Rio Tinto Group Q1 FY2022 earnings call

Management Statement and Operational Highlights

• Economic Outlook: World faces uncertainty from logistics, COVID, Ukraine war, and inflation. China's supportive policy stance benefits Rio Tinto, with China accounting for over half of revenues.
• Operational Performance: Strengthened operational performance at sites, rolling out Rio Tinto Safe Production System with 15 deployments at 11 sites, achieving 9% year-on-year improvement in operating times at deployment sites.
• Decarbonization: Initiated decarbonization journey, with $7.5 billion plan to 2030, including $1.5 billion over next 3 years back-end dated. Engaged with stakeholders for partnerships.
• Growth Options: Advancing Oyu Tolgoi underground to reach sustainable production in H1 2023, Rincon lithium project in Argentina, Simandou negotiations in Guinea, and other projects like SOREL and Kennecott producing critical minerals.
• Social License: Working on rebuilding relationships with Traditional Owners, e.g., PKKP Aboriginal Corporation co-management agreement and Western Range project support from WA EPA.

Segment Performance

• Iron Ore: Shipments were 2% lower due to COVID-19 disruptions and heavy rainfall, but Q2 production recovered. EBITDA contribution significant. Operating cash flow was $8.5 billion, free cash flow $7 billion. Unit cost $21.20 per tonne before COVID-related costs.
• Aluminum: EBITDA was $2.9 billion, operating cash flow $2.1 billion, free cash flow $1.5 billion. Faced operational challenges like Kitimat's reduced capacity but saw strong pricing initially.
• Copper: Underlying EBITDA was $1.5 billion, down 27% due to lower sales volumes and byproduct credits. C1 unit costs were significantly higher at $1.48 per pound.
• Minerals: Underlying EBITDA was $1.3 billion, 10% lower due to higher cash costs. Acquired Rincon Lithium in March, with $190 million funding for early works.

Guidance

• Capital Expenditure: 2022 guidance reduced to ~$7.5 billion from $8 billion due to dollar strength and reprofiling. 2023-2024 guidance remains $9 billion-$10 billion, including up to $3 billion annually in growth. Simandou included in capital guidance.
• Decarbonization Spend: Best estimate of $7.5 billion until 2030 for decarbonization, with $1.5 billion over next 3 years back-end dated. Sustaining capital at $3.5 billion annually, replacement capital $2 billion-$3 billion.
• Dividend: Interim dividend of $4.3 billion (50% payout), final dividend at full year considering major commodities outlook.

Risks

• Market Volatility: Commodity price fluctuations, e.g., iron ore price drop 24% from 2021 H1, impacting revenues.
• Geopolitical Risks: Uncertainty in regions like Guinea (Simandou project), Ukraine war impact on supply disruptions.
• Operational Challenges: Delays in projects like Kitimat restart and Boyne production disruption, COVID-19 impacts on shipments.

Question and Answer

• Q: On Simandou delays, A: Jakob says it's a massive project aligning stakeholders, progressing well though negotiation is complex.
• Q: On dividend consistency, A: Peter says 50% payout is consistent, Board will decide final dividend at full year based on outlook.
• Q: On CapEx spend profile, A: Peter says second half spend is usually stronger, $3.1 billion first half includes reprofiling, with 2023-2024 guidance $9 billion-$10 billion.
• Q: On MOU with Ford, A: Jakob says it's an MOU, automakers' EV shift makes Rio relevant for materials like lithium and aluminum.
• Q: On Traditional Owner engagement progress, A: Jakob mentions co-management agreements like PKKP and Western Range project progress, with engagement improving through stakeholder interactions.