Rio Tinto : Annual Results 2021 - Release

2021 full year results

Rio Tinto announces record financial results and total dividend of 1,040 US cents per share for 2021, a 79% payout

23 February 2022

Rio Tinto Chief Executive Jakob Stausholm said: "Our people have continued to safely run our world- class assets and are working hard to improve our operational performance, despite challenging operating conditions from prolonged COVID-19 disruptions. The recovery of the global economy, driven by industrial production, resulted in significant price strength for our major commodities, which we were able to capture, achieving record financial results with free cash flow of $17.7 billion and underlying earnings of $21.4 billion, after taxes and government royalties of $13.0 billion. This enables us to pay our highest total dividend ever of 1,040 US cents per share, including a 247 US cents per share special dividend, representing a 79% payout.

"With the launch of our new strategy, we have set a new direction for Rio Tinto to thrive in a decarbonising world. We have a portfolio that is well positioned, and are targeting disciplined investment in commodities that will see strong demand in the coming decades. Our agenda is an ambitious, multi-year journey which we are determined to deliver and we have already taken the first steps, with underground operations under way following the Oyu Tolgoi agreement and a binding agreement to acquire the Rincon lithium project in Argentina. We continue to evolve and deepen the way we engage and interact with all stakeholders as we work hard to generate and strengthen relationships wherever we operate. Our actions will ensure we continue to deliver attractive returns to shareholders, invest in sustaining and growing our portfolio, and make a broader contribution to society, particularly in relation to the drive to net-zero carbon emissions."

At year end	2021	2020	Change
Net cash generated from operating activities (US$ millions)	25,345	15,875	60 %
Purchases of property, plant and equipment and intangible assets (US$ millions)	7,384	6,189	19 %
Free cash flow1 (US$ millions)	17,664	9,407	88 %
Consolidated sales revenue (US$ millions)	63,495	44,611	42 %
Underlying EBITDA1 (US$ millions)	37,720	23,902	58 %
Profit after tax attributable to owners of Rio Tinto (net earnings) (US$ millions)	21,094	9,769	116 %
Underlying earnings per share1 (EPS) (US cents)	1,321	770	72 %
Ordinary dividend per share (US cents)	793.0	464.0	71 %
Special dividend per share (US cents)	247.0	93.0	166 %
Total dividend per share (US cents)	1,040.0	557.0	87 %
Net cash / (debt)1 (US$ millions)	1,576	(664)
Underlying return on capital employed (ROCE)1	44 %	27 %

1 This financial performance indicator is a non-GAAP alternative performance measure ("APM"). It is used internally by management to assess the performance of the business and is therefore considered relevant to readers of this document. It is presented here to give more clarity around the underlying business performance of the Group's operations. APMs are reconciled to directly comparable IFRS financial measures on pages 78 to 86. Our financial results are prepared in accordance with International Financial Reporting Standards (IFRS) - see page 43 for further information. Footnotes are set out in full on page 8.

• Safety continues to be our first priority: our managed operations were fatality-free for a third
  successive year. The all-injury frequency rate deteriorated slightly to 0.40: fatigue, labour shortages and other pressures from COVID-19 have heightened the safety risk in day-to-day operations and we recognise that there is no room for complacency.
• On 1 February 2022, wepublisheda comprehensive external review of our workplace culture, commissioned as part of our commitment to ensure sustained cultural change across our global operations. The review is part of the work being undertaken by our Everyday Respect task force,

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which was launched in March 2021 to better understand, prevent and respond to harmful behaviours in the workplace. We will implement all recommendations from the report.

• We continue to focus on rebuilding our relationships with Traditional Owners across our global operations. In September wepublishedan interim report on our Communities and Social Performance commitments showing our progress. At the end of 2021, the relationship between the Puutu Kunti Kurrama and Pinikura (PKKP) leadership and Rio Tinto Iron Ore is constructive and considered. An agreement on a co-management of Country approach and appropriate remedy for the destruction of Juukan Gorge is substantially progressed.
• On 14 February 2022, weannouncedan agreement with the Yinhawangka Aboriginal Corporation on a new co-designed management plan to ensure the protection of significant social and cultural heritage values as part of our proposed development of the Western Range iron ore project in the Pilbara region of Western Australia. The Social, Cultural Heritage Management Plan is the result of strong collaboration over the past year between the Yinhawangka people and Rio Tinto including "on-Country" visits, archaeological and ethnographic surveys and workshops. As a result, the mine has been designed to reduce impacts on social and cultural heritage values. We submitted the plan to Western Australia's Environmental Protection Authority on 1 February 2022, as part of our submission regarding the Greater Paraburdoo Iron Ore Hub Proposal.
• In October, we unveiled a longer term strategy to ensure we thrive in a decarbonising world, while continuing to pay attractive dividends, in line with our shareholder returns policy. To achieve this, we will accelerate our own decarbonisation, grow in materials enabling the global energy transition and develop products and services that help our customers to decarbonise, through our key enablers of becoming best operator, excelling in development, achieving an impeccable ESG performance and strengthening our social licence to operate.
• To deliver our strategy, we set a new target to reduce our Scope 1 and 2 carbon emissions by 50% by 2030, more than tripling our previous target, and are bringing forward our 15% reduction in emissions to 2025 (previously 2030), supported by an estimated $7.5 billion of direct investments between 2022 and 2030. These projects deliver a range of economic outcomes but in aggregate are value accretive at a very modest carbon price. Most importantly, they safeguard the integrity of our assets over the longer term and reduce the risk profile of our cash flows. We are accelerating our activity in the Pilbara and expanding our tenure for potential wind and solar sites.
• Following the comprehensive agreementannouncedon 25 January 2022, underground operations are now under way at the Oyu Tolgoi copper/gold project in Mongolia. The agreement will move the project forward, reset the relationship between the partners and unlock the most valuable part of the mine, with first sustainable production expected in the first half of 2023.
• In line with our rigorous approach to capital allocation, we made significant progress with our Battery Minerals portfolio in 2021, signing a binding agreement to acquire the Rincon lithium project in Argentina. We also committed funding for the Jadar lithium-borates project in Serbia, subject to receiving all relevant approvals, permits and licences. In January 2022, the Government of Serbia cancelled the Spatial Plan for the Jadar project and required all related permits to be revoked. We are disappointed by this announcement and are committed to exploring all options and are reviewing the legal basis of the decision and the implications for our activities and people in Serbia.
• To achieve our ambition of becoming the best operator, we initiated the Rio Tinto Safe Production System at five pilot sites in 2021, focusing on sustainably unlocking capacity. We are already seeing returns, including a significant improvement at the Kennecott concentrator since deployment in July. We are planning a more extensive programme in 2022, subject to COVID-19 constraints, with up to 30 deployments at 15 sites and up to 80 rapid improvement projects, targeting bottlenecks.

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Key financial highlights

• $25.3 billion net cash generated from operating activities was 60% higher than 2020 driven by higher prices. This flowed through to 88% higher free cash flow1 of $17.7 billion, which included a 19% rise in capital expenditure to $7.4 billion.
• $21.1 billion of net earnings, 116% higher than 2020, reflected the higher prices, the impact of closure provision increases at Energy Resources of Australia (ERA) and other non-operating sites, $0.5 billion of exchange and derivative gains and $0.2 billion of impairments2. Effective tax rate on net earnings of 27.7% compared with 33.1% in 2020.
• $37.7 billion underlying EBITDA1 was 58% above 2020, with an underlying EBITDA margin1 of 57%.
• $21.4 billion underlying earnings1 (underlying EPS1 of 1,321.1 US cents) were 72% above 2020 with a 28.0% effective tax rate on underlying earnings1, compared with 29.5% in 2020.
• $1.6 billion of net cash1 at year end, compared with net debt1 of $0.7 billion at the start of the year, reflected the free cash flow1 of $17.7 billion, partly offset by $15.4 billion of cash returns to shareholders.
• $16.8 billion full-year dividend, equivalent to 1,040 US cents per share and 79% of underlying earnings, includes $6.7 billion record final ordinary dividend (417 US cents per share) and $1.0 billion final special dividend (62 US cents per share) declared today.

$16.8 billion* of dividends declared for 2021: payout ratio averages 74% over past six years

Ordinary dividend	US$ billion	US cents
per share
Interim ordinary dividend paid in September 2021	6.1	376
Final ordinary dividend to be paid in April 2022	6.7	417
Full-year ordinary dividend represents 60% payout	12.8	793
Additional returns
Special dividend paid in September 2021	3.0	185
Special dividend to be paid in April 2022	1.0	62
Combined total is 79% of 2021 underlying earnings	16.8	1,040

• Based on weighted average number of shares and declared dividends per share for the respective periods excluding foreign exchange impacts on payment.

Strong cash flow from operations

	2021	2020
	US$m	US$m
Net cash generated from operating activities	25,345	15,875
Purchases of property, plant and equipment and intangible assets	(7,384)	(6,189)
Sales of property, plant and equipment	61	45
Lease principal payments	(358)	(324)
Free cash flow1	17,664	9,407
Disposals	4	10
Dividends paid to equity shareholders	(15,357)	(6,132)
Share buy-backs	-	(208)
Other	(71)	(90)
Decrease in net debt1	2,240	2,987

Footnotes are set out on page 8.

• $25.3 billion in net cash generated from operating activities, 60% higher than 2020, primarily driven by higher prices for our major commodities, which also led to an increase in dividends received from equity accounted units and paid to joint venture partners. It is net of an increase in taxes and royalties paid in line with higher profits and a rise in working capital, primarily due to higher iron ore

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portside inventories following higher volumes of SP10 and constrained availability of high-grade blending stocks in the fourth quarter.

• $7.4 billion capital expenditure was comprised of $0.6 billion of growth capital, $3.3 billion of replacement capital and $3.5 billion of sustaining capital. In 2021, we funded our capital expenditure from operating activities and expect to continue funding our capital programme from internal sources, except for the Oyu Tolgoi underground development, which is currently project- financed.
• $15.4 billion of dividends paid in 2021 was comprised of the 2020 final paid in April 2021 ($6.4 billion) and the 2021 interim paid in September ($9.0 billion, including foreign exchange impacts).
• As a result of the above, net debt1 improved by $2.2 billion in 2021, ending the year with net cash1 of $1.6 billion.

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Guidance

• We expect capital expenditure to be around $8.0 billion in 2022, which considers potential increases of around 15% for the Pilbara replacement projects. In each of 2023 and 2024, we expect capital expenditure to be between $9.0 and $10.0 billion, which includes the ambition to invest up to $3.0 billion in growth per year, depending on opportunities. Each year also includes sustaining capital of around $3.5 billion, of which around $1.5 billion a year is for Pilbara iron ore, subject to ongoing inflationary pressure. Around half of our capital expenditure is denominated in Australian dollars. In addition, our guidance includes around $1.5 billion over the next three years on decarbonisation projects, mainly relating to repowering the Pilbara: this will accelerate from 2025, bringing our best estimate to around $7.5 billion, in aggregate from 2022 to 2030.
• Effective tax rate on underlying earnings of ~30% in 2022. In June 2022, we expect to make a US$1.1 billion* final payment to the Australian Taxation Office in respect of 2021 corporate profits.
• • Based on the 2021 year-end Australian dollar exchange rate of 0.73.

2022 unit cost guidance	2021 Actuals	2022 Guidance
Pilbara iron ore unit cash costs, free on board (FOB) basis - US$ per wet metric tonne1	18.6	19.5-21.0
Australian dollar exchange rate	0.75	0.75
Copper C1 unit costs (average for Kennecott, Oyu Tolgoi and Escondida) - US cents per lb	82	130-150

1 Excludes COVID-19 costs (defined below) of $0.5 per tonne in 2021.

• In 2022, we expect Pilbara iron ore unit cash costs to increase to $19.5-21.0 per tonne. Guidance reflects rising input prices and labour costs, an increased mining work index and higher mine processing plant maintenance, partially offset by the ramp-up of Gudai-Darri and continued efficiency improvements. Unit costs are stated at an Australian dollar exchange rate of 0.75 and exclude any additional COVID-19 response costs.
• In 2022, we expect copper C1 unit costs to rise due to lower by-product credits, as a result of mining areas with lower gold volumes at Oyu Tolgoi and lower molybdenum grades at Kennecott and rising input costs, partially offset by higher refined copper production at Kennecott.

2022 production guidance (Rio Tinto share, unless otherwise stated)	2021 Actuals	2022 Guidance
Pilbara iron ore (shipments, 100% basis) (Mt)	322	320 to 335
Bauxite (Mt)	54	54 to 57
Alumina (Mt)	7.9	8.0 to 8.4
Aluminium (Mt)	3.2	3.1 to 3.2
Mined copper (kt)	494	500 to 575
Refined copper (kt)	202	230 to 290
Diamonds2 (M carats)	3.8	5.0 to 6.0
Titanium dioxide slag (Mt)	1.0	1.1 to 1.4
Iron Ore Company of Canada pellets and concentrate (Mt)	9.7	10.0 to 11.0
Boric oxide equivalent (Mt)	0.5	~0.5

2 Reflects 100% ownership of Diavik (previously 60%) from 1 November 2021.

• Production guidance is unchanged from our Fourth Quarter Operations Reviewreleasedon 18 January 2022.
• Iron ore shipments and bauxite production guidance remain subject to weather and market conditions.
• Our cost and volume guidance assumes development of the pandemic does not lead to further government-imposed restrictions or an increase in cases and/or severity, which could result in a significant number of our production-critical workforce and contractor base being unable to work due to illness and/or isolation requirements. This risk extends to prolonged interruption of service from a key partner or supplier which could lead to severely constrained operational activity of a key

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