant progress achieved in strengthening the resilience and sustainability of the business.
At its investor seminar in London, Rio Tinto chief executive J-S Jacques and members of his executive team will outline how the quality of Rio Tinto's portfolio, strong customer relationships and capital discipline positions the company for continued strong financial performance, as demonstrated by free cash flow of $10 billion in 2019 calculated at current spot prices*.
"Rio Tinto has a world-class portfolio, delivering superior margins and free cash flows, with an established track record of generating resilient returns. This includes $32 billion returned to shareholders since 2016, in a volatile macro environment.
"We are not complacent, and will step up our operational performance to fully optimise our assets and maintain strong cash delivery. We will continue to create value by strengthening relationships with our customers and with other partners, both of which are crucial for our future success."
Rio Tinto will also underline its environmental and sustainability credentials and demonstrate what it is doing to position the business for a carbon constrained world and reinforce its value proposition to investors as the only major diversified miner who does not extract fossil fuels. Rio Tinto has reduced its emissions-intensity footprint by almost 30 per cent since 2008 and today, over 70 per cent of its electricity comes from renewable sources. Current emissions targets, which have already been achieved, expire at the end of 2019 and new targets will be disclosed in early 2020. The new targets will move Rio Tinto closer to its long-term commitment of substantially decarbonising its business by 2050.
Key points from the presentation include:
- $10 billion of free cash flow in 2019* at spot prices, demonstrating the ongoing cash generation resilience of our world-class assets in a volatile macro environment.
- Rio Tinto remains committed to maintaining an appropriate balance between investment in the business and cash returns to shareholders. Over the last three years, our pay-out ratio, excluding returns from divestments, has averaged more than 70 per cent, above our returns policy range of 40-60 per cent in recognition of the strong free cash flow generation of the business.
- Total capital expenditure in 2019 is expected to be $0.5 billion lower than previous guidance at around $5.5 billion, with $0.5 billion deferred into 2020. As a result, guidance for 2020 is around $7 billion. Guidance for 2021 remains unchanged at around $6.5 billion. Guidance for 2022 was included for the first time at around $6.5 billion.
- Pilbara shipment and cash unit cost guidance for 2019 remain unchanged at 320-330 million tonnes and $14-15 per tonne.
- Sustaining capital expenditure is now expected to be $1 billion to $1.5 billion per year from 2020, versus earlier guidance of around $1 billion.
- Pilbara system has, at times, operated at 360 Mtpa run rates, but not on an annual basis.
- Annualised system capacity of 360 Mtpa expected once Koodaideri phase 1 is fully commissioned, with first ore still expected late 2021.
- Pilbara Blend continues to command a premium and remains the flagship product from our Pilbara system.
- SP10 supports high consistency of the Pilbara Blend, whilst increasing resource recovery and improving mine productivity. It is also of lower cost than Pilbara Blend on average.
- 2020 shipment guidance is an increase of up to 5% on 2019 guidance subject to market conditions. Specific guidance for 2020 will be provided with the fourth quarter operations review, in January 2020.
- Rio Tinto provided an update on progress at Oyu Tolgoi, underlining that the world-class ore-body will become one of the world's largest copper and gold mines.
- Construction of Shaft 2 is now complete and commissioning is in progress, which will facilitate a step-change in lateral development productivity, providing the ability to move more material, equipment and people between the surface and underground.
- The underground development is large and complex, with over 200km of underground roads and infrastructure.
- Work evaluating design options continues, including reviewing the location of access drives, the ore handling system and options for panel sequencing. Mine design will be completed in H1 2020.
- The Definitive Estimate, which will include the final estimate of cost and schedule for the remaining underground project, is still expected to be delivered in the second half of 2020.
Growth & Innovation
- Rio Tinto spends $200m each year on early stage R&D.
- In studies and construction, innovation and digital design is helping Rio Tinto to achieve improvements in safety and cost as seen most recently at Amrun and at Koodaideri.
- Partnering to develop innovative technology to tackle critical industry challenges is leading to advances in tailings management and handling, emissions reductions as well as improved water usage and recycling.
- Investment in exploration continues in 18 countries and seven commodities. By taking a sophisticated approach to data and technology to improve targeting, Rio Tinto has uncovered opportunities in areas that have been well explored in the past.