Rio Tinto shares slip as it talks up investment in growth

The FTSE 100 company, which was holding its investor seminar in London, outlined how the quality of its portfolio, customer relationships and capital discipline positioned it for continued strong financial performance, which it said was demonstrated by free cash flow of $10bn in 2019 calculated at current spot prices.

It also underlined its environmental and sustainability credentials, apparently demonstrating what it was doing to position the business for a carbon constrained world and reinforce its value proposition to investors as “the only major diversified miner” which did not extract fossil fuels.

Rio Tinto said it had reduced its emissions-intensity footprint by almost 30% since 2008, and at present, more than 70% of its electricity came from renewable sources.

Current emissions targets, which had already been achieved, expired at the end of 2019, with new targets set to be disclosed in early 2020.

The new targets would move Rio Tinto closer to its long-term commitment of substantially decarbonising its business by 2050, the board said.

On the financial front, Rio Tinto said it remained committed to maintaining an appropriate balance between investment in the business and cash returns to shareholders.

Over the last three years, it said its pay-out ratio, excluding returns from divestments, had averaged more than 70%, above its returns policy range of between 40% and 60%, which was said to be in recognition of the strong free cash flow generation of the business.

Total capital expenditure in 2019 was expected to be $0.5bn lower than previous guidance at around $5.5bn, with $0.5bn deferred into 2020.

As a result, guidance for 2020 was around $7bn, while guidance for 2021 remained unchanged at around $6.5bn, and guidance for 2022 was included for the first time at around $6.5bn.

In iron ore, Rio Tinto said Pilbara shipment and cash unit cost guidance for 2019 remained unchanged at between 320 million and 330 million tonnes, and between $14 and $15 per tonne.

Sustaining capital expenditure was now expected to be $1bn to $1.5bn per year from 2020, compared to earlier guidance of around $1 billion.

The board said the Pilbara system had, at times, operated at 360 Mtpa run rates, but not on an annual basis.

An annualised system capacity of 360 Mtpa was expected once the first phase of Koodaideri was fully commissioned, with first ore still expected late 2021.

The board said Pilbara Blend continued to command a premium, and remained the flagship product from the Pilbara system.

It added that SP10 supported the high consistency of the Pilbara Blend, while increasing resource recovery and improving mine productivity, adding that it was also of lower cost than Pilbara Blend on average.

The company’s 2020 shipment guidance was an increase of up to 5% on 2019 guidance, subject to market conditions, with specific guidance for 2020 set to be provided with the fourth quarter operations review in January.

At Oyu Tolgoi, Rio Tinto underlined that the “world-class ore-body” would become one of the world's largest copper and gold mines, with construction of the second shaft now complete and commissioning in progress.

That, the board said, would facilitate a step-change in lateral development productivity, providing the ability to move more material, equipment and people between the surface and underground.

The underground development was said to be “large and complex”, with more than 200 kilometres of underground roads and infrastructure.

Work evaluating design options was continuing, including reviewing the location of access drives, the ore handling system and options for panel sequencing.

Mine design would be completed in the first half of 2020.

The company said the definitive estimate, which would include the final estimate of cost and schedule for the remaining underground project, was still expected to be delivered in the second half of 2020.

Looking at its “growth and innovation”, Rio Tinto said it was spending $200m each year on early stage research and development, adding that in studies and construction, innovation and digital design was helping it to achieve improvements in safety and cost, as seen most recently at Amrun and at Koodaideri.

It added that it was partnering to develop innovative technology to tackle critical industry challenges, leading to advances in tailings management and handling, emissions reductions as well as improved water usage and recycling.

The company’s investment in exploration continued in 18 countries and seven commodities, with the board saying that by taking a “sophisticated approach” to data and technology to improve targeting, Rio Tinto had uncovered opportunities in areas that had been well-explored in the past.

“Rio Tinto has a world-class portfolio, delivering superior margins and free cash flows, with an established track record of generating resilient returns,” said chief executive officer Jean-Sébastien Jacques.

“This includes $32bn returned to shareholders since 2016, in a volatile macro environment.”

Jacques said the company was “not complacent”, and would step up its operational performance to fully optimise its assets and maintain strong cash delivery.

“We will continue to create value by strengthening relationships with our customers and with other partners, both of which are crucial for our future success.”

As at 1035 GMT, shares in Rio Tinto were down 1.51% in London, at 4,001.84p.