Rio Tinto plc and Rio Tinto Limited — 2020 Form 20-F
Business context and reporting period. This is Rio Tinto’s annual report for the fiscal year ended 31 December 2020, not a standalone fourth-quarter report. The Group is a diversified mining company with major iron ore, aluminium, copper and diamonds, and energy and minerals businesses. Financial figures below are in US dollars unless stated otherwise; accounts are prepared under IFRS as issued by the IASB.
Financial performance and position
| Metric | 2020 | Prior period / comparison |
|---|---|---|
| Consolidated sales revenue | $44.6 billion | Up $1.4 billion, or 3%, from 2019 |
| Net earnings attributable to Rio Tinto owners | $9.769 billion | $8.010 billion in 2019 |
| Profit for the year | $10.4 billion | $7.0 billion in 2019; includes $631 million profit attributable to non-controlling interests, versus a $1.038 billion loss in 2019 |
| Underlying earnings | $12.448 billion | $10.373 billion in 2019 |
| Net cash from operating activities | $15.875 billion | $14.912 billion in 2019, up 6% |
| Free cash flow | $9.407 billion | $9.158 billion in 2019, up 3% |
| Capital expenditure | $6.189 billion | $5.488 billion in 2019 |
| Net debt | $664 million | $3.651 billion at year-end 2019; net gearing fell to 1% from 7% |
| Cash and short-term cash investments | $12.9 billion | $10.6 billion at year-end 2019 |
| Total financing liabilities | $13.8 billion | $14.3 billion at year-end 2019 |
| Closure, restoration and environmental provisions | $13.3 billion | $11.1 billion at year-end 2019 |
The filing does not provide a clear consolidated profit-margin figure in the supplied text. The excerpt also does not state the absolute underlying EBITDA figure; it reports that underlying EBITDA increased by $2.705 billion year over year.
Material changes versus 2019
- Higher commodity prices added $3.407 billion to underlying EBITDA, led by iron ore (+$3.262 billion) and copper (+$405 million); weaker aluminium, alumina and bauxite prices partly offset the gains.
- Iron ore gross product sales rose 14% to $27.5 billion. Pilbara shipments increased 1% and production increased 2%; the average realised iron ore price was $91.0 per wet metric tonne.
- Aluminium gross product sales fell 10% to $9.3 billion, reflecting lower prices and COVID-related weakness in demand for value-added products. Copper and Diamonds sales fell 7% to $5.4 billion; Energy and Minerals sales fell 3% to $5.0 billion.
- Net earnings increased by $1.759 billion. Underlying earnings rose by $2.075 billion, while exclusions from underlying earnings were a net $316 million less favourable year over year.
- Rio Tinto recorded $1.115 billion of impairment charges, including charges for aluminium smelters and its interest in the Diavik diamond mine. It also recorded $1.264 billion of non-cash foreign exchange and derivative losses, largely on US-dollar debt and intragroup balances; the filing says these losses are largely offset by currency translation gains in equity.
- Closure provisions increased principally due to currency appreciation, a lower discount rate and provision changes. The discount rate was reduced to a real 1.5% from 2.0%; the change increased the provision by about $954 million.
Cash returns, outlook and management commentary
- Shareholders received $6.1 billion in dividends, and the Group repurchased $0.2 billion of shares. The 2020 dividend was 557 US cents per share, comprising a 155-cent interim dividend, a 93-cent special dividend and a 309-cent final dividend.
- Management expects to fund its capital programme from internal sources, except for the Oyu Tolgoi underground development, which is project-financed. Contractual commitments and liquidity requirements are expected to be met from internal cash flow and, as needed, existing facilities.
- Management anticipated an effective tax rate on underlying earnings of approximately 30% in 2021. This is an estimate, not earnings guidance.
- Rio Tinto reported $7.5 billion of fully committed, undrawn revolving credit facilities, maturing in November 2023. Financing liabilities had a weighted average maturity of about nine years; approximately 86% were at floating interest rates, or 94% excluding leases.
- The Group targeted a 15% reduction in absolute operational emissions from 2018 levels by 2030, with an ambition to reach net zero operational emissions by 2050. It stated that its growth through 2030 would be carbon neutral.
Risks, contingencies and unusual items
- COVID-19 created uncertainty for employees, communities, supply chains, demand and trade. The filing reports additional Group costs of $333 million and some disruption to major project delivery, partly mitigated by management actions.
- Key exposures include commodity-price volatility, geopolitical and trade tensions, climate-transition and physical climate risks, water scarcity, cyber incidents, safety and tailings hazards, resource depletion, project execution, community relationships, and closure and rehabilitation obligations.
- Auditors identified critical audit matters involving impairment indicators for selected assets, closure and environmental provisions, and uncertain tax positions, including matters involving the Australian Taxation Office and Mongolian tax authorities. These matters did not modify the audit opinion.
- Long-term contractual obligations totalled $62.571 billion in the filing’s maturity table, including asset retirement obligations, purchase obligations, debt, lease payments and expected interest. The Group noted that tax payable includes uncertain tax positions and that some additional commitments were not included in the table.
- The filing reports the destruction of the Juukan Gorge rock shelters among the topics addressed in the incorporated annual report, but the supplied text does not provide the related financial impact or a clear value for any resulting contingency.
Important facts for investors to verify
- Review the full audited statements and notes incorporated from the 2020 Annual Report, particularly segment results, margins, debt maturities and cash-flow detail.
- Assess how much of the earnings and cash-flow improvement depends on iron ore prices and Chinese demand, and how sensitive results are to commodity-price changes.
- Examine the assumptions behind impairment testing and the $13.3 billion closure provision, including closure timing, estimated costs and discount rates.
- Monitor Oyu Tolgoi project costs, schedule and discussions with the Mongolian government, along with the tax disputes disclosed by the auditors.
- Verify how Juukan Gorge-related governance, community and remediation matters may affect operations, reputation, liabilities or future approvals.