Rio Tinto Plc Record cash returns to shareholders of $13.5 billion

Rio Tinto Plc (LON:RIO), today announced 2018 full year results.

Rio Tinto chief executive J-S Jacques said “We have once again announced record cash returns to shareholders of $13.5 billion on the back of $18 billion of underlying EBITDA and a Return on Capital Employed of 19%. These strong results reflect the efforts of the team to implement our value-over-volume strategy as we continued to strengthen the portfolio and invest in future growth.

“Our world-class portfolio and strong balance sheet will serve us well in all market conditions, and underpin our ability to continue to invest in our business and deliver superior returns to shareholders in the short, medium and long term.”

· Sadly, we had three fatalities in 2018, two workplace related, one security incident. All Injury Frequency Rate (AIFR) of 0.44 (2017: 0.42).

· $6.3 billion of cash returns from operations, comprising the $1.0 billion share buy-back announced in August 2018, and record $5.3 billion full year ordinary dividend (equivalent to 307 US cents per share) – 72% of underlying earnings3, including final dividend of $3.1 billion (equivalent to 180 US cents per share), announced today.

· $7.2 billion of supplementary cash returns from divestments, comprising a special dividend of $4.0 billion announced today, equivalent to 243 US cents per share, and $3.2 billion of share buy-backs, $1.1 billion of which remains outstanding in Rio Tinto plc shares, to be completed no later than 28 February 2020.

· This brings total cash returns declared in respect of 2018 to $13.5 billion.

· Robust underlying EBITDA of $18.1 billion was just 2% below 2017, despite divestments and input cost pressures in aluminium and alumina. $0.4 billion exit rate from our mine-to-market productivity programme6 was impacted by $0.3 billion higher costs from raw materials.

· $11.8 billion operating cash flow, 15% below 2017, driven primarily by the timing of tax payments related to 2017 earnings and higher inventory balances as a result of the increased price of raw materials.

· $7.0 billion free cash flow, with lower operating cash flow as described above and increasing investment in capital projects in line with guidance. $5.4 billion of capital expenditure with $2.9 billion invested in high value development projects including AutoHaul™ automated trains, Amrun bauxite and Oyu Tolgoi underground copper/gold mine. Koodaideri and Robe River replacement iron ore mines approved.

· $8.8 billion underlying earnings, 2% higher due to a strong contribution from Copper & Diamonds, offsetting lower underlying earnings in other product groups.

· $13.6 billion net earnings driven primarily by gains on disposals and foreign exchange movements.

· 19% Return on Capital Employed (ROCE)7, a rise of one percentage point, as we continue our strategic reshaping of the portfolio.

· Strong balance sheet as net debt5 fell by $4.1 billion to a net cash5 position of $0.3 billion, including cash and highly liquid investments of $13.3 billion. Cash flows were bolstered by $8.6 billion of pre-tax divestment proceeds, including our remaining Australian coal assets and Grasberg.

The financial results are prepared in accordance with IFRS and are audited. Footnotes are set out on pages 3-4.

Stability in revenues and EBITDA

· $40.5 billion of consolidated sales revenue, $0.5 billion higher than 2017. Increased volumes of iron ore and copper, and higher prices for aluminium and copper, offset the impact of lower iron ore prices and our coal divestments.

· Underlying EBITDA3 of $18.1 billion was 2% lower than 2017, with higher revenues outweighed by a rise
in energy and raw material costs.

· Effective tax rate on underlying earnings3 was 29%, one percentage point higher than in 2017.

· Net earnings of $13.6 billion, 56% higher than 2017, reflected $4.6 billion of gains on disposals of businesses and land. See table on page 8.

Strong cash flow from operations and asset sales

· Cash generated from operating activities was down 15%, driven primarily by the timing of tax payments related to 2017 profits and by higher inventory balances as a result of the increased price of raw materials.

· Capital expenditure1 was $5.4 billion, of which $2.9 billion was on development projects and $2.5 billion to sustain capacity at our operations. Sales of property, plant and equipment primarily related to the wharf and land in Kitimat – see table below.

· Free cash flow2 of $7.0 billion, down 27%, due to the lower operating cash flow and higher capex.

· $8.6 billion of proceeds from divestments – see table below.

· Paid the 2017 final dividend of $3.2 billion and the 2018 interim dividend of $2.2 billion.

· $5.4 billion of share buy-backs: $2.1 billion of Rio Tinto Limited shares bought off market and $3.3 billion of Rio Tinto plc shares repurchased on market and cancelled.

· Strengthened our balance sheet with a $4.1 billion decrease in net debt4 to end the year with $0.3 billion net cash.

Cash inflows of $8.6 billion, pre-tax, from divestments in 2018

1   Net of completion adjustments.

2   Before a $0.1 billion attributable share of copper and gold revenues, net of Rio Tinto’s capital contribution for the year.

We expect to pay around $0.9 billion in tax on the above transactions in the first half of 2019.

Increased investment in growth projects and development

· The world-class Oyu Tolgoi underground copper mine development in Mongolia has progressed in 2018, including the signing of the Power Source Framework Agreement. There are challenges which further impact the forecasted ramp-up to sustainable production at this complex project. See pages 22-23.

· $1.9 billion Amrun bauxite project in Queensland shipped first tonnes six weeks ahead of schedule in December 2018. Amrun will increase our export capacity by around 10 Mt/a.

· $940 million AutoHaul™ project: by the end of 2018 we had fully deployed our Pilbara autonomous trains, the world’s first autonomous heavy haul rail system. This is expected to improve productivity and overall system throughput, by providing more flexibility and reducing bottlenecks.

· $2.6 billion Koodaideri replacement iron ore mine approved, including processing plant and 166-kilometre rail line. Koodaideri will have a 43 Mt annual capacity, underpinning production of our Pilbara Blend™, with first tonnes in late 2021 and significant potential for future expansion with a study underway.

· $488 million spend on exploration and evaluation, a 10% rise, mostly driven by increased activity at the Resolution copper project in Arizona and higher greenfield expenditure to underpin future growth projects.

· Encouraging copper mineralisation discovered in the Pilbara, Western Australia: 26 diamond holes drilled for 10 kilometres and we have commenced phase 2 drilling to ascertain scale.8

Guidance

· Mine-to-market productivity programme6 to deliver an additional free cash flow run-rate of $1.5 billion from 2021, as originally anticipated. In 2019 we expect the run-rate to be around $1.0 billion.

· Capital expenditure1 to stay at around $6.0 billion in 2019 and around $6.5 billion in 2020. In 2021, we expect to invest $6.5 billion in our business. Each year includes approximately $2-2.5 billion of sustaining capex.

· Effective tax rate on underlying earnings of approximately 30% in 2019.

· Pilbara unit cash costs of $13-14 per wet metric tonne (excluding freight) in 2019.

· C1 unit costs at Rio Tinto Kennecott, Oyu Tolgoi and Escondida to average 110-120 US cents per pound in 2019.

· Our 2019 production guidance is unchanged from our Fourth Quarter Operations Review.