Rio Tinto announces full-year ordinary dividend of $6.2 billion (382 US cents per share), including record final ordinary dividend of $3.7 billion (231 US cents per share), resulting in total cash returns of $7.2 billion (443 US cents per share).

Rio Tinto Chief Executive J-S Jacques said “We have again delivered strong financial results with underlying EBITDA of $21.2 billion, underlying EBITDA margin of 47% and return on capital employed of 24%. This performance allows us to return a record final ordinary dividend of $3.7 billion, resulting in a full-year ordinary dividend of $6.2 billion and total cash returns of $7.2 billion.

“In line with our disciplined approach to capital allocation, we invested $2.6 billion in development projects, including high-return iron ore and copper. Longer term, our $624 million exploration and evaluation expenditure in 2019 adds to our pipeline of attractive options.

"Our world-class portfolio and strong balance sheet serve us well in all market conditions, and are particularly valuable in the current volatile environment. We are closely monitoring the impact of the Covid-19 virus and are prepared for some short-term impacts, such as supply-chain issues. Our products are currently reaching our customers.

"Our resilience and value over volume strategy mean we can invest in our business and deliver superior returns to shareholders in the short, medium and long term."

•      Strong safety performance in 2019, with no fatalities and a slightly improved all injury frequency rate, coming from a strong base. Continued improvement in prevention of catastrophic events through a step-change in process safety management.

•      $14.9 billion operating cash flow was 26% higher than 2018 and $9.2 billion free cash flow2 was 31% higher than 2018. Both are presented after $0.9 billion tax paid in 2019 relating to the 2018 coking coal disposals.

•      $5.5 billion capital expenditure1 was consistent with 2018. In late 2019, we announced the approval of two further investments, at Greater Tom Price (iron ore, $0.8 billion) and Kennecott (copper, $1.5 billion).

•      $21.2 billion underlying EBITDA3 was 17% above 2018, primarily driven by higher iron ore prices, with an underlying EBITDA margin7 of 47%.

•      $10.4 billion underlying earnings were 18% above 2018. Taking exclusions into account, net earnings of $8.0 billion were 41% lower than 2018, mainly reflecting $1.7 billion8 of impairments in 2019, primarily the Oyu Tolgoi underground project, consistent with our 2019 interim results, and the Yarwun alumina refinery. This compared with $4.0 billion of gains on disposals in 2018.

•      Strong balance sheet with net debt4 of $3.7 billion, a rise of $3.9 billion, mainly reflected $11.9 billion of cash returns to shareholders in 2019 through dividends and share buy-backs, and a $1.2 billion non-cash increase from the implementation of IFRS 16 "Leases", partly offset by free cash flow of $9.2 billion.

•      $7.2 billion full-year dividend, equivalent to 443 US cents per share and 70% of underlying earnings, includes: $3.7 billion record final ordinary dividend (231 US cents per share) declared today. Continued investment in growth projects and development

•      Greenfield success with further encouraging drill results released in August 2019 at the Winu project in Western Australia. Extensive drilling and geophysical testing programme completed: geotechnical, hydrology, mining, processing and basic engineering studies are well advanced. Targeting first production in 2023, subject to regulatory approvals and consents.

•      $624 million spent on exploration and evaluation. This 28% rise was mostly driven by higher greenfield expenditure to underpin future growth projects, as well as increased activity at the Resolution copper project in Arizona, for which we committed $302 million ($166 million our 55% share) in future expenditure.

•      $2.6 billion Koodaideri replacement iron ore mine progressed, with key construction activities on schedule. Koodaideri will have a 43 Mt annual capacity underpinning production of our Pilbara Blend™, with first tonnes in late 2021.

•      $1.5 billion investment at Kennecott approved in late 2019. Phase 2 of the south wall pushback is expected to extend copper operations to 2032.

•      At the Oyu Tolgoi underground copper/gold mine in Mongolia, we completed the primary production shaft in October 2019, a key milestone. Work continued on the mine design and, overall, we remain within the cost and schedule ranges announced in July 2019. We continue to expect to complete the mine design in the first half of 2020 and the definitive estimate9 of cost and schedule in the second half of 2020.

•      $463 million investment in the Zulti South project at Richards Bay Minerals (RBM) in South Africa approved in 2019 to sustain current capacity and extend mine life. Construction is on hold after a number of security incidents - we will assess a restart after normalisation of operations at RBM.

Climate change strategy update

We have a key role to play in enabling the transition to a low-carbon economy. We do this through our well- positioned portfolio of high-quality iron ore, copper and aluminium. We do not mine coal or extract oil and gas and 76% of our electricity consumption at our managed operations is supplied by renewable energy.

In 2015, we supported the outcomes of the Paris Agreement. Since 2008, we have reduced our absolute greenhouse gas emissions from our managed operations by 46% (or 18% when excluding divestments).

Our ambition is for net zero emissions from our operations by 2050. We have set new targets for scope 1 & 2 emissions for our managed and non-managed operations (on an equity share basis):

•      A 30% reduction in emissions intensity by 2030 from 2018 levels

•      A 15% reduction in absolute emissions by 2030 from 2018 levels

Our growth, overall, between now and 2030 will be carbon neutral. This is underpinned by approximately $1 billion of climate-related spend over the next five years.

Guidance

•      We are currently evaluating the impact of the Covid-19 virus, which could create significant uncertainty for our business in the near term. Subject to our ongoing evaluation, guidance below is unchanged from prior disclosures, with Pilbara iron ore shipments guidance updated on 17 February 2020. All our operations are looking at opportunities to adjust to the impact of the Covid-19 virus on market conditions.

•      Capital expenditure1 expected to be around $7.0 billion in 2020, following the deferral of $0.5 billion from 2019, and around $6.5 billion in each of 2021 and 2022. Each year includes sustaining capex of around $2.5 billion per year, of which $1.0-1.5 billion is for our Pilbara iron ore business.

•      Effective tax rate on underlying earnings of approximately 30% in 2020.

2020 production guidance (Rio Tinto share, unless otherwise stated)

2020 unit cost guidance

Iron Ore

Financial Performance

In 2019, we benefited from robust demand for our high-quality products driven by strong demand from China and constrained seaborne supply. Iron ore shipments were down 3% on 2018, but recovered strongly in the second half of 2019 after disruptions earlier in the year, which included weather events, a screen house fire at one of our ports and operational challenges.

Underlying EBITDA of $16.1 billion was 41% higher than 2018, reflecting higher prices which were partially offset by higher unit costs. The Platts index for 62% iron fines on an FOB basis was 39% higher, on average, compared with 2018. This increased underlying EBITDA by $5.4 billion relative to 2018.

2019 Pilbara unit cash costs were $14.4 per tonne (2018: $13.3 per tonne). The fire and weather-related events in the first half of the year reduced shipments by 14 million tonnes (100% basis), increasing unit costs by around $0.5 per tonne. We incurred approximately $50 million in additional costs in 2019 ($0.2 per tonne) to address the mine operational challenges. Higher salaries, rising fuel prices and cyclical maintenance in 2019 compared with 2018 were mostly offset by a weaker Australian dollar.

We expect Pilbara unit cash costs to be $14-15 per tonne in 2020 (assumes a 0.67 Australian dollar exchange rate). Increased volume efficiency compared with 2019 is expected to be offset by longer haul distances and increased maintenance activity. Koodaideri is on track for first ore in late 2021. Once fully ramped up it will provide new volumes at a lower cost.

We have continued investing in productivity and automation, and 50% of our truck fleet in the Pilbara is now fully autonomous. We have a pathway that will see a large majority of the fleet being automated by the end of 2022. AutoHaulTM, the world's first automated heavy-haul, long-distance rail network, was fully operational in 2019.

Our Pilbara operations delivered an underlying FOB EBITDA margin of 72%, compared with 68% in 2018.

We price the majority of our iron ore sales (76%) by reference to the average index price for the month of shipment. In 2019, we priced approximately 16% of sales by reference to the prior quarter’s average index lagged by one month, with the remainder sold either on current quarter average, current month average or on the spot market. We made approximately 68% of sales including freight and 32% on an FOB basis.

We achieved an average iron ore price of $79.0 per wet metric tonne on an FOB basis (2018: $57.8 per wet metric tonne). This equates to $85.9 per dry metric tonne (2018: $62.8 per dry metric tonne).

The gross sales revenue for our Pilbara operations included freight revenue of $1.7 billion (2018: $1.7 billion).

Net cash generated from operating activities of $11.4 billion was 37% higher than 2018, driven by the same trends as underlying EBITDA.

The $9.6 billion of free cash flow was 36% higher than 2018, reflecting the strong realised pricing partly offset by royalties, taxes and higher capital spend. This included sustaining capital as well as the construction of Koodaideri.

Review of operations

Our Pilbara mines in Western Australia produced 327 million tonnes (our share is 271 million tonnes) in 2019 - 3% lower than 2018. Overall material moved in 2019 was the highest on record. Our increased focus on waste material movement and pit development will continue in 2020 to improve mine performance and pit sequencing.

In the first half of 2019, shipments were affected by weather events, a screen house fire at one of our ports and mine operational challenges. Our second half performance was strong, with both production and shipments exceeding the same period in 2018, despite a planned, extended rail maintenance shutdown which limited rail capacity for 12 days. In October 2019 we commenced trials of portside trading. We maintain some inventory at Chinese ports and can also handle material from third parties and from Iron Ore Company of Canada.

New projects and growth options

We are progressing our $2.6 billion Koodaideri iron ore mine, with key construction activities on schedule. This new production hub will be our most technologically advanced, incorporating a processing plant and infrastructure including an airport, camp and a 166-kilometre rail line connecting the mine to our existing network. We continue to expect first ore in late 2021. Once fully commissioned, the initial mine development will have an annual capacity of 43 million tonnes. This will increase the lump to fines ratio of the entire portfolio from an average of 35% to 38% and will increase the annual capacity of our Pilbara system to 360 million tonnes.

We have multiple project scopes under study for Koodaideri Phase 2, following board approval for a $44 million pre-feasibility study. Ultimately, the capacity of the Koodaideri hub could be up to 70 million tonnes per year, depending on market conditions.

We are also investing $1.55 billion with our joint venture partners, Mitsui and Nippon Steel, (our 53% share is $820 million) at the Robe Valley and West Angelas operations. We have received all major environmental approvals, with the exception of Mesa H, and procurement and construction activities are progressing well. We anticipate first ore from these projects in 2021.

In late 2019, the board approved the $749 million investment in the Western Turner Syncline Phase 2 mine, part of the Greater Tom Price operations. This will facilitate mining of new deposits and includes construction of a new crusher and a 13-kilometre conveyor. Pending final government approvals, construction will start in the first half of 2020 with first ore expected in 2021.

Markets

Despite overall weakness in global macro conditions, demand for the high-quality, higher grade iron ores we produce remained strong in 2019. This was mainly driven by a combination of seaborne supply disruptions and record Chinese steel output.

Global steel production increased by around 1.3% in 2019. This was supported by resilient Chinese production of around 970 million tonnes, which more than offset lower steel output outside of China.

2019 seaborne iron ore supply decreased by 30 million tonnes compared with 2018, with the cumulative impact of lower shipments from Vale and significant first quarter weather-related disruptions affecting Pilbara suppliers. China’s domestic supply growth helped meet the supply shortfall in 2019, after overcoming improved environmental and safety standards and financing availability.

Official Document