Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rio Tinto Ltd (RTNTF, Financial) reported robust underlying earnings of $4.8 billion, a 1% increase year on year.
- Copper equivalent production grew by 2%, with significant contributions from the Oyu Tolgoi underground mine.
- The company is maintaining a strong balance sheet and attractive returns to shareholders, with a 50% dividend payout equating to $2.9 billion.
- Strategic M&A and disciplined investments are driving growth, including the full sanctioning of the Simandou project in Guinea.
- The safe production system has delivered a 10% boost in bauxite production and improved operational performance across multiple sites.
Negative Points
- Iron ore sales were lower in the period, impacting the highest margin business and not yet reflecting increased productive capacity.
- Higher iron ore unit costs were driven by input price escalation and lower volumes, pushing EBITDA down by $400 million.
- The market for TIO2 remains weak, leading to fixed cost inefficiencies and lower volumes.
- Kennecott remains a significant challenge due to geotechnical issues, delaying access to higher-grade ore.
- The global economy is not performing optimally, with construction in major markets being soft and steel demand from the Chinese property sector down by 30% from its peak in 2020.
Q & A Highlights
Q: Can you talk about the challenges and opportunities at Kennecott, particularly regarding the $1.1 billion second pushback and geotechnical issues?
A: Kennecott is a massive asset with inherent geotechnical challenges. We have a plan to manage these issues and are confident in our world-class geotechnical expertise. The pushback involves high-grade material, but we are currently reconfiguring the exact mine plan. (Jakob Stausholm, CEO)
Q: How do you rank future copper growth options, particularly between Oyu Tolgoi (OT) expansion and Resolution?
A: We aim to optimize OT and move forward with Resolution as soon as approvals are in place. Resolution is complex, but we are making progress. We are also pushing the boundaries at OT, focusing on getting the conveyor to surface operational to accelerate production. (Jakob Stausholm, CEO)
Q: Can you discuss the potential for M&A, particularly in the context of synergies and premiums?
A: In mining, synergies are often not high compared to enterprise value, making it difficult to justify high premiums. We are open to M&A but only if it creates shareholder value. The current market is hot, making it challenging to find compelling acquisitions. (Jakob Stausholm, CEO)
Q: What is the status of the next tranche of Pilbara replacement mines, and are there any delays?
A: The program is on track, with Western Range 70% complete. Four major projects are scheduled for completion between 2026 and 2028, subject to approvals and traditional owner engagement. (Peter Cunningham, Interim CFO)
Q: How do you view the lithium market, and what are your plans for Rincon and other lithium assets?
A: We are focusing on Rincon and Jadar, with potential for further exploration and acquisitions. The fundamentals for lithium are strong, and we aim to build a portfolio of Tier 1 assets. (Jakob Stausholm, CEO)
Q: Can you provide an update on the decarbonization efforts at the Iron Ore Company of Canada (IOC)?
A: We are installing electric boilers and exploring biochar options. Quick decarbonization will come from switching to renewables, but developing new process technology will take time. (Mark Davies, Chief Technical Officer)
Q: What are your thoughts on the future of uranium in the context of decarbonization?
A: While there is a future for uranium, it depends on societal choices regarding nuclear energy. The demand for uranium may increase in the long term, but it is not an urgent focus for us. (Jakob Stausholm, CEO)
Q: How do you plan to manage the balance between Rio Tinto Limited and Rio Tinto plc shares, especially in the context of buybacks?
A: We are aware of the balance and aim to rebalance towards Rio Tinto Limited when it makes economic sense. The DLC structure is efficient, and we will consider rebalancing opportunities. (Jakob Stausholm, CEO)
Q: What is the status of the Simandou project, and how quickly will it ramp up?
A: First ore at the mine gate is expected in 2025, with the rail system ramping up in early 2026. The initial year will see ore going through the WCS port, capped at 60 million tonnes of capacity. (Mark Davies, Chief Technical Officer)
Q: How do you view the potential for large-scale M&A in the current market?
A: Large-scale M&A must create shareholder value and is not pursued just to increase size. We are cautious about paying high premiums and focus on strategic acquisitions that make sense. (Jakob Stausholm, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
