Rio Tinto : RT Annual results QA

2021 Full Year results - Q & A transcript
23 February 2022	Page 1 of 13

Paul Young (Goldman Sachs): Thank you. Hi there, Jakob. Good morning, Peter, and Menno. Top class financials gents. So I have a question on growth, in particular Jakob on OT. No project at the moment. Your portfolio doesn't seem that easy to execute or advance at the moment. So fantastic to see the government approvals at OT. Jakob, does that heat on the negotiations, i.e., is the investment agreement now rock solid with the government?

Jakob Stausholm: We feel very comfortable. We feel that it is an agreement - a wide agreement with the parliament in Mongolia. There's a couple of remaining issues to be resolved. There's a tax dispute, but you have tax disputes from time to time. I'm absolutely convinced that with the resetting of the partnership of the relationship in Mongolia that we will be able to also solve issues in the future in a very constructive manner. So yes, I think it was a very important moment to overcome. Thanks for the question.

Jason Fairclough (Bank of America): Good morning, gentlemen. Thanks very much for the presentation. Just to carry on with the growth theme. I mean, grow is the first word on the title of your presentation deck, and you spoke a lot about it today. So, a couple of fairly simple philosophical questions. First, you're a $130 billion company. Can you actually grow and have it make a difference and having it create value?

And then second, do you think that your efforts to deliver growth over the last few years have been successful and ultimately had a positive impact on Rio Tinto?

Jakob Stausholm: Well, thank you, Jason. It is very clear, given the size of our company and given the markets we are facing, Rio Tinto in aggregate will never be a high growth company. But we haven't grown for quite a while and we can see that we can move the company towards modest growth within a strict capital allocation framework. We did not grow last year. If you look at the guidance for this year, we have included modest growth, but that's from our existing business.

What I've talked about number three of my four objectives about excel in development is really about building the portfolio to the next decade and the decade beyond. And that's what we're doing when we unlock Oyu Tolgoi. And that's what we're doing when we are going in and buying Rincon is we don't want to go out and spend a lot of money at probably the high end of the cycle. And therefore, I thought it was quite intelligent to go in and buy a project that you can buy at a modest price and then develop the project.

So we do want to excel in development but we don't want to lose the strict capital allocation. I think you're absolutely right in making the point we're never going to be a high growth company. But if we can have a modest, stable growth going forward, that will make imminent sense.

2021 Full Year results - Q & A transcript
23 February 2022	Page 2 of 13

We have the competencies in Rio Tinto to be the right owner of a number of assets that we don't have today. That's how we're developing our future. Thank you.

Hayden Bairstow (Macquarie): Evening, Jakob. Just a question on the capex outlook. I mean, obviously you've upgraded cost guidance in the Pilbara. But just to assume your view on your ability to actually spend the money and obviously markets are fairly tight. Labour is still tight. Is there a risk of some slippage in that number, particularly for this year, I guess; but as a lot of these projects up and get everything spent that you need to?

Jakob Stausholm: It's a very good point. Peter, why don't you underpin a little bit? Because there's fundamentally no changes since the capital markets update in October, but you always have a few things that go a bit slower and certain things we accelerate. Maybe you want to flesh it out, Peter?

Peter Cunningham: Thanks very much, Jakob, and thanks for the question, Hayden. I think for the capital guidance this year, we're very comfortable. And clearly, we are still finishing off the tail of the replacement projects that we brought in the Pilbara, the 90 million tonnes. And as we say Gudai-Darri will come in Q2 for first production. So that is very clearly important components of our capital plan this year.

In terms of sustaining capital, in terms of that replacement and in terms of the growth with Oyu Tolgoi, all very, very clear. I think as we get forward into 2023 and '24, Hayden, we've said, and we've been very explicit, that the growth component of our capital plan is an ambition. We're working on a range of projects there that will come through and it all depends on us really finalising value-accretive plans as to exactly when that capital comes through.

If we don't have the projects that are ready to progress, we won't spend the capital, and we'll just put it into our normal capital allocation framework that we have. So I think that's very clear. Clearly, the news on Jadar does probably put back some of our capital spend. But broadly, I think we're very comfortable with the framework that we set out. Thanks, Hayden.

Alain Gabriel (Morgan Stanley): Yes. Thank you, gentlemen. My question is on Gudai- Darri and the replacement projects in the Pilbara. Can you give a bit more granularity on the operating challenges there beyond COVID? And how do you see the risk of further slippage into Q3? And in a hypothetical scenario where the ramp-up continues to stall, do you have enough flexibility in your system to top up volumes with SP10? Or would that consider - or would this slippage constitute a risk to your full year volume guidance? Thank you.

Jakob Stausholm: Thank you. Let me start off and then hand over to Peter. Look, I visited Gudai-Darri in the first half of last year. There was really, really good progress.

2021 Full Year results - Q & A transcript
23 February 2022	Page 3 of 13

What unfortunately has happened as part of Gudai-Darri is that we haven't been able, because of COVID, to have the same inspection, quality inspections of the material. So when a number of things arrived at site, we had to do quite a lot of rework, and there has been quite limited access to people to the project in the Pilbara because of closure of the borders. So that has led to delays.

I'm very excited that the borders are opening next Thursday. I'm going there myself and I'm really looking forward to seeing how we come back on track. But Peter, why don't you share the numbers on CapEx and the question on SP10?

Peter Cunningham: Thanks very much. Alain, thanks for the question. I mean, clearly Gudai-Darri coming through is very important. And right now, we're through a lot of the work. We are now moving towards first production as we said in the second quarter. All of those issues that we've had around COVID, around labour constraints, around rework. We've worked through a lot of those but we still have work ahead.

So it is very important Gudai-Darri coming in. If that doesn't have any slippage, that would just result in - we still have the flexibility in the system, but it would result, as you say, in an increase of production of SP10 - to fill the gap. But we have those options.

I think in terms of the other projects, I mean, the main one we pointed out is around the Robe River system and some issues that we've had around Mesa A. We're working through those and we would expect the Robe River system to be up and running at capacity when that's resolved. Thanks, Alain.

Lyndon Fagan (JP Morgan): Thanks very much. Look, my first question is on the iron ore cost guidance, which now puts you well above BHP and Fortescue in terms of unit costs. I'm wondering when you reflect on that, what the key differences are between the Rio Tinto business and your main competitors in the Pilbara? And I'm also interested if there's any potential to rein them in, given that the seminar last year showed the work index going up in 2024.

And the next question is iron ore related. There's still really no mention of Simandou in the presentation today. And obviously, it's the elephant in the room when it comes to the iron ore market. When do you think you'll be in a position to articulate a potential scope for that project? Thanks.

Jakob Stausholm: Yeah. Thank you. Let me just start off on Simandou and introduce the first question, while Peter will explain you the differences.

On Simandou, we're not saying too much, and that's actually because we are working very, very hard on it. I myself visited Guinea in December. And every week we have more people in Conakry. We are really ramping up our presence in Guinea. There's intense discussions with the government amongst the joint venture partners and between

2021 Full Year results - Q & A transcript
23 February 2022	Page 4 of 13

the two consortia. So the reason why we're not saying a lot is we are actually really working hard on trying to find the right solution.

The government is very keen on seeing the project moving forward. We are very keen to participate. It has to be done to the right standards. I think we agree on that. And now we just have to get the work done and define the right project. But it's big, and it's complex. So I hope that we can get some good progress this year and tell you more about it. But there's little in the middle of discussions right now that I can share.

I would say - you call it the elephant in the room. I don't see it like that. I mean, the global iron ore market is 1.8 billion tonnes. If you have, let's say, 100 million tonnes development, it's the kind of replacement that you need. And in any case, it's a much higher quality than the Pilbara, so it doesn't compete directly. I think it would fit very well with our portfolio, and I'm also very excited about joint venturing with our customers on this front.

So I think it serves many purposes, Simandou, and I don't think you should see it as an elephant in the room.

Coming back to the Pilbara, I just want to take one step back and remind you this is an amazing asset. It had a free cash flow of $15 billion last year. It's one of the world's largest industrial assets. I'm absolutely convinced that Simon Trott and his team are doing all the right things. But I just want to say to you what we're doing right now, you will see the results in two and three years down the road. It's not the kind of assets where you do the right things and then next quarter things are really changing around.

And we are at a crossroad right now with 90 million tonnes of replacement volumes trying to come in, as Peter was just explaining. And it will take a while before we can get the efficiencies in place. The Safe Production System is also going to help us a lot. But again, we have got to be patient here. It's a multiyear journey.

Peter you might like to just share the development of cost.

Peter Cunningham: Thanks very much, Jakob. What we said in guidance when we went into 2021 was that we thought we'd be about 17.20. We've come at 18.60, as we said, and that - a lot of that increase was really two factors. One, in the second half, we did see higher input prices into the business. And we also did see some slippage in the projects for all those reasons we've talked about around COVID and labour constraints in Western Australia.

As we look into 2022, we've been very deliberate, I think, as to what we're going to do because we're absolutely clear we do need to put some more money into some of the plant in the Pilbara. We absolutely do need to make sure that we're putting the right

2021 Full Year results - Q & A transcript
23 February 2022	Page 5 of 13

investments in studies in the future, because we've got to be thinking about the replacement mines that will come in the middle of the decade as well.

And we do, as you said, have to deal with a higher work index, but that is where the productivity play really comes into importance. So those are the drivers. I think we're being very deliberate about what we're doing. As Jakob said, this is a multi-year programme of work for us to really get the Pilbara where it can be. But in the meantime, I'd just reiterate that these are fantastic financial results and the fact it did actually give 100% return on capital employed in 2021. Thanks, Lyndon.

Liam Fitzpatrick (Deutsche Bank): Good morning, Jakob and Peter. Just another one on Simandou, but more from an ESG perspective. From the discussions that you've had so far, what is giving you comfort that Rio can participate in this project without risking your goal of impeccable ESG credentials? And are there any specifics you can give us over some of the ESG-related challenges that you're aiming to address and de-risk with your partners? Thank you.

Jakob Stausholm: Look, I can give you two things. First of all, when I was visiting the government, the meeting with the President, I made it very clear. It's a red line for Rio Tinto, all areas. E, environmental, it's highly sensitive. It's about biodiversity, the chimpanzees, etc. It has to be impeccable. S is social about in-migration that we have everything controlled and that has to be done together with the government. And G, of course, there has to be integrity in everything we do. So that's absolutely a red line.

The second part that gives me a lot of confidence is that if you look carefully and listen carefully to what Chinese leaders are talking about, they're actually emphasising the same things. So I think we're very aligned with our partners, Chinalco and Bao, in terms of that this has to be done to the right ESG standards. That gives me hope and confidence. Thank you.

Kaan Peker (RBC Capital Markets): Just wondering the size of Winu. It looks like it's pumping something around 70,000 tonne per annum copper asset. Given its size, does it belong in Rio's portfolio over the long term?

Jakob Stausholm: Peter?

Peter Cunningham: Thanks so much for the question. I mean, we're progressing. Winu, as we've said, we've done a lot of the actual project work and a lot of the reasons why Winu hasn't yet come forward is for very good reasons. The permitting process and the engagement with the Traditional Owners has just taken longer. And that's just within the context with which we're more operating and it's just very important to do that at the right pace.