Rio Tinto Group

Tell me about it. You missed a great trip. Everybody switch their phone to silent, please, just in case. OK. Can we kick it off? Good morning and good evening, everybody, and welcome to Rio Tinto's half-year results. It's very good to be with you again today after seeing many of you about two weeks ago in Ulaanbaatar and at our Oyo Tolgoi site, of which you see a great picture here. We will follow totally normal proceedings today. Jacob and Peter will take you through introductionary remarks, and we will follow that with a question-and-answer session. Please limit yourself to one question and one follow-up so we can cover as many people as possible that are attending today. For those in the room, there is no emergency drill planned. If you hear a fire alarm, please leave by the fire exits at the front and at the back of the room and follow the instructions from the fire marshals. Jacob, over to you.

Well, thank you, Menno. Good morning and good evening to those of you in the East. It's a pleasure to be with you in London once again, with Peter on my side. Before I start, I'd like to acknowledge and pay my respect to all traditional owners and First Nations people that host our operations around the world. This year, as many of you know, our company has been celebrating its 150 years anniversary. We have been taking this opportunity to reflect on who we are, the moments from our history we should learn and grow from, but also what we do really well. Consistent, progress, innovation where it matters, world-class assets and people, a meaningful commitment to our shareholders through our balanced approach to capital allocation. This is the story we are working hard to continue. In February, I told you our focus was about building an even stronger Rio Tinto by investing in the health of our business and shaping our portfolio for the future. We're still doing just that. We're laying the foundations for our longer-term success by making astute decisions that are getting the best out of our assets. And while we continue to operate against the challenging backdrop, time and time again, we're proving our resilience. Once again, our results in the first half of 2023 demonstrate our fundamental financial strengths. However, with a new feature this half, growth. We have achieved solid underlying earnings of 5.7 billion, free cash flow of 3.8 billion, a return on capital employed of 20%, and an uplift in production of 5%. We are profitable and growing. As a result, we will return 2.9 billion to our shareholders. This 50% payout is in line with our policy and again reflects disciplined capital allocation and an unchanged net debt of around 4 billion. We are executing our strategy with confidence, we have a clear pathway, and we are now building momentum along this pathway. Let me give you a taste of the ways we are investing in the health of our business and shaping our portfolio for the future in the first half. Part of this is creating a safe environment. Safety is and always will be our top priority. We are right now investigating two significant process instability incidents at our iron and titanium complex at Sorel, which did not result in any injuries or exposures. Our Kennecott smelter experienced a loss of containment of furnace gas during maintenance work for the shutdown, which led to the exposure of multiple people who were treated and cleared. These incidents show that we can never be complacent when it comes to safety. We are determined to take the learnings from these incidents to continue to improve our risk management. Still, we continue to see results as we roll out our safe production system, driving us towards our objective of becoming the best operator and improving the health of our assets. This is delivering real results in the Pilbara. We recognize there is a lot more to do, but we are focused on driving this improvement across our global portfolio. Meanwhile, we continue to put significant time and effort into building a thriving culture and implementing the learnings from the Everyday Respect report. Our commitment to culture change extends to how we engage with societies around us. We are making progress on strengthening our social license with the communities in which we operate. For example, the approach we are taking at the Western Range project, our first co-designed iron ore mine. So far, our cooperative approach has deepened our relationships with the traditional owners, the Inawonga people. We have also made progress to shape our portfolio this half. Let me offer you eight examples. First, earlier this month, we took a large group of international investors and analysts to visit our Ertolgoy underground copper mine, where we now have achieved first sustainable production. Second, our investment of nearly half a billion dollars to expand underground operation at Kennecott in Utah is projected to deliver around 250,000 tons of additionally mined copper over the next decade, alongside open-court operations. Third, we announced the joint venture with First Quantum to unlock La Graña in Peru, one of the largest undeveloped copper projects in the world. Fourth, in aluminum, we are expanding the AP60 smelter. This is amongst the lowest carbon technology commercially available today and the first investment in a new smelter in the Western world since we rebuilt the Kitimat smelter more than a decade ago. Fifth, last week we entered into an agreement to form a joint venture, Metalco, that will position us to be a leader in providing recycled aluminum in the North American market. Sixth, We have taken steps to advance Simundu, a world-class high-grade iron ore deposit that has tremendous potential for us, our customers, and the people of Guinea. We have, in parallel, made further progress on the ground, including to strengthen the local team. Seventh, we started construction on our western range iron ore project. And eighth, at Sorel, we started production from our blue smelting demonstration plants. It all comes back to our purpose, finding better ways to provide the materials the world needs. Peter and I will come back to some of these later. As we build momentum through 2023 with a clear pathway to meeting our strategic objectives, we're in a strong position to deliver value to our shareholders. Let me now hand over to Peter to take you through the financials for the first half. Thank you.

Thank you, Jakob. Good morning and good evening, everyone. We've announced a robust set of results. We entered 2023 with some good operational momentum, with five consecutive quarters of improvement in our Pilbara operations, the start of underground production at Oyu Tolgoi, and our Kitimat aluminium smelter ramping up towards full capacity. There was some moderation in headline inflation, but it does remain a drag on earnings. Lower prices and cost increases resulted in underlying EBITDA declining 25% to $11.7 billion. Cash flow from operations of $7 billion included a build in working capital, which I will explain later. Free cash flow of $3.8 billion was after $3 billion of capital expenditure. Following $3.7 billion of dividends paid, we ended June with net debt of $4.4 billion, virtually unchanged from the end of last year. With a 20% return on capital and underlying earnings of $5.7 billion, we have declared an interim ordinary dividend of $2.9 billion, representing a 50% payout in line with our practice. We did take an impairment of $800 million after tax on our Gladstone alumina refineries. These refineries account for more than half of our Scope 1 CO2 emissions in Australia. The impairment test was triggered by regulation requiring heavy industrial carbon emitters to purchase carbon credits. But it also reflects the very difficult market conditions that these assets face, compounded by operational challenges and our improved understanding of the investment needed for decarbonisation. But please remember, these refineries are a key part of our integrated aluminium operations and provide security of supply to our smelting business. Now let's look at the market context. As ever, movements in commodity prices were the most significant driver of our financials. First half demand was relatively soft and supply constraints eased, leading to materially lower prices year on year, but a modest rebound from the lows of last year's second half. The Plat 62% iron ore index dropped 14%, LME copper declined 10% and LME aluminium was down 24% compared with the first half of 2022. The price declines are clearly reflected in the charts, but I would just highlight that our average realised iron ore price relative to the index improved further due to narrowing relativities for lower grade products. We are beginning to see the impact of the energy transition. For example, newer applications like solar panels added about 1% growth to global aluminium demand. But overall, the aluminium segment was soft. Copper prices also trended down in line with sentiment as China's recovery seemed to lose steam and the market moved to a short position for the first time in 12 months. I'd like to take a minute to provide additional context on commodity prices. It can be useful to look at them from a longer-term perspective, removing the noise of short-term volatility and factoring in the impact of elevated inflation we've recently experienced. This chart shows rolling 12-month average prices for iron ore, aluminium and copper starting from January 2010 and rebased to 2023 real terms. We've indexed these and show the average of the 13 years as 100. The chart shows that prices have now been declining for over a year as the period of commodity-intensive growth and supply bottlenecks faded. Over the last few years, cost pressures across the industry have lifted and steepened cost curves, providing price support. Consequently, in nominal terms, prices may appear elevated, but in real terms, they're actually trading below the average since 2010. More recently, falling costs in some commodities are starting to flow through to lower commodity pricing, in particular aluminium. Turning now to the EBITDA movement. In aggregate, commodity prices lowered EBITDA by $3.3 billion. Iron ore was negative $1.6 billion, with aluminium down $1.4 billion and copper prices down $200 million. Let me make a few points on inflation. This is still having a significant impact on earnings, although cost increases are slowing from the nadir of last year's second half. We've not yet seen softer markets translate into lower input costs, but we would expect to see this in the second half of the year. While the Brent oil price is down, again due to contract lags, we won't see the benefits until the second half. Similarly, the lower market linked prices for raw materials in our aluminium business take longer to pass through, mainly due to us holding three to four months of inventories through the value chain. There was positive momentum at some of our operations. We benefited from increased iron ore sales and higher volumes of aluminium from Kitimat, albeit a lower proportion of value added products. We continue to experience tightness in our key labour markets in Western Australia, Quebec and Utah, which raised costs above general inflation. We also experienced temporary operational issues at Kennecott and IOC, which had negative impacts on EBITDA. Finally, we incurred higher evaluation costs as activities on the ground accelerated, in particular in Guinea, but also in Argentina, where we continue to expense the Rincon project. While it is a peak year for E&E, given the Simundu project, it is important to have a strong pipeline of options for the future. Turning now to our cash generation. This half, there are a number of factors impacting conversion of EBITDA to cash. Some are one-offs and some are seasonal. Importantly, this is not a step increase and there will always be ebb and flow over periods. An increase in working capital of $900 million, reflecting a build in run-of-mine ore in the Pilbara and seasonally higher spares and stores, including the Dyavik winter road. Payables were also lower due to the timing of spend and normal volatility in amounts due to JV partners and employees. We would expect some of this outflow to reverse in the second half. Operating cash flow was also impacted by dividends from Escondida. These are not always aligned with EBITDA, in particular given that Escondida is moving into a period of substantial reinvestment. Onto product group performance. Our iron ore business continues to perform well. Guadalajara reached nameplate capacity in the second quarter, and we now expect four year shipments to be in the upper half of our 320 to 335 million tonne guidance range. Aluminium had a better half operationally, with volumes of metal up 9% due to the recovery at Kitimat. This is now at 90% of capacity and remains on track to reach nameplate later this year. The 24% drop in LME prices meant that EBITDA margins halved compared with last year's first half, but there was a modest recovery from the second half. Looking ahead, we are materially strengthening our aluminium business in North America for the next cycle, not just with Kitamet. We have approved our first investment in smelting for over a decade with the expansion of AP60, replacing the old Arvida smelter. We've also approved the addition of 30,000 tonnes of new recycling capacity at Arvida. And at Alma, we're increasing capacity of low-carbon, high-value billets by 200,000 tonnes. And just last Friday, we announced we were entering into the 50% joint venture with Metalco, meaning we will manage the sales and marketing of up to 900,000 tonnes of additional recycled product across our key North American market. Clearly the highlight for copper was first sustainable production from Oyotogo underground. We've invested significantly in Mongolia, not least with last year's acquisition of TRQ, and we're now set to reap the benefits over the next five years. Kennecott and Escondida had some operational challenges in the half, both planned and unexpected, with Escondida experiencing geotechnical instability in the open pit and unplanned maintenance at the concentrator. We recognise we need to lift performance at Kennecott. We're investing in the open pit and underground to extend the life of the operation and uplift capacity. We're also rebuilding the smelter, a one in 10 year event, to achieve its full potential. In fact, we've extended the refurbishment to include a full rebuild of the flash converting furnace, which should provide further asset stability and process safety management. In minerals, at IOC we saw improved performance at the mining concentrator in the first five months, but this was more than offset by the loss of almost a month's production in June due to forest fires, while iron entertainment and boron suffered some market weakness. Let me now explain the Rincon lithium capital increase. This has risen to $335 million for the 3,000 tonne per annum starter plant. In 2022, we took the decision to proceed quickly to accelerate market entry. Since then, further studies have led to an extended schedule. We added to scope, for example, to drive column performance in our DLE technology, and we added a waste storage facility. We still think the commitment to the starter plant was the right decision. The learnings and design improvements will be carried over to the full-scale project. Early works such as the Airstrip and Phase 1 construction camp are already complete, on time and on budget, and capital intensity for the full-scale project is in line with current brine projects in Argentina. It is slightly higher than some recent hard rock projects, but we would expect the investment in DLE to lead to lower OPEX and higher recoveries. Returning to our Pilbara business, our first half performance sustained the strong momentum from the second half of last year. With Gududari now at full tilt and the current wave of replacement mines like Rove Valley in production, we've improved the health of the system by offsetting depletion, reducing volatility and lifting mine capacity. The systematic approach of our safe production system is now yielding clear results from full deployments last year at both Tom Price and Brockman 4. We remain on track to meet our target with a 5 million tonne uplift this year in production. The 7% uplift in half-year production, a weaker Australian dollar and a moderation in inflation have resulted in unit costs declining modestly to $21 per tonne. Our SP10 product will remain an integral part of the mix. It was 10% in the first half, and with higher anticipated production in the second, we expect an increase in the proportion of SP10 due to some constraints accessing higher-grade material. Gooda Diary has mitigated this to an extent, but still needs partners to maintain the Pilbara blend. We will need to invest in new replacement mines with an ongoing focus on asset integrity and operational discipline. And we're working closely with local communities, traditional owners and governments to progress approvals for our next tranche of projects. Turning now to Woi Tolgoi. With just over $14 billion of invested capital, I am now looking forward to seeing the returns. As the underground ramps up, it will become the world's fourth largest copper mine by 2030, with considerable gold revenues, supporting our ambition to produce 1 million tonnes of mined copper within five years. With $1.4 billion of growth capital remaining and sustaining capital of $300 to $400 million over the next decade, we're set to deliver significant returns and free cash flow from this Tier 1 multi-decadal asset. Moving on to capital allocation. We'll continue to invest through the cycle, balancing returns to shareholders with reinvestment for growth and de-risking future cash flows. Sustaining capital, high returning replacement projects and investment in decarbonisation remain our first priority for capital allocation. This is followed by ordinary dividends within our well-established returns policy. We'll then test investment in compelling growth against debt management and future cash returns to shareholders, further cash returns to shareholders. Last year, we saw a shift to growth with our first forays into M&A in over a decade. But as I have mentioned before, it is not a predetermined budget. If value-adding projects are not ready, then the funds will go back into the capital allocation wheel. Let's now take a look at our capital expenditure profile in more detail. We see capex rising up to $10 billion in each of the next two years. We've been steadily increasing the capital allocated to essential capex as we focus on the health of our business to support our best operator objective. Today, this stands at around $3.5 billion for sustaining capital and $2 to $3 billion for replacement. set to rise next year following approval of AP60, which replaces the old Arvida smelter, but also gives us additional low-carbon metal. Spend on decarbonisation projects will also increase, albeit from a low base. It totalled just under 200 million for the half, split 50-50 between OPEX and CAPEX. Turning to growth capex. Over the last five years, this has been all about Oyo Togoi. The spend is largely complete with the underground mindset to ramp up over the next five years. With Oyo Togoi spend coming to an end from 2025, we'll start to see our share of Simundu ramping up. Other projects in the pipeline will also start to come through from this point. While Simundu is not a committed investment, it is important to give a transparent view given we are well advanced in negotiations with our partners. The level of spend over the period shown is fully dependent on the timing of sanction following completion of final studies. Finally, the dividend. In line with our usual practice, we have declared a 50% payout for the interim. This equates to $2.9 billion. Going forward, we will continue to review whether additional returns are appropriate in line with our policy of supplementing the ordinary dividend in periods of strong earnings and cash generations. We have remained very consistent with our shareholder returns policy, which has now been in place for seven years. The dividend remains a core part of our equity story, which we see as paramount for maintaining discipline. Our financial strength means that we can accelerate our decarbonisation, reinvest for growth and continue to pay attractive dividends through the cycle. With that, let me hand back to Jakob.