Rio Tinto well placed to generate superior returns for shareholders, invest in sustaining and growing portfolio

Oil & Gas

Rio Tinto plc (LON:RIO) has announced total dividend of 557 US cents per share for 2020, a 72% pay-out, from robust results during a challenging year.

Rio Tinto Chief Executive Jakob Stausholm said: “It has been an extraordinary year – our successful response to the COVID-19 pandemic and strong safety performance were overshadowed by the tragic events at the Juukan Gorge, which should never have happened.

“During 2020, the agility and resilience of the business and our employees, coupled with strong commodity prices, enabled us to deliver underlying EBITDA of $23.9 billion and Return on Capital Employed of 27%. As a result, the Board has approved a total dividend of 557 US cents per share including a special dividend of 93 US cents per share, representing a 72% full year pay-out ratio, which builds on our five-year pay-out track record.

“My new executive team and wider leadership of the company are all committed to unleashing Rio Tinto’s full potential. We will increase our focus on operational excellence and project development and strengthen our ESG credentials. Working closely with the Board, we must earn the right to become a trusted partner for Traditional Owners, host communities, governments and other stakeholders but we all recognise that this will require sustained and consistent effort.

“Safe and well-run operations, together with world-class assets, great people, capital discipline and a strong balance sheet, leave Rio Tinto well placed to generate superior returns for shareholders, invest in sustaining and growing our portfolio, and make a broader contribution to society.”

At year end2020  2019 Change
Net cash generated from operating activities (US$ millions)15,87514,9126%
Capital expenditure1 (US$ millions)6,1895,48813%
Free cash flow2 (US$ millions)9,4079,1583%
Consolidated sales revenue (US$ millions)44,61143,1653%
Underlying EBITDA2 (US$ millions)23,90221,19713%
Net earnings (US$ millions)9,7698,01022%
Underlying earnings per share2 (EPS)  (US cents)769.6636.321%
Ordinary dividend per share (US cents)464.0382.021%
Total dividend per share (US cents)557.0443.026%
Net debt2 (US$ millions)(664)(3,651) 
Return on capital employed (ROCE)227 %24%

Our financial results are prepared in accordance with International Financial Reporting Standards (IFRS) and are unaudited – see page 34 for further information. Footnotes are set out on page 5.

•  Strong safety performance in 2020, fatality-free for a second year in a row, with the all injury frequency rate improving to 0.37. However, fatigue and other pressures from COVID-19 have heightened the safety risk in day-to-day operations and we recognise that there is no room for complacency.

•  We are working to restore trust with the Puutu Kunti Kurrama and Pinikura (PKKP) people following the Juukan Gorge events. Progress has been made as set out in the joint statement issued in December following a meeting between the PKKP and Rio Tinto boards, but we do not underestimate the time and effort it will take for us to help restore trust and rebuild our reputation.

•  2020 was a significant year for our climate strategy with the introduction of new Scope 1 and 2 targets: today, we have set new Scope 3 emissions goals and the Board intends to put the company’s annual TCFD-aligned reporting (Task Force on Climate-related Financial Disclosures) to an advisory vote at our 2022 Annual General Meetings.

•  $15.9 billion net cash generated from operating activities was 6% higher than 2019 primarily driven by higher iron ore prices and stability in operating performance. These flowed through to 3% higher free cash flow2 of $9.4 billion, which was net of a $0.7 billion increase in capital expenditure1 to $6.2 billion.

•  $23.9 billion underlying EBITDA2 was 13% above 2019, with an underlying EBITDA margin2 of 51%.

•  $12.4 billion underlying earnings2 (underlying EPS2 of US 769.6 cents) were 20% above 2019 with a 29.5% effective tax rate on underlying earnings3 – in line with 2019. Taking exclusions into account, net earnings of $9.8 billion  were 22% higher than 2019, mainly reflecting $1.1 billion3 of impairments,  most of which were taken in the first half of 2020 (five aluminium smelters and the Diavik diamond mine) and $1.3 billion of exchange losses. This compared with $1.7 billion3 of impairments in 2019 (primarily the Oyu Tolgoi underground copper/gold project and the Yarwun alumina refinery).

•  Strong balance sheet with net debt2 of $0.7 billion, a decrease of $3.0 billion, reflected the strength of our free cash flow, partly offset by $6.3 billion of cash returns to shareholders in 2020.

•  $9.0 billion full-year dividend, equivalent to 557 US cents per share and 72% of underlying earnings, includes $5.0 billion record final ordinary dividend (309 US cents per share) and $1.5 billion special dividend (93 US cents per share) declared today.

72% pay-out builds on our five-year track record; $9.0 billion of dividends declared for 2020

Ordinary dividendUS$ billionUS cents
per share
Interim ordinary dividend paid in September 20202.5  155
Final ordinary dividend to be paid in April 20215.0  309
Full-year ordinary dividend represents 60% pay-out7.5  464
Additional returns  
Special dividend to be paid in April 20211.5  93 
Combined total is 72% of 2020 underlying earnings9.0  557 

Strong cash flow from operations enhances free cash flow

Net cash generated from operating activities15,87514,912
Capital expenditure1(6,189)(5,488)
Sales of property, plant and equipment4549
Lease principal payments(324)(315)
Free cash flow29,4079,158
Dividends paid to equity shareholders(6,132)(10,334)
Share buy-backs(208)(1,552)
Non-cash impact from implementation of  IFRS 16 “Leases” from 1 January 2019(1,248)
Decrease/(increase) in net debt22,987(3,906)

Footnotes are set out on page 5.

•  $15.9 billion in net cash generated from operating activities, 6% higher than 2019, was driven primarily by higher underlying EBITDA from higher iron ore prices, net of an increase in tax paid in line with profits, a modest rise in working capital (primarily higher prices in receivables), increased dividends paid to joint venture partners and lower dividends received from equity accounted units.

•  $6.2 billion capital expenditure1 comprised of $3.2 billion of development capital, of which $2.1 billion is replacement capital, and $3.0 billion of sustaining capital. In 2020, we funded our capital expenditure from operating activities. We expect to continue funding our capital programme from internal sources, except for the Oyu Tolgoi underground development, which is project-financed.

•  $6.1 billion of dividends paid in 2020 comprised of the 2019 final paid in April 2020 ($3.6 billion) and the 2020 interim paid in September ($2.5 billion).

•  $0.2 billion of  share buy-backs with 3.6 million Rio Tinto plc shares repurchased.

•  As a result of the above, net debt2 decreased by $3.0 billion in 2020, ending the year at $0.7 billion. 

Growth projects and development options gather momentum

•  We maintained our exploration and evaluation spend at $625 million in 2020, as we progressed our greenfield programmes and advanced our evaluation projects, in particular Resolution Copper in Arizona, Jadar lithium-borates in Serbia and Winu copper-gold in Western Australia.

•  At Winu, we declared a maiden Inferred Mineral Resource  of 503 Mt at 0.45% copper equivalent and announced the discovery of a new zone of gold dominant mineralisation approximately two kilometres east of Winu.5 We are now targeting first production in 2024, subject to regulatory approvals, Traditional Owner and other consents, and COVID-19 restrictions.

•  At Jadar, we progressed to the feasibility study stage, following Board approval of almost $200 million of funding, and declared a maiden Ore Reserve. The studies are expected to be complete by the end of 2021. If the investment is approved, construction would take approximately four years. The project could produce ~55 thousand tonnes of battery-grade lithium carbonate, 160 thousand tonnes of boric acid (B2O3 units) and 255 thousand tonnes of sodium sulphate per year.6

•  At Resolution Copper, the independently prepared Final Environmental Impact Statement was published by the US Forest Service. We have now entered the next phase of public comment in the ongoing permitting process. 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 Simandou iron ore project (Blocks 3 and 4) in Guinea, we expect to complete the first phase of the technical optimisation work on the infrastructure components in the first half of 2021. Activity at the mine area has commenced and an update of the Social and Environmental Impact Assessment is underway.

•  The $2.6 billion Gudai-Darri (formerly known as Koodaideri) replacement iron ore mine in Western Australia is progressing, with production ramp-up on track for early 2022. This first phase of Gudai-Darri will have a 43 Mt annual capacity, underpinning production of the Pilbara Blend™.

•  First ore from the other iron ore sustaining production projects – the $0.8 billion (our share) Robe River Joint Venture (West Angelas C&D and Mesa B, C and H at Robe Valley) and the $0.8 billion Western Turner Syncline phase 2 mine – is on track for 2021.

•  At the Oyu Tolgoi underground copper/gold project in Mongolia, we confirmed development capital of $6.75 billion7 following completion of the definitive estimate, with sustainable production for Panel 0 expected to commence in October 2022. We are in active discussions with the government of Mongolia to address and close all outstanding issues and increase the project’s benefits to all stakeholders.

•  The $0.9 billion first phase of the south wall pushback at the Kennecott copper mine in the US, which will extend mine life to 2026, remains on track with gradually higher copper grades accessed from 2021. Stripping for the $1.5 billion second phase is also on track and is expected to extend operations for a further six years.

•  The Zulti South project at Richards Bay Minerals (RBM) in South Africa, which will sustain current capacity and extend mine life, remains on full suspension, pending normalisation of operations.

1.   Capital expenditure is presented gross, before taking into account any cash received from disposals of property, plant and equipment (PP&E).

2.   This financial performance indicator is a non-GAAP alternative performance measure (“APM”). It is used internally by management to assess the performance of the business and is therefore considered relevant to readers of this document. It is presented here to give more clarity around the underlying business performance of the Group’s operations. APMs are reconciled to directly comparable IFRS financial measures on pages 71 to 76.

3.   Refer to page 47 for pre-tax analysis of impairment charge.

4.   Net disposal proceeds in 2019 included a cash outflow representing Rössing Uranium’s cash balance at the date of sale.

5.   Refer to the release to the Australian Securities Exchange (ASX) on 28 July 2020 “Rio Tinto reveals maiden Resource at Winu and new discovery”. The Competent Person responsible for the information in that release that relates to Mineral Resources and Exploration Results is Dr Julian Verbeek. Rio Tinto confirms that it is not aware of any new information or data that materially affects the information included in the market announcement, that all material assumptions and technical parameters underpinning the estimates in the market announcement continue to apply and have not materially changed, and that the form and context in which the Competent Person’s findings are presented have not been materially modified.

6.   These production targets were previously reported in a release to the ASX dated 10 December 2020, “Rio Tinto declares maiden Ore Reserve at Jadar”. All material assumptions underpinning the production targets continue to apply and have not materially changed.

7.   This estimate is at a “better than feasibility study” level of accuracy.

Cultural heritage

We have almost completed implementing the recommendations of the Board review of cultural heritage management. We have also set out our actions in response to the recommendations of the the Joint Standing Committee on Northern Australia in their interim report following the Parliamentary Inquiry into the destruction of the rockshelters at Juukan Gorge. Details can be found on our website.

We are developing additional measures to enhance our partnerships, as we continue to focus on the longer-term process of earning the trust of Traditional Owners. To support this, we are focused on making sure that we build a more inclusive and diverse work culture, which will require sustained effort over many years.

On 23 December, we issued a joint statement with the Puutu Kunti Kurrama and Pinikura (PKKP) people confirming our shared commitment to work together to rebuild our relationship following the Juukan Gorge events in May 2020. Progress has been made in recent months:

•  With the PKKP, we have worked on a rehabilitation programme for the Juukan 1 and Juukan 2 rock shelters and we are assessing ways to protect the area for the future. This includes a permanent mining moratorium around the Juukan Gorge area. We have moved the artefacts previously uncovered from the rockshelters to a purpose-built facility, with the support of the PKKP.

•  The PKKP and Rio Tinto boards met to reaffirm our apology and commitment to rebuilding our relationship. This followed a visit to the Juukan Gorge by our Chairman and the Chair of our Sustainability Committee with PKKP elders.

•  We have reassessed all activities which have the potential to impact heritage sites. We will continue to review mine plans to ensure the protection of sites of exceptional cultural value and have increased monitoring of operating activities that have the potential to impact heritage sites. We have also integrated heritage management into our mining operations – our Product Groups have primary responsibility for our Communities and Social Performance (CSP) partnerships and engagement.

•  We have confirmed that Traditional Owners are not restricted from raising concerns about cultural heritage matters with anyone, or from applying for statutory protection of any cultural heritage sites. This forms part of our commitment to modernise our agreements with Traditional Owner groups in the Pilbara. This will take time to ensure the process involves meaningful participation of Traditional Owners. We will also engage with Traditional Owners on how best to incorporate a process of independent review to support the modernisation process. In the meantime, we continue to work with Traditional Owners under existing agreements and have increased engagement regarding current and proposed plans for mining activities.

•  We have appointed Indigenous community leader, Wayne Bergmann, to consult with Traditional Owners on the formation of an Indigenous Advisory Group in Australia. The Advisory Group will advise the Board and senior management team and provide an alternative pathway for Traditional Owners to escalate any concerns they may have about our performance at a local level.

•  We have strengthened the operational leadership of relationships with Traditional Owners and we are strengthening our business-wide cultural competency programme to build awareness and understanding.

•  Further to our commitment to invest US$50 million to increase employment opportunities for Indigenous Australians in our business and enhance Indigenous leadership in our Australian operations, we have progressed plans to advance Indigenous leadership in our business with the launch of a leadership programme involving more than 200 Indigenous employees. We have also implemented a two-way mentoring relationship between Indigenous employees and senior leaders as part of a broader cultural competency programme.

Climate change strategy update

Our portfolio of high-quality iron ore, copper, aluminium and minerals has an essential role in enabling the low-carbon transition. We divested the last of our coal businesses in 2018 and no longer extract fossil fuels. Our 2030 targets* are aligned, on a managed emissions basis, with the goals of the Paris Agreement and the Intergovernmental Panel on Climate Change pathway to 1.5°C, which requires a 45% reduction in global emissions by 2030 relative to 2010 levels. Most of our assets already sit in the low end of their respective carbon intensity curves – emissions from our Canadian smelters** are only 2.13 tCO2e per tonne of aluminium, more than 80% lower than the industry average of 12.4 tCO2e/tAl.

In 2020, we made progress executing our climate change strategy – we completed the studies for the 34MW solar plant at Gudai-Darri and commence construction in 2021. We also developed detailed five-year decarbonisation roadmaps for each product group. Our approved spend on climate-related projects in 2020 was over $140 million of the total $1 billion committed over the period 2020 to 2024. Our ELYSIS partnership completed the construction of the first industrial pilot facility to scale up a breakthrough technology that eliminates all direct greenhouse gas emissions from the aluminium smelting process.

Since 2018, we have reduced Scope 1 and 2 emissions by 1.1Mt CO2e, or 3%, which is on track with our 2030 target for absolute emissions. However, our 2020 emissions remained at the same level as in 2019 at 31.5Mt CO2e: we expect progress on emissions reduction to accelerate in the target period as we develop and implement our abatement projects together with continued focus on R&D. In 2020, 75% of electricity used at our managed operations was from renewable sources.

In 2020 we updated our methodology for calculating Scope 3 emissions and set new Scope 3 emissions reduction goals to guide our partnership approach across our value chain:

•  Work in partnerships with customers on steel decarbonisation pathways and invest in technologies that could deliver reductions in steelmaking carbon intensity of at least 30% from 2030,

•  Work in partnerships to develop breakthrough technologies with potential to deliver carbon neutral steelmaking pathways by 2050, and advance at least one project to industrial pilot scale by 2025,

•  Continue to scale up the ELYSISTM technology enabling the production of zero-carbon aluminium, and progress to commercial maturity by 2025, and

•  Develop plans to meet our new ambition to reach net zero emissions from shipping of our products by 2050, and meet International Maritime Organisation (IMO) goal of 40% reduction in shipping intensity by 2030.

We will continue to advance our value chain climate partnerships in 2021. We recently committed $10 million to fund the joint establishment of a Low Carbon Raw Materials Preparation R&D Centre with Baowu and signed a new Memorandum of Understanding with Nippon Steel to explore technologies to transition to a low-carbon emission steel value chain.

In 2021, the Remuneration Committee approved revisions to how we include climate change in the

short-term incentive plans. Safety, environment, social and governance matters, including climate

change, are now assigned an explicit performance weighting of 35%, of which 20% relates to safety.

The Board intends to put the company’s annual TCFD-aligned reporting to an advisory vote at our 2022 Annual General Meetings.

*Our ambition is for net zero emissions from our operations by 2050. Our targets for Scope 1 and 2 emissions for our managed and non-managed operations (on an equity share basis) are:

•   A 30% reduction in emissions intensity by 2030 from 2018 baseline adjusted for divestments

•   A 15% reduction in absolute emissions by 2030 from 2018 baseline adjusted for divestments

** Includes the ISAL smelter in Iceland.


•  We expect capital expenditure to be around $7.5 billion in each of 2021 and 2022 (previously around $7.0 billion in each year). 2023 capital expenditure is included for the first time and is also expected to be around $7.5 billion. Each year includes sustaining capex of $3.0-3.5 billion, of which $1.2-1.6 billion is for Pilbara iron ore. The $0.5 billion increase in 2021 and 2022 from previous guidance is due to the Australian dollar, which is forecast to strengthen from 69 to 77 cents. Around half of our capital expenditure is denominated in Australian dollars.

•  Effective tax rate on underlying earnings of ~30% in 2021. In June 2021, we expect to make a US$0.9 billion* final payment to the Australian Taxation Office in respect of 2020 corporate profits.    

* Based on the 2020 year-end Australian dollar exchange rate of 0.77.

2021 unit cost guidance2020 Actuals2021
Pilbara iron ore unit cash costs, free on board (FOB) basis – US$ per wet metric tonne15.4  16.7-17.7
Australian dollar exchange rate0.69  0.77
Copper C1 unit costs (average for Kennecott, Oyu Tolgoi and Escondida) – US cents per lb111  60-75

•  In 2021, we expect Pilbara iron ore unit cash costs to increase to $16.7-17.7 per tonne. This mainly reflects a forecast 12% strengthening of the Australian dollar (77 cents in 2021 vs 69 cents in 2020), given that a significant majority of our Pilbara costs are Australian-dollar denominated (excluding freight and royalties). In 2021, we expect to incur commissioning costs associated with tying in 90 million tonnes of replacement mine capacity and start-up costs for Gudai-Darri, with production ramping up in 2022. We also anticipate additional study costs for the next wave of replacement mines. There are no COVID-19 costs in our 2021 guidance compared with 60 cents per tonne in 2020.

•  In 2021, Copper C1 unit costs are expected to benefit from a gradual return to higher copper grades at Kennecott and a one-off benefit from higher gold grades at Oyu Tolgoi.

2021 production guidance (Rio Tinto share, unless otherwise stated)2020 Actuals2021
Pilbara iron ore (shipments, 100% basis)331  325 to 340 Mt
Bauxite56  56 to 59 Mt
Alumina 7.8 to 8.2 Mt
Aluminium3.2  3.1 to 3.3 Mt
Mined copper528  500 to 550 kt
Refined copper155  210 to 250 kt
Diamonds*3.7  3.0 to 3.8 M carats
Titanium dioxide slag1.1  ~1.1 to 1.3 Mt
Iron Ore Company of Canada pellets and concentrate10.4  10.5 to 12.0 Mt
Boric oxide equivalent0.5  ~0.5 Mt

* 2021 diamonds guidance is for Diavik only following the closure of Argyle in 2020.

•  Production guidance is unchanged from our Fourth Quarter Operations Review released on 19 January 2021.

•  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 also takes into account the 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.

•  Our updated assessment of Ore Reserves reflects measures we have put in place following the events at Juukan Gorge. These are intended to protect a number of sites, and to mitigate impacts to sites where there are existing heritage approvals, or a decision has been made not to seek regulatory approval to conduct mining activities, given heritage considerations identified by Traditional Owners. As a result, we have removed 54 million dry tonnes from Reserves. Our iron ore reserves totalled 3 billion tonnes at the end of 2020 across our Pilbara mines.

•  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. Rio Tinto 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 available given the flexibility in our Pilbara network.

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