Business context and reporting period
Rio Tinto plc and Rio Tinto Limited filed a combined Form 20-F annual report for the fiscal year ended December 31, 2021. The group is a global mining and metals producer with four principal product groups: Iron Ore, Aluminium, Copper and Minerals. Financial statements are prepared under IFRS as issued by the IASB, in US dollars. The filing reports the full year; it does not provide a clear standalone 2021 fourth-quarter income statement or cash-flow value.
Key financial and operating metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Consolidated sales revenue | $63.5bn | $44.6bn |
| Underlying EBITDA | $37.7bn | $23.9bn |
| Underlying earnings | $21.4bn | $12.4bn |
| Profit after tax attributable to owners (net earnings) | $21.1bn | $9.8bn |
| Profit after tax, total | $22.6bn | $10.4bn |
| Net cash generated from operating activities | $25.3bn | $15.9bn |
| Free cash flow | $17.7bn | $9.4bn |
| Capital expenditure | $7.4bn | $6.2bn |
| Net cash/(debt) at year-end | $1.6bn net cash | $0.7bn net debt |
| Total dividend declared per share | 1,040 US cents | 557 US cents |
Underlying EBITDA margin was 57% versus 51% in 2020. Underlying return on capital employed rose to 44% from 27%. The effective tax rate was 27.7% on net earnings and 28.0% on underlying earnings. Cash and cash equivalents were $12.8bn; cash plus other short-term cash investments was reported at $15.2bn. Financing liabilities excluding net-debt derivatives were $13.5bn, with an approximately 11-year weighted average maturity. A $7.5bn committed revolving credit facility was undrawn and extended to November 2026.
The $16.8bn total dividend declared represented 79% of underlying earnings: 793 cents per share ordinary and 247 cents special. The board recommended a final ordinary dividend of 417 cents and a final special dividend of 62 cents per share, payable in April 2022.
Material changes versus the prior comparable period
- Revenue increased 42%, underlying EBITDA 58%, underlying earnings 72%, net earnings 116%, operating cash flow 60% and free cash flow 88% year over year.
- Management attributed the record results primarily to higher commodity prices, especially iron ore, aluminium and copper. Price movements added $17.5bn to underlying EBITDA; the group said it retained about 80% of the price uplift.
- Higher prices were partly offset by lower sales volumes and product-mix effects, currency movements, inflation, higher energy costs and operating cash unit costs. Pilbara iron ore shipments fell 3%; mined copper production fell 7%; bauxite production fell 3%.
- Capital expenditure rose 19% to $7.4bn. Dividends paid during the year were $15.4bn, compared with $6.1bn in 2020; the group ended the year in a net cash position.
Outlook, commentary, risks and unusual items
- Strategy and targets: Management set priorities to improve operations, ESG performance, project development and community relationships. Scope 1 and 2 emissions targets were accelerated to a 15% reduction by 2025 and increased to a 50% reduction by 2030, against the 2018 equity baseline; the long-term ambition is net zero by 2050. The company expects about $7.5bn of climate-related capital investment through 2030, including approximately $1.5bn in 2022–2024. Growth capital ambition is up to $3bn annually in 2023–2024, subject to opportunities and capital discipline.
- Projects and execution: COVID-19 restrictions, labour shortages and supply-chain issues delayed Pilbara mine commissioning and project work. Gudai-Darri first production from its main plant was expected in Q2 2022, subject to ongoing disruptions. Oyu Tolgoi underground sustainable production was expected in the first half of 2023, with a $6.925bn capital forecast that management said would be reforecast in 2022.
- Jadar and Rincon: The Serbian government cancelled Jadar’s Spatial Plan in January 2022 and required related permits to be revoked, creating material uncertainty for the $2.4bn lithium-borates project. Rio Tinto said it was reviewing the decision and options. The company agreed to acquire Argentina’s Rincon lithium project for $825m, subject to approval and completion.
- Unusual financial items: The group recorded a $197m after-tax impairment at the Kitimat aluminium smelter following a strike and reduced output. It also recognised a $336m gain on a new wharf built and funded by LNG Canada; the gain was excluded from underlying earnings. Net losses from closure-estimate movements at non-operating and fully impaired sites were $971m after tax, including a $510m increase to the Ranger rehabilitation provision based on preliminary reforecast information. Total closure and restoration provisions were $14.5bn, up from $13.3bn.
- Oyu Tolgoi: A January 2022 agreement with Mongolia and Turquoise Hill enabled underground operations to commence. Turquoise Hill agreed to waive about $2.4bn of funding balances, including accrued interest; the waiver was treated as an equity transaction, not an income-statement charge or cash receipt.
- Risks and contingencies: Principal risks include commodity-price and geopolitical volatility, COVID-19 and supply-chain disruption, project delivery, climate transition and physical risks, water scarcity, tailings and other major hazards, cyber risk, and relationships with Indigenous peoples and communities. The group disclosed tax disputes, including Australian Taxation Office assessments, litigation and possible further claims related to historical cultural-heritage matters. It stated that certain potential exposures could not be reliably quantified. The Everyday Respect review, published in February 2022, reported troubling workplace experiences; management committed to implementing its recommendations.
- Safety and ESG: Managed operations recorded zero fatalities for a third consecutive year, but the all-injury frequency rate increased to 0.40 from 0.37. Scope 1 and 2 emissions were 31.1Mt CO2e, down from 31.5Mt. The report also recorded three major environmental incidents at managed operations.
- Controls and audit: The independent auditors gave an unqualified opinion on the financial statements and concluded that internal control over financial reporting was effective as of December 31, 2021.
Investor facts to verify
- Check the full-year IFRS statements and reconciliations of underlying earnings and EBITDA to reported results; these are non-GAAP measures.
- Verify that the strong cash generation, net-cash position and declared dividends are assessed alongside commodity-price dependence, capital spending and working-capital needs.
- Track the 2022 Oyu Tolgoi cost and schedule reforecast, funding arrangements and progress toward sustainable production.
- Monitor the legal and permitting status of Jadar and the closing conditions and execution plan for the Rincon acquisition.
- Review closure provisions, particularly the Ranger reforecast, as well as tax disputes, cultural-heritage commitments and workplace-review implementation.
- Confirm the timing and delivery of emissions targets and decarbonisation investment, and assess the group’s stated Scope 3 exposure and customer-decarbonisation assumptions.