Rio Tinto : Second Quarter Operations Review 2021

Notice to ASX/LSE

16 July 2021

Rio Tinto releases second quarter production results

Rio Tinto Chief Executive Jakob Stausholm, said: "The global economy, in particular China, recovered strongly and we are intensely focused on servicing our customers with as much product as we can. However, we faced some challenges in the first half notably at our Pilbara operations, which were impacted by replacement mine tie-ins and materially higher rainfall. Heightened COVID-19 constraints, which resulted in numerous travel restrictions, added further pressure on the business and limited our ability to access additional people, particularly in Western Australia and Mongolia, in order to deliver operational improvements or maintenance initiatives and accelerate projects.

"Safety is our first priority and our performance in this area remains robust in challenging conditions. However, as identified shortly after my appointment, operationally we are not where we want to be. Our first half performance has reaffirmed my belief that we have identified the right priorities to strengthen the business: to become the best operator, strive for impeccable ESG credentials, excel in development and secure a strong social licence. We have made initial progress against our priorities, but a large volume of work remains to make Rio Tinto even stronger, so we can continue to deliver superior returns to shareholders, invest in sustaining and growing our portfolio, and make a broader contribution to society."

		Q2	vs Q2	vs Q1	H1	vs H1
Production*		2021	2020	2021	2021	2020
Pilbara iron ore shipments (100% basis)	Mt	76.3	-12%	-2%	154.1	-3%
Pilbara iron ore production (100% basis)	Mt	75.9	-9%	-1%	152.3	-5%
Bauxite	Mt	13.7	-6%	+1%	27.3	-4%
Aluminium	kt	816	+4%	+2%	1,619	+3%
Mined copper	kt	115.5	-13%	-4%	236.1	-11%
Titanium dioxide slag	kt	298	+14%	+7%	577	+4%
IOC iron ore pellets and concentrate	Mt	2.7	-2%	+16%	5.1	-5%

*Rio Tinto share unless otherwise stated

Q2 Operational update

• Our colleague Nico Swart was tragically killed in a shooting incident whilst driving to work at Richards Bay Minerals (RBM) in South Africa on 24 May. Our sympathies are with Nico's family and we are offering ongoing support to his family, friends and colleagues.
• We continue to prioritise the safety of our people and communities as some regions experience a resurgence of COVID-19. We have exceeded 30 months without a fatality on site but our all injury frequency rate (AIFR) of 0.39 has seen a slight increase versus the second quarter of 2020 (0.37), and prior quarter (0.35), which underlines that there is no room for complacency.
• We expect iron ore shipments to be at the low end of the guidance range which remains subject to COVID-19 disruptions, tie-in and ramp up of brownfield replacement mines and management of cultural heritage. Mined copper and bauxite production is expected to be at the low end of the guidance range. Full year titanium dioxide slag production guidance has been removed as a result of risks around the timing of resumption of operations at RBM in South Africa, due to an escalation in the security situation. We are working with the local and federal governments and police to ensure we can safely resume operations.
• Pilbara iron ore production of 75.9 million tonnes (100% basis) was 9% lower than the second quarter of 2020 due to above average rainfall in the West Pilbara, shutdowns to enable replacement mines to be tied in, processing plant availability, and cultural heritage management. Shipments of 76.3 million tonnes (100% basis) were 12% lower than the second quarter of 2020 with some additional drawdown of inventories. Ongoing COVID-19 restrictions and a tight labour market have further impacted our ability to access experienced contractors and particular skill sets.
• Bauxite production of 13.7 million tonnes was 6% lower than the second quarter of 2020 due to ongoing system instability following severe wet weather in Eastern Australia in the first quarter.

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• Aluminium production of 0.8 million tonnes was 4% higher than the second quarter of 2020, underpinned by the ISAL smelter in Iceland and the Becancour smelter in Quebec operating at full capacity, and the Kitimat smelter in British Columbia nearing completion of its pot relining cycle.
• Mined copper production of 115.5 thousand tonnes was 13% lower than the second quarter of 2020, with lower recoveries and throughput at Escondida as a result of the prolonged impact of COVID-19, and a planned relocation of the in-pit crusher at Kennecott in April. On 31 May, an anticipated slope failure occurred in the south east wall of the Bingham Canyon pit at Kennecott. There were no injuries or damage to equipment as the slide was accurately predicted by our geotechnical experts. Mining in the affected area restarted progressively in June. No ore has been sterilised and we expect to recover the material from the slide which is largely copper bearing ore. Mining rates will however be slower due to the size distribution of the material, and therefore some high-grade production scheduled for late 2021 will be deferred to 2022.
• Titanium dioxide slag production of 298 thousand tonnes was 14% higher than the second quarter of 2020 due to consistent production at the Fer et Titane (RTFT) metallurgical complex in Quebec. Following weeks of violent disruptions, our RBM operations have been significantly hampered. As a result, we have declared force majeure, with all operations curtailed.
• Production of pellets and concentrate at Iron Ore Company of Canada (IOC) was 2% lower than the second quarter of 2020 due to labour and equipment availability issues impacting product feed. Force majeure declared in April following the fire at the port has been lifted.
• On 17 June, Peter Cunningham wasappointedas Chief Financial Officer with immediate effect. Peter also joined the Rio Tinto Board as an executive director at the same time. On 7 July, we announcedthe appointment of Isabelle Deschamps who will join on 25 October as Chief Legal Officer & External Affairs, succeeding Barbara Levi.
• On 4 June, weannouncedthe appointment of Ben Wyatt as a non-executive director of the Rio Tinto Board. Mr Wyatt, an Australian citizen, and former Treasurer and Aboriginal Affairs Minister in the Western Australian Government, will join the Board on 1 September 2021.
• In the second quarter, we entered into four partnerships to progress our work to decarbonise our value chain. These include one with the Australian Renewable Energy Agency (ARENA) to study whether hydrogen can replace natural gas in alumina refineries to reduce emissions, and one with POSCO to jointly explore, develop and demonstrate technologies to transition to a low-carbon emission steel value chain.

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Production guidance

	2020	H1 2021
Rio Tinto share, unless otherwise stated	Actuals	Actuals	2021
Pilbara iron ore (shipments, 100% basis) (Mt)	331	154	325 to 3401
Bauxite (Mt)	56	27	56 to 592
Alumina (Mt)	8.0	4.0	7.8 to 8.2
Aluminium (Mt)	3.2	1.6	3.1 to 3.3
Mined copper (kt)	528	236	500 to 5502
Refined copper (kt)	155	111	210 to 250
Diamonds (M carats)3	3.7	1.9	3.0 to 3.8
Titanium dioxide slag (Mt)	1.1	0.6	N/A4
IOC iron ore pellets and concentrate (Mt)	10.4	5.1	10.5 to 12.0
Boric oxide equivalent (Mt)	0.5	0.3	~0.5

1At the low end of the range and remains subject to COVID-19 disruptions, risks around tie-in of new mines and management of cultural heritage.

2At the low end of the range.

3Diamonds 2021 guidance and actuals are for Diavik only for comparability, following Argyle closure in 2020. Unadjusted Diamonds production for 2020 was 14.7 million carats, including both Diavik and Argyle operations.

4Full year titanium dioxide slag production guidance has been removed as a result of risks around the timing of resumption of operations due to an escalation in the security situation at our Richards Bay Minerals operation in South Africa.

Operating costs

• • Pilbara iron ore 2021 unit cost guidance is now $18.0-$18.5 per tonne (previously $16.7-17.7). This is an underlying cost increase of around A$0.3 billion (100% basis) relative to prior guidance or 4%. The change reflects price escalation of key input costs (diesel and labour), costs related to mine heritage management, and COVID-19 related costs (YTD actual ~A$100m; no COVID-19 costs included in previous guidance). Operating cost guidance is based on A$:US$ exchange rate of 0.77 (unchanged).
  • Copper C1 unit cost guidance for 2021 is unchanged at 60-75 US cents/lb.
• We will continue to monitor government-imposed restrictions related to COVID-19, and any other potential COVID-19 related disruptions. Restrictions on movement and availability of people can impact our ability to execute planned maintenance and deliver or accelerate projects.
• Iron ore shipments and bauxite production guidance remain subject to weather and market conditions. We expect iron ore shipments to be at the low end of the guidance range which remains subject to tie-in and ramp up of brownfield replacement mines, and ongoing cultural heritage management. Progress has been made on tying in approximately 90 million tonnes of replacement mine capacity at existing hubs in Robe Valley, West Angelas and Western Turner Syncline Phase 2. Replacement projects remain on track for completion in 2021, and Gudai-Darri is set to ramp up during 2022. The tight labour market in Western Australia has limited our access to experienced contractors and specific skill sets.
• The full impact on our Pilbara iron ore operations, mine developments and heritage approach from the reform of the Aboriginal Heritage Act 1972 (WA) remains unknown. We continue to engage with Traditional Owners regarding current and proposed plans for mining activities and work through development scenarios, adjusting mine plans where required. Given the quality of our resource, we retain a range of development options in the Pilbara, subject to heritage and environmental approvals.

EBITDA Sensitivities: previously published for 2020, next update on 28 July 2021

	Average price/rate for 2020	($m) impact on full year 2020
	underlying EBITDA of 10% price/rate
		change
Copper	281c/lb	370
Aluminium	$1,702/t	577
Gold	$1,770/oz	62
Pilbara iron ore (FOB)*	$98.9/dmt	2,318
A$	0.69US$	617
C$	0.75US$	201
Oil (Brent)	$42/bbl	85

*FOB based on monthly freight-adjusted 62% iron fines CFR

Note: The sensitivities give the estimated effect on underlying EBITDA, assuming that each individual price or exchange rate moved in isolation. The relationship between currencies and commodity prices is a complex one and movements in exchange rates can affect movements in commodity prices and vice versa. The exchange rate sensitivities include the effect on operating costs but exclude the effect of revaluation of foreign currency working capital. Please use them with care.

All figures in this report are unaudited. All currency figures in this report are US dollars, and comments refer to Rio Tinto's share of production, unless otherwise stated.

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Investments, growth and development projects

• We continue to proactively manage COVID-19 and prioritise work across critical projects, as challenges associated with interstate and international border access continue, impacting the availability and movement of people, most notably in Australia, Canada and Mongolia. Capital expenditure remains unchanged at around $7.5 billion each year from 2021 to 2023.
• Exploration and evaluation operating expense in the first half of 2021 was $324 million, $44 million (16%) higher than the first half of 2020, with continued progress in Australia, and ramp up of activities in Europe and North America, with some delays in South America due to COVID-19 restrictions.

Pilbara replacement projects

• At Gudai-Darri, mining has commenced with more than nine million cubic metres of pre-stripping completed in June. Labour shortages have impacted both steel fabrication and site construction activities. First ore in the crusher is expected in 2021, although commissioning is later than originally planned. The project is expected to ramp up in early 2022, consistent with previous guidance.
• First ore at West Angelas (C, D) was achieved in June with load commissioning expected later in the year following delays related to heritage management. First ore at Robe Valley (Mesa B, C, H) and Western Turner Syncline Phase 2 is still expected in 2021, consistent with previous guidance.

Oyu Tolgoi underground project1

Technical progress

• Project progress has been significantly affected by heightened COVID-19 constraints in Mongolia. To comply with COVID-19 restrictions, site manning levels were less than 25% of planned requirements. Despite these restrictions, as the Material Handling System 1 had been ahead of the definitive estimate schedule, it is now 90% complete with technical criteria achieved to support undercut commencement, subject to the ongoing impacts of COVID-19 and satisfactory resolution of the non-technical undercut criteria.
• In the quarter, there was very little progress on the Conveyor to Surface Decline, with no progress on the majority of other planned works including shafts 3 and 4. However, recent easing of quarantine constraints and increasing workforce vaccination rates on site has supported gradual improvements in site resourcing. The impact of the additional restrictions experienced in the first half is ongoing and still to be determined.
• Contractual commitments to future works such as Material Handling System 2 and concentrator upgrades have been delayed pending approval by the Oyu Tolgoi board as part of the increased budget to complete the project.
• An update on panels 1 and 2 will be provided when the work to understand potential flow on impacts is complete, particularly from shafts 3 and 4 delays.

Other updates

• Following the Presidential election, engagements continue and the negotiation team is in the process of remobilising to continue formal discussions with the Government of Mongolia. All stakeholders remain committed to moving the project forward and ensuring a long-term solution to the issues under discussion. As previously reported, a number of additional milestones need to be met in order to ensure that the project can commence caving operations (undercut) including: key regulatory milestones including registration of the updated Resources and Reserves and acceptance of the updated Feasibility Study (OTFS20) by the relevant governmental agencies of Mongolia; project budget uplift in line with the definitive estimate to be approved by the Oyu Tolgoi board; funding plan in line with the Heads of Agreement signed in Aprilbetween Rio Tinto and Turquoise Hill Resources (TRQ) to be approved by the Oyu Tolgoi Board; and milestones for the power solution.

Other key projects and exploration and evaluation

• The Zulti South project in South Africa remains on full suspension.
• At the Kemano hydropower tunnel project in British Columbia, Canada, works have resumed at full capacity and the tunnel boring excavation is now 74% complete, having achieved a total of 5,660 metres. The project is scheduled to complete in the second half of 2022, subject to there being no further COVID-19 delays.
• At the Resolution Copper project in Arizona, we are continuing to work with the US Forest Service to review the Final Environmental Impact Statement (EIS) and draft Record of Decision. Mine studies continue to progress in parallel.
• At the Winu project in Western Australia, we continue to actively engage with the Traditional Owners and we plan to commence discussions on the initial scope and mine design, also in consultation with the Western Australian Environmental Protection Authority, with sanction now targeted for next year and first production in 2025 partly due to COVID-19 constraints. Drilling, fieldwork and study activities continue to progress.
• At the Simandou iron ore project in Guinea, we are reviewing results from the technical optimisation of the infrastructure studies, and product test sample analysis is now underway. A new office was established in Conakry in the second quarter as we expand our in-country team.
• The feasibility study at the Jadar lithium-borate project in Serbia is progressing to plan and on track to be complete by the end of 2021. An investment decision is scheduled for this year, subject to permitting and other

approvals.

1Project baseline reporting has been updated following endorsement of the definitive estimate by Rio Tinto Board and Turquoise Hill Resources (pending Oyu Tolgoi board approval). The definitive estimate assumed COVID-19 restrictions in 2021 that were no more stringent than those experienced in September 2020 and noted that should COVID-19 constraints continue beyond 2021 or should the COVID-19 situation escalate further in 2021 leading to tougher restrictions, additional costs and schedule impacts will arise. Since the definitive estimate, at the end of 2020, Mongolia implemented additional restrictions in response to community transmission cases, and in March 2021 the first cases of COVID-19 were identified at Oyu Tolgoi resulting in temporary site shutdown, quarantine measures and further travel and movement restrictions. The impact of these additional restrictions, which have continued throughout this period and are beyond those experienced in September 2020, is ongoing and still to be determined.

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