ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
5.A Operating results
The information set forth under the
headings:
|
|
|
Product groups-Iron Ore on pages 32 and 33;
|
|
|
|
Product groups-Aluminium on pages 34 and 35;
|
|
|
|
Product groups-Copper & Diamonds on pages 36 and 37;
|
|
|
|
Product groups-Energy & Minerals on pages 38 and 39;
|
|
|
|
Sustainable development on pages 24 to 30;
|
12
|
|
|
Directors report-Government regulations on page 48;
|
|
|
|
Directors report-Environmental regulations on page 48; and
|
|
|
|
Financial statements Note 30-Financial instruments and risk management on pages 149 to 157
|
of the
Annual Report 2016 is incorporated herein by reference.
13
5.A Operating results continued
Additional Financial Information
2016 financial
performance compared with 2015
In order to provide additional insight into the performance of our business, Rio Tinto presents underlying earnings,
which is defined in Financial statements Note 2-Operating segments on pages 128 to 130 of the Annual Report 2016.
2016 underlying earnings of
US$5,100 million and net earnings of US$4,617 million were US$560 million above and US$5,483 million above the comparable measures for the previous year respectively (2015 underlying earnings of US$4,540 million and net losses of US$866 million were
US$4,765 million below and US$7,393 million below the comparable measures for the previous year respectively). Both net earnings and underlying earnings represent amounts attributable to owners of Rio Tinto. International Financial Reporting
Standards (IFRS) requires that the profit/(loss) for the period reported in the income statement should also include earnings/(losses) attributable to non-controlling interests in subsidiaries. Underlying earnings is reconciled to net
earnings/(losses) in the table below, which also lists the principal factors driving the movement in underlying earnings between periods.
|
|
|
|
|
|
|
|
|
|
|
2016 vs 2015
|
|
|
|
US$m
|
|
|
US$m
|
|
2015 Net loss
|
|
|
(866
|
)
|
|
|
|
|
Items excluded from underlying
earnings
(a)
|
|
|
5,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Underlying earnings
|
|
|
|
|
|
|
4,540
|
|
Prices
|
|
|
(460
|
)
|
|
|
|
|
Exchange rates
|
|
|
49
|
|
|
|
|
|
Volumes
|
|
|
19
|
|
|
|
|
|
General cost inflation
|
|
|
(158
|
)
|
|
|
|
|
Energy
|
|
|
25
|
|
|
|
|
|
Lower cash costs
|
|
|
1,124
|
|
|
|
|
|
Lower exploration and evaluation costs
|
|
|
97
|
|
|
|
|
|
Tax / non-cash / interest / other
|
|
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total changes in underlying
earnings
(a)
|
|
|
|
|
|
|
(560
|
)
|
|
|
|
|
|
|
|
|
|
2016 Underlying earnings
|
|
|
|
|
|
|
5,100
|
|
Impairment charges
|
|
|
(183
|
)
|
|
|
|
|
Net gains and loss on disposal of interests in businesses
|
|
|
382
|
|
|
|
|
|
Exchange differences and movements on derivatives
|
|
|
536
|
|
|
|
|
|
Restructuring costs from global headcount reductions
|
|
|
(177
|
)
|
|
|
|
|
Onerous port and rail contracts
|
|
|
(329
|
)
|
|
|
|
|
Tax provision
|
|
|
(380
|
)
|
|
|
|
|
Increased closure provision for legacy operations
|
|
|
(282
|
)
|
|
|
|
|
Other exclusions
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total excluded in arriving at underlying earnings
|
|
|
|
|
|
|
(483
|
)
|
|
|
|
|
|
|
|
|
|
2016 net earnings
|
|
|
|
|
|
|
4,617
|
|
Profit attributable to non-controlling interests
|
|
|
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
|
|
|
|
|
4,776
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Earnings contributions from Group businesses and business segments are based on underlying earnings. Amounts excluded from net earnings in arriving at underlying earnings are described in Financial statements Note
2-Operating segments(a) on page 130 of the Annual Report 2016.
|
14
Prices
Most
commodity prices increased for the first time in a number years in the second half of 2016, despite numerous political and macro shocks to the global economy. However, the effect of all price movements on the Groups commodities in 2016 was to
decrease underlying earnings by US$460 million compared with 2015.
Major positive price variances were seen in iron ore (US$185 million), coal (US$121
million) and gold (US$32 million).
Iron ore prices started 2016 at US$43 per dry metric tonne cost and freight (CFR) and ended the year around US$80 per
tonne. The average realised price for iron ore was up approximately 2% to US$49.3 per wet metric tonne (FOB), from US$48.4 per wet metric tonne (FOB) in 2015.
Hard coking coal benchmark prices were 12 per cent higher on average compared with 2015 and thermal coal spot prices averaged seven per cent higher. Hard
coking coal prices almost quadrupled to US$310 per tonne from January to November 2016. The thermal coal market was also affected, with prices doubling to US$110 per tonne FOB Newcastle. Prices have since moderated.
These commodity price gains were more than offset by lower average prices for copper and aluminium which were down 11 and three per cent respectively
year-on-year, and a significant drop in market premia for aluminium in all regions, which fell from their record highs in early 2015.
Aluminium had a
negative price variance of US$507 million. Average London Metal Exchange (LME) prices decreased three per cent year on year, and lower market and product premia resulted in the average realised price per tonne decreasing from US$2,058 in 2015 to
US$1,849 in 2016.
Copper contributed US$105 million to the negative price variance. Additionally lower prices across industrial mineral and Molybdenum
contributed US$128 million to the negative price variance.
Exchange rates
Compared with 2015, the US dollar, on average, strengthened by three per cent against the Canadian dollar, by one per cent against the Australian dollar and by
14 per cent against the South African rand. The effect of all currency movements was to increase underlying earnings relative to 2015 by US$49 million.
Volumes
Movements in sales volumes increased earnings by
US$19 million compared with 2015. There were volume gains in iron ore, following the increase in capacity at the Pilbara ports and mines, in bauxite, from increased production at all four mines, and in aluminium following record production at ten
smelters. These were mostly outweighed by lower sales volumes in copper, gold and molybdenum.
Energy
Lower input energy prices during the year improved underlying earnings by US$25 million compared with 2015 in part related to oil, where the price fell
approximately 16 per cent year-on-year, averaging US$44 per barrel during 2016.
Cash costs, exploration and evaluation
Rio Tinto continued to realise considerable savings from its cost reduction programme, delivering US$1.6 billion pre-tax (US$1.2 billion post tax) in operating
cash cost savings and reductions in exploration and evaluation expenditure in 2016.
The Group continued to optimise its expenditure on exploration and
evaluation, progressing the highest value projects. In 2016, approximately 41 per cent of this expenditure was incurred by central exploration, 25 per cent by Copper & Diamonds, 25 per cent by Energy & Minerals and
the remainder by Aluminium and Iron Ore.
15
Tax / non-cash / interest / other
The 2016 effective corporate income tax rate on underlying earnings, excluding equity accounted units, was 22 per cent compared with 27 per cent in
2015. The lower effective tax rate in 2016 was largely due to the recognition of a deferred tax asset in Mongolia. Excluding this item, the effective tax rate in 2016 was 26 per cent. The effective tax rate in Australia remained at 30 per
cent.
The Group interest charge (net of tax) of US$576 million increased by US$187 million compared with 2015, following completion of some major
capital projects in 2015 (interest is capitalised during the construction period of a project) and US$237 million of early redemption costs from bond repurchases in 2016. In 2016, US$111 million of interest was capitalised, compared with US$254
million in 2015.
2015 financial performance compared with 2014
2015 underlying earnings of US$4,540 million and net losses of US$866 million were US$4,765 million below and US$7,393 million below the comparable measures
for the previous year respectively (2014 underlying earnings of US$9,305 million and net earnings of US$6,527 million were US$912 million below and US$2,862 million above the comparable measures for the previous year respectively). Both net earnings
and underlying earnings represent amounts attributable to owners of Rio Tinto. International IFRS requires that the (loss)/profit for the period reported in the income statement should also include (losses)/earnings attributable to non-controlling
interests in subsidiaries. Underlying earnings is reconciled to net (losses)/earnings in the table below, which also lists the principal factors driving the movement in underlying earnings between periods.
|
|
|
|
|
|
|
|
|
|
|
2015 vs 2014
|
|
|
|
US$m
|
|
|
US$m
|
|
2014 Net earnings
|
|
|
6,527
|
|
|
|
|
|
Items excluded from underlying earnings
|
|
|
2,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 Underlying earnings
|
|
|
|
|
|
|
9,305
|
|
Prices
|
|
|
(7,695
|
)
|
|
|
|
|
Exchange rates
|
|
|
2,007
|
|
|
|
|
|
Volumes
|
|
|
132
|
|
|
|
|
|
General cost inflation
|
|
|
(185
|
)
|
|
|
|
|
Energy
|
|
|
359
|
|
|
|
|
|
Lower cash costs
|
|
|
833
|
|
|
|
|
|
Lower exploration and evaluation costs
|
|
|
120
|
|
|
|
|
|
Tax / non-cash / interest / other
|
|
|
(336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total changes in underlying earnings
|
|
|
|
|
|
|
(4,765
|
)
|
|
|
|
|
|
|
|
|
|
2015 Underlying earnings
|
|
|
|
|
|
|
4,540
|
|
Impairment charges
|
|
|
(1,802
|
)
|
|
|
|
|
Net gains and loss on disposal of interests in businesses
|
|
|
48
|
|
|
|
|
|
Exchange differences and movements on derivatives
|
|
|
(3,282
|
)
|
|
|
|
|
Restructuring costs from global headcount reductions
|
|
|
(258
|
)
|
|
|
|
|
Increased closure provision for legacy operations
|
|
|
(233
|
)
|
|
|
|
|
Recognition of deferred tax assets relating to planned divestments
|
|
|
234
|
|
|
|
|
|
Other exclusions
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total excluded in arriving at underlying earnings
|
|
|
|
|
|
|
(5,406
|
)
|
|
|
|
|
|
|
|
|
|
2015 net loss
|
|
|
|
|
|
|
(866
|
)
|
Loss attributable to non-controlling interests
|
|
|
|
|
|
|
(853
|
)
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
|
|
|
|
|
(1,719
|
)
|
|
|
|
|
|
|
|
|
|
16
Prices
The
effect of price movements on all major commodities in 2015 was to decrease underlying earnings by US$7,695 million compared with 2014. The average realised price for iron ore was approximately 43 per cent lower than 2014, down from US$84.3 per
wet metric tonne (FOB) to US$48.4 per wet metric tonne (FOB). In addition, hard coking coal benchmark prices were 19 per cent lower on average at US$102 per tonne (FOB) compared with US$126 per tonne (FOB) in 2014 and thermal coal spot prices
averaged 16 per cent lower, US$53 per tonne (FOB) compared with US$63 per tonne (FOB) in the prior year.
Average copper and gold prices were down 20
and eight per cent respectively, with benchmark prices averaging US$2.49 per pound for copper and US$1,160 per ounce for gold. The LME aluminium prices averaged 11 per cent lower at US$1,663 per tonne.
Exchange rates
Compared with 2014, the US dollar, on
average in 2015, was stronger by 14 per cent against the Canadian dollar and South African rand and by 16 per cent against the Australian dollar. The effect of all currency movements was to increase underlying earnings relative to 2014 by
US$2,007 million.
Volumes
Volumes improved earnings
by US$132 million compared with 2014. Increased volumes were achieved primarily in iron ore, following the increase in capacity at the Pilbara ports and mines (favourable US$398 million) and in bauxite, from record production at Weipa and the
ramp-up at Gove. These offset volume declines in copper (unfavourable US$276 million), mainly at Rio Tinto Kennecott where the focus on de-weighting and de-watering the east wall of Bingham Canyon continued, and in titanium dioxide feedstocks, where
production was aligned with market demand.
Energy
Lower input energy prices during the period improved underlying earnings by US$359 million compared with 2014 mainly related to oil, where the price fell
approximately 50 per cent year on year to an average US$52 per barrel during 2015.
Cash costs, exploration and evaluation
Rio Tinto made further strong progress on its cost reduction programme and had, as of 31 December 2015, achieved US$6.2 billion pre-tax (US$4.3 billion
post-tax) in total operating cash cost improvements and reductions in exploration and evaluation expenditure compared with the 2012 base.
In 2015, the
Group realised US$1.3 billion pre-tax (US$1.0 billion post-tax) in operating cash cost savings and reductions in exploration and evaluation expenditure. This was in addition to the US$4.8 billion pre-tax (US$3.3 billion post-tax) achieved in
aggregate in 2013 and 2014.
The Group continued to refine its exploration and evaluation expenditure, building on the savings achieved in 2014 whilst
progressing the highest priority projects. In 2015, approximately six per cent of this expenditure was incurred by Iron Ore, two per cent by Aluminium, 38 per cent by Copper & Diamonds, 24 per cent by Energy & Minerals
and the remainder by central exploration on greenfield programmes.
Tax / non-cash / interest / other
The 2015 effective corporate income tax rate on underlying earnings, excluding equity accounted units, was 27 per cent compared with 28 per cent in
2014. The decreased rate was principally attributable to the absence of the Australian Minerals Resource Rent Tax (MRRT) which was repealed in the second half of 2014.
The Group interest charge (net of tax) of US$389 million increased by US$228 million compared with 2014, following completion of some major capital
projects in the first half of 2015. Interest is capitalised during the construction period. In 2015, US$254 million of interest was capitalised, compared with US$470 million in 2014.
17
Exclusions from underlying earnings 2014-2016
Earnings contributions from Group businesses and business segments are based on underlying earnings. Amounts excluded from net earnings in arriving at
underlying earnings are summarised in the discussion of year-on-year results below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
Impairment charges
|
|
|
(183
|
)
|
|
|
(1,802
|
)
|
|
|
(1,187
|
)
|
Impairment reversals
|
|
|
|
|
|
|
|
|
|
|
1,049
|
|
Gains/(losses) on disposal of interests in businesses
|
|
|
382
|
|
|
|
48
|
|
|
|
(349
|
)
|
Exchange differences and movements on derivatives
|
|
|
536
|
|
|
|
(3,282
|
)
|
|
|
(1,850
|
)
|
Restructuring costs including global headcount reductions
|
|
|
(177
|
)
|
|
|
(258
|
)
|
|
|
(82
|
)
|
Increased closure provision for non-operational and legacy operations
|
|
|
(282
|
)
|
|
|
(233
|
)
|
|
|
|
|
Onerous port and rail contracts
|
|
|
(329
|
)
|
|
|
|
|
|
|
|
|
Tax provision
|
|
|
(380
|
)
|
|
|
|
|
|
|
|
|
Recognition of deferred tax assets relating to planned divestments
|
|
|
|
|
|
|
234
|
|
|
|
|
|
Mineral Resources Rent Tax (MRRT) repeal
|
|
|
|
|
|
|
|
|
|
|
(362
|
)
|
Gain on sale of the Groups properties at St Jamess Square
|
|
|
|
|
|
|
|
|
|
|
356
|
|
Impact of pit wall slide at Rio Tinto Kennecott
|
|
|
|
|
|
|
18
|
|
|
|
|
|
Simandou and QMM IFRS 2 charge
|
|
|
|
|
|
|
(11
|
)
|
|
|
(116
|
)
|
Other exclusions
|
|
|
(50
|
)
|
|
|
(120
|
)
|
|
|
(237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total excluded in arriving at underlying earnings
|
|
|
(483
|
)
|
|
|
(5,406
|
)
|
|
|
(2,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
Impairment charges during the year ended 31 December 2016 primarily relate to the Argyle diamond mine in Western Australia. An impairment trigger
assessment at the Argyle diamond mine cash-generating unit resulted in the identification of impairment indicators as a result of lower production volumes compared with forecast and the lower prices achieved for bulk diamonds. The reduction in the
recoverable amount resulted in a pre-tax impairment charge of US$241 million to property, plant and equipment and intangible assets.
Net gains on
disposal of interests in businesses in 2016 related mainly to the sale of Rio Tintos 40 per cent interest in the Bengalla Joint Venture on 1 March 2016 and the sale of the Lochaber assets in Scotland on 23 November 2016. This
was partially offset by a loss on disposal of the 100 per cent interest in Carbone Savoie on 31 March 2016.
Net exchange gains in 2016 comprise
post-tax foreign exchange gains of US$123 million principally on external US dollar denominated net debt in non-US dollar functional currency companies (on borrowings of approximately US$17.6 billion), and US$393 million of gains on intragroup
balances mainly as the Canadian dollar strengthened against the US dollar compared to 31 December 2015. The Group took further steps during 2016 to reduce the income statement exposure on retranslation of intragroup balances. The remaining
US$20 million related to valuation changes on commodity, currency and interest rate derivatives which are ineligible for hedge accounting.
A review of
the infrastructure capacity requirements in Queensland, Australia, has confirmed that it is no longer likely that Rio Tinto will utilise the Abbot Point Coal Terminal and associated rail infrastructure capacity contracted under take or pay
arrangements. On 31 October 2016, an agreement was reached with Adani, the owner of the port, to relinquish that capacity. Accordingly, an onerous contract provision has been recognised based on the net present value of expected future cash
flows for the port and rail capacity discounted at a post-tax real rate of two per cent, resulting in a post-tax onerous contract charge of US$329 million.
18
Tax provision includes amounts provided for specific tax matters for which the timing of resolution and potential
economic outflow are uncertain. In particular, the Group is currently in discussions with the Australian Taxation Office (ATO) in relation to the transfer pricing of certain transactions between Rio Tinto entities based in Australia and the
Groups commercial centre in Singapore for the period since 2009. These matters were raised by Rio Tinto with the ATO through advance ruling requests or are under discussions pursuant to our co-operative compliance agreement.
The increase in closure provision (non-operating sites) relates to the Gove alumina refinery in Northern Territory, Australia where operations have been
curtailed since May 2014. The provision has been updated based on the current cost estimates from the studies which are expected to be finalised mid-2017. Future revisions to the closure cost estimate during the study periods (including the next
stage of feasibility study) are expected to be excluded from underlying earnings as the site operating assets have been fully impaired.
2015
Total impairment charges of US$1,802 million (post-tax) were recognised in 2015. On 26 May 2014, Rio Tinto and its
Simandou project partners signed an Investment Framework with the Government of Guinea which provided the legal and commercial foundation for the project and formally separated the infrastructure and mine development plan. The Simandou project
partners were finalising an integrated Bankable Feasibility Study (BFS) for the mine, port and infrastructure elements of the project, which was scheduled to be submitted to the Government of Guinea in May 2016. As a result of market conditions and
uncertainty over infrastructure ownership and funding at that time, the Group determined that it was appropriate to record a non-cash impairment charge of US$1,118 million (net of non-controlling interests and tax).
On 11 June 2015, Rio Tinto announced that it supported Energy Resources of Australia Ltds (ERA) decision not to proceed with the final Feasibility
Study of the Ranger 3 Deeps project. Rio Tinto also determined it did not support any further study or future development of Ranger 3 Deeps due to the projects economic challenges. This resulted in a write down to property, plant and
equipment, intangible assets and deferred tax assets to fully write off these long-term assets. The total impairment charge recognised was a non-cash charge of US$262 million (net of non-controlling interests and tax).
In late 2015, Rio Tinto completed an Order of Magnitude study on the Roughrider uranium project in Canada. This led to the Group recognising a post-tax
impairment charge of US$199 million relating to goodwill and intangible assets.
Other impairment charges during the year reflect challenging economic
conditions at business units in the Groups Aluminium and Copper & Diamonds product groups.
Non-cash exchange and derivative losses of
US$3,282 million (post-tax) arose primarily on US dollar debt in non-US dollar functional currency Group companies, intragroup balances, and on the revaluation of certain derivatives which do not qualify for hedge accounting.
During 2015, the Group incurred US$258 million (post-tax) of restructuring costs associated with its ongoing costs reduction programme.
A post-tax charge of US$233 million has been recognised for the remediation of legacy properties, including the Holden Mine in Washington State.
2014
Impairment charges of
US$1,187 million (net of tax and non-controlling interests) were recognised in 2014 and related to the Groups Aluminium business, US$840 million, and the Groups Copper businesses, US$347 million.
The Groups Copper business impairment charge resulted from a review of the investment case for the Molybdenum Autoclave Process project in Utah which
concluded that the project, which had been on care and maintenance since early 2013, would be terminated. The recoverable amount was determined based on anticipated net disposal proceeds. As a result, a post-tax impairment charge of US$347 million
was recorded against property, plant and equipment.
19
During the first half of 2014, further revisions to future capital required to complete the modernisation and
expansion of the Kitimat aluminium smelter in British Columbia, and related impacts on the project, led to a reduction in the recoverable value of the Kitimat cash-generating unit. Additional capital of US$1.5 billion was approved by the Board in
August 2014, taking the total approved capital cost of the project to US$4.8 billion. The reduction in the recoverable amount resulted in a post-tax impairment charge of US$800 million to property, plant and equipment. Other post-tax impairment
charges during 2014, related to the Groups Aluminium business, were US$40 million.
The above impairment charges were largely offset by the reversal
of previously booked impairments on other non-current assets in the Groups Aluminium business, due to significant cost improvements and high regional and product premia. This resulted in a post-tax impairment reversal of US$460 million
recorded against the property, plant and equipment of Tomago, Bell Bay and Gladstone Power Station and a post-tax impairment reversal of US$589 million relating to Boyne Smelters recorded against investments in equity accounted units. The
recoverable amount of the assets is greater than the amount at which these assets would have been carried, net of depreciation, had no impairment loss been recognised in prior periods and therefore the impairment reversal is based on the latter
amount.
Net losses on disposal of interests in businesses during 2014 mainly related to the Groups divestment of Rio Tinto Coal Mozambique, the
Clermont Joint Venture and the transfer of Alucam to the Government of Cameroon.
Non-cash exchange and derivative losses of US$1,850 million arose
primarily on US dollar debt in non-US dollar functional currency Group companies, and on intragroup balances.
The remaining MRRT starting base deferred
tax asset was derecognised on repeal of the tax in Australia, effective 30 September 2014.
A gain of US$356 million net of tax was recognised on the
disposal of the Groups St Jamess Square properties in London, UK.
Group financial results by product group 2014-2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
Iron Ore
|
|
|
4,611
|
|
|
|
3,940
|
|
|
|
7,963
|
|
Aluminium
|
|
|
947
|
|
|
|
1,118
|
|
|
|
1,248
|
|
Copper & Diamonds
|
|
|
(18
|
)
|
|
|
370
|
|
|
|
1,118
|
|
Energy & Minerals
(a)
|
|
|
610
|
|
|
|
175
|
|
|
|
232
|
|
Other operations
|
|
|
(86
|
)
|
|
|
(88
|
)
|
|
|
(240
|
)
|
Other items
|
|
|
(241
|
)
|
|
|
(375
|
)
|
|
|
(593
|
)
|
Exploration and evaluation
|
|
|
(147
|
)
|
|
|
(211
|
)
|
|
|
(262
|
)
|
Net interest
|
|
|
(576
|
)
|
|
|
(389
|
)
|
|
|
(161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group underlying earnings
|
|
|
5,100
|
|
|
|
4,540
|
|
|
|
9,305
|
|
Exclusions from underlying earnings
|
|
|
(483
|
)
|
|
|
(5,406
|
)
|
|
|
(2,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings/(loss)
|
|
|
4,617
|
|
|
|
(866
|
)
|
|
|
6,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes the Simandou iron ore project in Guinea and Iron Ore Company of Canada.
|
20
Sales Revenue
Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Commodity
|
|
Source
|
|
Unit
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Average prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iron ore 62% Fe Fines FOB
|
|
Platts Index less Baltic Exchange Freight Rate
|
|
|
dmt
|
(a)
|
|
|
54
|
|
|
|
56
|
|
|
|
88
|
|
Aluminium
|
|
LME
(b)
|
|
|
Tonne
|
|
|
|
1,605
|
|
|
|
1,661
|
|
|
|
1,867
|
|
Copper
|
|
LME
|
|
|
Pound
|
|
|
|
2.21
|
|
|
|
2.49
|
|
|
|
3.10
|
|
Gold
|
|
London Bullion Market (LBMA)
|
|
|
Ounce
|
|
|
|
1,250
|
|
|
|
1,160
|
|
|
|
1,266
|
|
|
|
|
|
|
|
Closing prices (quoted commodities only)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminium
|
|
|
|
|
Tonne
|
|
|
|
1,704
|
|
|
|
1,500
|
|
|
|
1,825
|
|
Copper
|
|
|
|
|
Pound
|
|
|
|
2.51
|
|
|
|
2.13
|
|
|
|
2.89
|
|
Gold
|
|
|
|
|
Ounce
|
|
|
|
1,148
|
|
|
|
1,061
|
|
|
|
1,184
|
|
The above table shows published prices for Rio Tintos commodities for the last three
years where these are publicly available, and where there is a reasonable degree of correlation between the published prices and Rio Tintos realised prices.
Group sales revenue will not necessarily move in line with these published prices for a number of reasons which are discussed below.
The discussion of revenues below relates to the Groups gross revenue from sale of commodities, as included in the Financial information by
business unit on pages 199 to 203 of the Annual Report 2016.
Iron Ore
2016 sales revenue compared with 2015
Gross sales revenue increased by US$653 million (approximately five percent) to US$14,605 million. Sales volumes were three per cent higher in 2016,
attributable to the newly expanded infrastructure and minimal disruption from weather events. The average realised price for iron ore was also up approximately 2% to US$49.3 per wet metric tonne (FOB), from US$48.4 per wet metric tonne (FOB) in
2015.
Approximately 20 per cent of sales in 2016 were priced with reference to the prior quarters average index lagged by one month. The
remainder was sold either on current quarter average, current month average or on the spot market. Index prices are adjusted for product characteristics and iron and moisture content.
2015 sales revenue compared with 2014
Higher sales volumes (approximately 11 per cent) in the Pilbara partially mitigated the impact of lower iron ore prices. The average realised price was
down 43 per cent on average, from US$84.3 per wet metric tonne (FOB) to US$48.4 per wet metric tonne.
In 2015, approximately 22 per cent of
sales were priced with reference to a quarterly average index set at the prior quarters average lagged by one month. The remainder was sold via pricing mechanisms priced closer to the index price at the time of shipment, such as current
quarter average, current month average or spot index prices. Index prices are adjusted for product characteristics and iron and moisture content.
21
Aluminium
2016 sales revenue compared with 2015
Aluminiums sales revenues are from aluminium and related products such as alumina and
bauxite.
There was an overall decrease in gross sales revenue of US$659 million (approximately seven per cent) to US$9,458 million in 2016. Average LME
prices decreased three per cent year on year, and lower market and product premia resulted in the average realised price per tonne decreasing from US$2,058 in 2015 to US$1,849 in 2016. This realised price included premia for value-added products
(VAP), which generated attractive product premia averaging US$223 per tonne of VAP sold (2015: US$251 per tonne) on top of the physical market premia. In the US, the Mid-West market premium averaged US$162 per tonne in 2016, compared with an average
US$271 per tonne in 2015, a 40 per cent decrease.
Gross sales revenues for bauxite in 2016 decreased seven per cent to US$1,913 million. Declines in
bauxite pricing compared with 2015 were partially offset by continued increase in third party bauxite sales. There was a ten per cent increase in third party bauxite shipments.
2015 sales revenue compared with 2014
The decline in prices in 2015 was the main driver of the 17 per cent drop in revenues compared with 2014. The 2015 cash LME aluminium price averaged
US$1,661 per tonne, a decrease of 11 per cent on 2014. Market premia across all regions fell an average of 36 per cent in 2015, down from US$404 per tonne in 2014 to US$257 per tonne in 2015.
Bauxite prices were stable in 2015, underpinned by growing import demand from China. Rio Tintos share of third party bauxite sales increased by
14 per cent in 2015 compared with 2014.
Copper & Diamonds
2016 sales revenue compared with 2015
Overall gross sales revenue declined by 19 per cent to US$4,524 million in 2016.
Copper sales revenue was lower than 2015 as a result of lower sales volumes along with an 11 per cent decline in prices to 221 US cents per pound in
2016. Gold revenue was lower than 2015 due mainly to lower grade and volumes. This was partially offset by an eight per cent increase in the gold price to US$1,250 per ounce.
At 31 December 2016, the Group had an estimated 235 million pounds of unsettled copper sales (2015: 252 million pounds) that were provisionally
priced at 250 US cents per pound (2015: 217 US cents per pound). The final price of these sales will be determined during the first half of 2017.
The
overall decline in diamonds revenue was attributable to lower sales volumes. Diamond prices realised by Rio Tinto depend on the size and quality of diamonds in the product mix.
2015 sales revenue compared with 2014
Gross sales revenue decreased by 22 per cent in 2015 compared with 2014.
Copper price declined 20 per cent to 249 US cents per pound and gold decreased 8 per cent to US$1,160 per ounce, which were the main drivers for the
decline in gross sales revenue from copper operations (down 22 per cent compared with 2014).
At 31 December 2015, the Group had an estimated
252 million pounds of copper sales (2014: 331 million pounds) that were provisionally priced at 217 US cents per pound (2014: 288 US cents per pound). The final price of these sales will be determined during the first half of 2016.
Sales volumes of diamonds were higher due to the ramp up of the Argyle underground mine, but industry rough diamond prices were weaker, driven by lower demand
from India and China, higher rough diamond and polished diamond inventory and lower trade manufacturer margins. Diamond prices realised by Rio Tinto depend on the size and quality of diamonds in the product mix.
22
Energy & Minerals
2016 sales revenue compared with 2015
Gross sales revenues decreased by six per cent compared with 2015, down US$406 million to US$6,734 million.
An increase in iron ore sales volumes from Iron Ore Company of Canada (IOC) of two per cent and stronger realised prices had a favourable impact on sales
revenues. This was offset by the impact of lower freight revenue.
Hard coking coal benchmark prices were 12 per cent higher on average compared with
2015 and thermal coal spot prices averaged seven per cent higher. The favourable impact of price changes was offset by the impact of the Coal & Allied restructure and the divestment of Bengalla.
A significant proportion of Rio Tintos coal production is sold under long-term contracts. In Australia, the prices applying to sales under the long-term
contracts are generally renegotiated annually for thermal coal, but prices are fixed at different times of the year and on a variety of bases. Coking coal prices for 2016 have been negotiated on a quarterly basis consistent with 2015. For these
reasons, average realised prices will not necessarily reflect the movements in any of the publicly available prices.
Titanium dioxide feedstock demand
remained subdued throughout 2016 as the industry continued to absorb excess inventories, resulting in continued price pressure, although there are signs of underlying demand improvement for both sulphate and chloride feedstock. The market for zircon
has recently stabilised following an initial period of weak demand in China. Demand for borates has remained stable globally, with robust demand in the Americas and India partly offset by weaker growth in China and weather-related demand constraints
in south-east Asia.
Uranium prices fell through the latter half of 2016, due to lacklustre demand growth and oversupply. The uranium spot price index
ended the year 41 per cent below 2015 at US$20.25 per pound, while the long-term price indicators lost 32 per cent to end the year at US$30.00 per pound. Rio Tinto Uranium also sells predominantly on a longer-term contract basis.
2015 sales revenue compared with 2014
Gross sales revenues decreased by 23 per cent compared with 2014, with lower revenues driven by lower prices and a reduction in sales volumes.
A significant year over year reduction in iron ore prices negatively impacted IOCs sales revenue. This was partially offset by a 26 per cent
increase in sales volume.
There was a decline in gross sales revenue from coal operations of 24 per cent compared with 2014. Thermal and coking coal
prices declined further in 2015, averaging US$62 and US$102 per tonne respectively. In addition to lower thermal and coking coal prices, there was also a decline in sales volumes mainly due to the divestment of the Clermont mine in May 2014.
A significant proportion of Rio Tintos coal production is sold under long-term contracts. In Australia, the prices applying to sales under the long-term
contracts are generally renegotiated annually for thermal coal, but prices are fixed at different times of the year and on a variety of bases. Coking coal prices for 2015 have been negotiated on a quarterly basis consistent with 2014. For these
reasons, average realised prices will not necessarily reflect the movements in any of the publicly available prices.
The uranium spot price index ended
the year four per cent below 2014 at US$34.23 per pound, while the long-term price indicators lost 11 per cent to end the year at US$44.00 per pound. Rio Tinto Uranium also sells predominantly on a longer-term contract basis.
Sales volumes were lower across the minerals businesses, including the impact of softer markets, most notably in titanium dioxide feedstocks. In
addition, prices for Rio Tinto Iron & Titaniums metallic co-products fell in response to market trends and titanium dioxide feedstock prices remained under pressure as the industry continued to absorb inventories.
23
Sales volumes of all products will vary during the year and the timing of shipments will also result in
differences between average realised prices and published prices.
Cash flow
2016 compared with 2015
A full
consolidated cash flow statement is contained in the financial statements on page 112 of the Annual Report 2016.
Net cash generated from operating
activities of US$8.5 billion was ten per cent lower than 2015. 2015 cash flows benefited from a significant working capital reduction. 2016 saw a rebound in receivables, driven by higher year-end prices. In addition, there was an increase in
interest paid to US$1.3 billion, of which US$0.5 billion related to early redemption costs associated with the bond repurchase programmes. These were partly offset by cash cost improvements and lower tax payments, in line with lower underlying
profits.
Purchases of property, plant and equipment and intangible assets were US$3.0 billion in 2016, a decline of 36 per cent compared with 2015.
Some major capital projects were completed in 2015, including expansion of the Pilbara iron ore infrastructure and the modernisation and expansion of the Kitimat aluminium smelter. Major capital projects in 2016 included the development of the Oyu
Tolgoi copper/gold underground mine in Mongolia, construction of key infrastructure at the Amrun bauxite project in Queensland and development of the Silvergrass iron ore mine in the Pilbara.
Dividends paid in 2016 of US$2.7 billion reflected the final 2015 dividend paid in April 2016 and the 2016 interim dividend paid in September 2016.
In 2016, net proceeds from the disposal of subsidiaries, joint ventures and associates of US$0.8 billion related primarily to amounts received following the
disposal of the Groups 40 per cent interest in the Bengalla Joint Venture and the first tranche from the sale of the Lochaber aluminium assets. In addition, the Group realised US$0.4 billion from the sale of property, plant and equipment
and intangibles, which included the Mount Pleasant thermal coal assets in New South Wales, undeveloped land in Utah and some office buildings in North America.
2015 compared with 2014
Net cash
generated from operating activities of US$9.4 billion was 34 per cent lower than 2014, mainly due to the impact of lower prices, reflecting cash cost improvements and lower tax payments in line with lower profits.
Total working capital cash inflows of US$1.5 billion in 2015 arose from continued efforts to reduce inventories and receivables, which were partly offset by a
reduction in payables, mostly from actions taken to reduce capital and operating expenditures during the year.
Purchases of property, plant and equipment
and intangible assets declined by US$3.5 billion or 43 per cent to US$4.7 billion in 2015. Major capital projects included the completion of the expansion of the Pilbara iron ore infrastructure and the modernisation and expansion of the Kitimat
aluminium smelter in British Columbia, where first metal was poured in June 2015.
Dividends paid in 2015 of US$4.1 billion reflected the increase in the
final 2014 dividend paid in April 2015 and the 2015 interim dividend paid in September 2015. Share repurchases totalled US$2.0 billion in 2015.
Balance sheet at 31 December 2016
Net debt
decreased from US$13.8 billion at 31 December 2015 to US$9.6 billion at 31 December 2016. Net debt to total capital (gearing ratio) declined to 17 per cent at 31 December 2016 (31 December 2015: 24 per cent) and interest
cover was seven times, unchanged from 2015.
Adjusted total borrowings at 31 December 2016 were US$18.0 billion. At 31 December 2016,
approximately 80 per cent of Rio Tintos total borrowings were at floating interest rates, the weighted average cost of total borrowings was approximately 4.0 per cent and the weighted average maturity was around ten years. The
maximum amount, within non-current borrowings, maturing in any one calendar year was US$1.7 billion, which matures in 2025.
24
In 2016, the Group repaid US$9.4 billion of borrowings, including US$9.0 billion of bonds, and drew down US$4.4
billion of funds, mainly from the Oyu Tolgoi project financing. Cash and cash equivalents plus other short-term cash investments at 31 December 2016 were US$8.5 billion (31 December 2015: US$9.4 billion).
Financial instruments and risk management
The
Groups policies with regard to financial instruments and risk management are clearly defined and consistently applied. They are a fundamental part of the Groups long-term strategy covering areas such as foreign exchange risk, interest
rate risk, commodity price risk, credit risk, liquidity risk and capital management. Further details of our Financial instruments and risk management are disclosed in Financial statements Note 30-Financial instruments and risk management
on pages 149 to 157 of the Annual Report 2016.
The Annual Report 2016 shows the full extent of the Groups financial commitments, including debt.
The risk factors to which the Group is subject are summarised above in Item 3.D, Risk factors.
The effectiveness of internal controls
continues to be a high priority in the Rio Tinto Group. The boards statement on internal control is set out in the Risk management section.
Dividend
The 2016 interim dividend was 45.0 US cents
(2015: 107.5 US cents) and the final dividend was determined as 125.0 US cents (2015: 107.5 US cents). Dividends paid on Rio Tinto plc and Rio Tinto Limited shares are equalised on a net cash basis; that is, without taking into account any
associated tax credits. Dividends are determined in US dollars. Rio Tinto plc dividends are paid and declared in pounds sterling and Rio Tinto Limited dividends are declared and paid in Australian dollars, converted at exchange rates on
7 February 2017. Details relating to the dividend policy, determination and payment of dividends in sterling, Australian dollars and other currencies and on the payment of dividends to holders of American Depositary Receipts (ADRs) are included
in the Shareholder information section on page 248 of the Annual Report 2016.
Capital and liquidity risk management
The Groups total capital is defined as equity attributable to owners of Rio Tinto plus equity attributable to non-controlling interests and net debt, as
shown below:
Total capital
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
US$m
|
|
|
US$m
|
|
Equity attributable to owners of Rio Tinto
|
|
|
39,290
|
|
|
|
37,349
|
|
Equity attributable to non-controlling interests
|
|
|
6,440
|
|
|
|
6,779
|
|
Net debt (financial statements Note 24 of the Annual Report 2016)
|
|
|
9,587
|
|
|
|
13,783
|
|
|
|
|
|
|
|
|
|
|
Total capital
|
|
|
55,317
|
|
|
|
57,911
|
|
|
|
|
|
|
|
|
|
|
The Groups major capital and evaluation projects are listed in the Portfolio management section on pages 22
and 23 of the Annual Report 2016.
We expect that contractual commitments for expenditure, together with other expenditure and liquidity requirements,
will be met from internal cash flow and, to the extent necessary, from the existing facilities described in Financial statements Note 30-Financial instruments and risk management, part A(b)(v) on pages 152 and 153 of the Annual Report
2016. This Note also provides further details of our liquidity and capital risk management.
25
Treasury management and financial instruments
Details of our Treasury management and financial instruments are disclosed in Financial statements Note 30-Financial instruments and risk
management on pages 149 to 157 of the Annual Report 2016.
Foreign exchange
The following sensitivities give the estimated effect on underlying earnings assuming that each exchange rate moved in isolation. The relationship between
currencies and commodity prices is a complex one and movements in exchange rates can cause movements in commodity prices and vice versa. Where the functional currency of an operation is that of a country for which production of commodities is an
important feature of the economy, such as the Australian dollar, there is a certain degree of natural protection against cyclical fluctuations, in that the currency tends to be weak, reducing costs in US dollar terms, when commodity prices are low,
and vice versa.
Earnings sensitivities Exchange rate
|
|
|
|
|
|
|
|
|
|
|
Average exchange
rate for 2016
|
|
|
Effect on underlying
earnings of 10%
change in full year
average
|
|
|
|
US cents
|
|
|
+/- US$m
|
|
Australian dollar
|
|
|
74
|
|
|
|
604
|
|
Canadian dollar
|
|
|
76
|
|
|
|
229
|
|
Euro
|
|
|
111
|
|
|
|
22
|
|
New Zealand dollar
|
|
|
70
|
|
|
|
19
|
|
South African rand
|
|
US$
|
1 = 14.65
|
|
|
|
30
|
|
The exchange rate sensitivities quoted above include the effect on net operating costs of movements in exchange rates but
exclude the effect of the revaluation of foreign currency financial assets and liabilities. They should therefore be used with caution. Further details of our exposure to foreign currency fluctuations and currency derivatives, and our approach to
currency hedging, are contained within Financial statements Note 30-Financial instruments and risk management, part A(b)(i), on pages 150 and 151 of the Annual Report 2016.
Interest rates
Details of our exposure to interest rate
fluctuations are contained within Financial statements Note 30-Financial instruments and risk management, part A(b)(ii), on page 151 of the Annual Report 2016.
Commodity prices
The approximate effect on the
Groups underlying and net earnings of a ten per cent change from the full year average market price in 2016 for the following products would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
|
|
Unit
|
|
|
Average market price
for 2016
US$
|
|
|
Effect on underlying
earnings of 10%
change in full year
average
+/- US$m
|
|
Iron ore
62% Fe Fines FOB
|
|
|
dmt
|
|
|
|
53
|
|
|
|
879
|
|
Aluminium
(a)
|
|
|
Tonne
|
|
|
|
1,605
|
|
|
|
469
|
|
Copper
(a)
|
|
|
Pound
|
|
|
|
2.21
|
|
|
|
238
|
|
Gold
|
|
|
Ounce
|
|
|
|
1,250
|
|
|
|
36
|
|
(a)
|
Excludes the impact of commodity derivatives.
|
26
The sensitivities give the estimated impact on net earnings of changes in prices assuming that all other
variables remain constant. These should be used with caution. As noted previously, the relationship between currencies and commodity prices is a complex one and changes in exchange rates can influence commodity prices and vice versa.
Further details of our exposure to commodity price fluctuations are contained within Financial statements Note 30-Financial instruments and risk
management, on part A(b)(iii), on pages 151 and 152 of the Annual Report 2016.
Credit risks
Details of our exposure to credit risks relating to receivables, financial instruments and cash deposits, are contained within Financial statements Note
30-Financial instruments and risk management, part A(b)(iv), on pages 152 and 153 of the Annual Report 2016.
Disposals and acquisitions
Information regarding disposals and acquisitions is provided in Financial statements Note 37-Purchases and sales of subsidiaries, joint ventures,
associates and other interests in businesses on page 165 of the Annual Report 2016.
Critical accounting policies and estimates
Many of the amounts included in the financial statements involve the use of judgment and/or estimates. These judgments and estimates are based on
managements best knowledge of the relevant facts and circumstances, having regard to previous experience, but actual results may differ from the amounts included in the financial statements.
Information about such judgments and estimation is contained under Judgments in applying accounting policies and key sources of estimation
uncertainty in Financial statements Note 1-Principal accounting policies on page 117 of the Annual Report 2016.
Off balance sheet
arrangements and contractual commitments
The table below presents information in relation to our material off balance sheet arrangements and
contractual commitments. Information regarding the Groups post retirement commitments and funding arrangements is provided in Financial statements Note 45-Post-retirement benefits on pages 170 to 175 of the Annual Report 2016.
Information regarding the Groups close-down and restoration obligations is provided in Financial statements Note 26-Provisions (including post-retirement benefits) on page 146 of the Annual Report 2016. In addition Financial
statements Note 31-Contingencies and commitments on pages 157 to 159 of the Annual Report 2016, provides further information regarding contingent liabilities, guarantees and commitments.
We expect that these contractual commitments for expenditure, together with other expenditure and liquidity requirements, will be met from internal cash flow
and, to the extent necessary, from the existing facilities.
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<1 yr
|
|
|
1-3 yrs
|
|
|
3-5 yrs
|
|
|
> 5 yrs
|
|
|
Total
|
|
At 31 December 2016
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
|
US$m
|
|
Expenditure commitments in relation to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
353
|
|
|
|
495
|
|
|
|
385
|
|
|
|
612
|
|
|
|
1,845
|
|
Other (capital commitments)
|
|
|
1,701
|
|
|
|
433
|
|
|
|
194
|
|
|
|
15
|
|
|
|
2,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,054
|
|
|
|
928
|
|
|
|
579
|
|
|
|
627
|
|
|
|
4,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and other financial obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
704
|
|
|
|
1,521
|
|
|
|
2,664
|
|
|
|
12,806
|
|
|
|
17,695
|
|
Interest payments
|
|
|
783
|
|
|
|
1,501
|
|
|
|
1,287
|
|
|
|
5,056
|
|
|
|
8,627
|
|
Purchase obligations
|
|
|
2,631
|
|
|
|
2,951
|
|
|
|
2,165
|
|
|
|
11,334
|
|
|
|
19,081
|
|
Other
|
|
|
190
|
|
|
|
21
|
|
|
|
166
|
|
|
|
383
|
|
|
|
760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,308
|
|
|
|
5,994
|
|
|
|
6,282
|
|
|
|
29,579
|
|
|
|
46,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,362
|
|
|
|
6,922
|
|
|
|
6,861
|
|
|
|
30,206
|
|
|
|
50,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Except as disclosed in Financial statements Note 21-Cash and cash equivalents on page 143 of the Annual Report
2016, there are no material legal or economic restrictions on the ability of our subsidiaries to transfer funds to the company in the form of cash dividends, loans, or advances.
28
5.B Liquidity and capital resources
The information set forth under the headings:
|
|
|
Portfolio management-Major capital projects on pages 22 and 23;
|
|
|
|
Product groups-Iron Ore-Development projects on page 33;
|
|
|
|
Product groups-Aluminium-Development projects on page 35;
|
|
|
|
Product groups-Copper & Diamonds-Development projects on page 37;
|
|
|
|
Product groups-Energy & Minerals-Development projects on page 39;
|
|
|
|
Growth & Innovation on page 41;
|
|
|
|
Financial statements Note 22-Borrowings and other financial liabilities on pages 144 and 145; and
|
|
|
|
Financial statements Note 30-Financial instruments and risk management on pages 149 to 157
|
of the
Annual Report 2016 is incorporated herein by reference.
See above Item 5.A, Additional financial information-Cash flow to
Additional Information-Off balance sheet arrangements and contractual commitments.
5.C Research and development, patents and licenses
The information set forth under the headings:
|
|
|
Growth & Innovation on pages 40 and 41;
|
|
|
|
Directors report-Exploration, research and development on page 48 and
|
|
|
|
Financial statements Note 4-Net operating costs (excluding items shown separately) on page 132
|
of
the Annual Report 2016 is incorporated herein by reference.
5.D Trend information
The information set forth under the headings:
|
|
|
Market environment on page 7;
|
|
|
|
Group overview on pages 2 and 3;
|
|
|
|
Group strategy-Improved market conditions, but uncertainty remains on page 8;
|
|
|
|
Chairmans letter on page 4;
|
|
|
|
Chief executives statement on pages 5 and 6;
|
|
|
|
Product groups-Iron Ore on pages 32 and 33;
|
|
|
|
Product groups-Aluminium on pages 34 and 35;
|
|
|
|
Product groups-Copper & Diamonds on pages 36 and 37;
|
|
|
|
Product groups-Energy & Minerals on pages 38 and 39;
|
|
|
|
Growth & Innovation on pages 40 and 41
|
of the Annual Report 2016 is incorporated herein
by reference.
5.E Off-balance sheet arrangements
The information set forth under the heading Financial statements Note 31-Contingencies and commitments on pages 157 to 159 of the Annual
Report 2016 is incorporated herein by reference.
See above Item 5.A, Additional financial information-Off balance sheet arrangements and
contractual commitments.
5.F Tabular disclosure of contractual obligations
See above Item 5.A, Additional financial information-Off balance sheet arrangements and contractual commitments.
5.G Safe harbour
The information set forth under the
heading Cautionary statement about forward-looking statements on the inside front cover of the Annual Report 2016 is incorporated herein by reference.
ITEM 10.
ADDITIONAL INFORMATION
10.A Share capital
Not
applicable.
10.B Memorandum and articles of association
The information set forth under the headings:
|
|
|
Corporate governance-The board and management-Board balance and independence-Election and re-election on page 56;
|
|
|
|
Shareholder information-Material contracts on pages 248 and 249;
|
|
|
|
Shareholder information-Dividends on page 248;
|
|
|
|
Shareholder information-Dual listed companies structure on pages 244 to 246; and
|
|
|
|
Shareholder information-Exchange controls and foreign investment on pages 249 and 250
|
of the
Annual Report 2016 is incorporated herein by reference.
10.C Material contracts
The information set forth under the headings:
|
|
|
Shareholder information-Material contracts on pages 248 and 249; and
|
|
|
|
Financial statements Note 30-Financial instruments and risk management on pages 149 to 157
|
of the
Annual Report 2016 is incorporated herein by reference.
10.D Exchange controls
The information set forth under the heading Shareholder information-Exchange controls and foreign investment on pages 249 and 250 of the Annual
Report 2016 is incorporated herein by reference.
10.E Taxation
US residents
The following is a summary of the principal
UK tax, Australian tax and US Federal income tax consequences of the ownership of Rio Tinto plc ADSs, Rio Tinto plc shares and Rio Tinto Limited shares, the Groups ADSs and shares, by a US holder as defined below. It is not
intended to be a comprehensive description of all the tax considerations that are relevant to all classes of taxpayer. This summary does not cover all aspects of US federal income taxation that may be relevant to, or the actual tax effect that any
of the matters described herein will have on, the acquisition, ownership, or disposal of the Groups ADSs and shares by particular investors (including the alternative minimum tax or net investment income tax). Future changes in legislation may
affect the tax consequences of the ownership of the Groups ADSs and shares.
This summary is based in part on representations by the Groups
depositary bank as depositary for the ADRs evidencing the ADSs and assumes that each obligation in the deposit agreements will be performed in accordance with its terms.
You are a US holder if you are a beneficial owner of the Groups ADSs and shares and you are for US federal income tax purposes: a citizen or resident of
the US; a domestic corporation; an estate whose income is subject to US federal income tax regardless of its source; or a trust if a US court can exercise primary supervision over the trusts administration and one or more US persons are
authorised to control all substantial decisions of the trust.
This section applies to US holders only if shares or ADSs are held as capital assets for
tax purposes. This section does not apply to shareholders who are members of a special class of holders subject to special rules, including a dealer in securities, a trader in securities who elects to use a mark-to-market method of
33
accounting for securities holdings, a tax exempt organisation, a life insurance company, a person that actually or constructively owns five per cent or more of Rio Tintos voting stock, a
person that holds shares or ADSs as part of a straddle or a hedging or conversion transaction, persons that have ceased to be US citizens or lawful permanent residents of the United States, investors holding shares or ADSs in connection with a trade
or business conducted outside of the United States, US expatriates or a person whose functional currency is not the US dollar.
This section is based on
the US Internal Revenue Code of 1986, as amended (the Code), its legislative history, existing and proposed regulations, published rulings and court decisions, UK and Australian tax law and practice and on the convention between the US and UK, and
the convention between the US and Australia (together, the Conventions) which may affect the tax consequences of the ownership of the Groups ADSs and shares, all as of the date hereof. These laws and conventions are subject to change, possibly
on a retroactive basis.
For the purposes of the Conventions and of the Code, US holders of ADSs are treated as the owners of the underlying shares.
The summary describes the treatment applicable under the conventions in force at the date of this report.
UK taxation of shareholdings in Rio Tinto plc
Taxation of dividends
Under current UK tax
legislation, no withholding tax is required to be withheld from dividends paid by Rio Tinto plc. A US holder who is not resident in the UK is not generally liable to UK tax on dividends unless the share or ADS is held in connection with a branch,
agency or permanent establishment in the UK.
Capital gains
A US holder, who has at no time been resident in the UK, will not normally be liable to UK tax on capital gains realised on the disposition of a Rio Tinto plc
ADS or share unless the holder carries on a trade, profession or vocation in the UK through a branch, agency or permanent establishment in the UK and the ADS or share has been used for the purposes of the trade, profession or vocation or is
acquired, held or used for the purposes of such a branch, agency or permanent establishment.
Inheritance tax
Under the UK/US Estate Tax Treaty, a US holder, who is domiciled in the US and is not a national of the UK, will not (provided any US federal or estate gift
tax chargeable has been paid) be subject to UK inheritance tax upon the holders death or on a transfer during the holders lifetime, unless the ADS or share (i) forms part of the business property of a permanent establishment in the
UK, (ii) pertains to a fixed base situated in the UK used in the performance of independent personal services, or (iii) is comprised in a settlement (unless, at the time the settlement was made, the settlor was domiciled in the US and was
not a national of the UK). Where an ADSs or share is subject to both UK inheritance tax and US Federal gift or estate tax, tax payments are relieved in accordance with the priority rules set out in the Treaty.
Stamp duty and stamp duty reserve tax
UK stamp
duty should not be required to be paid in respect of a transfer of Rio Tinto plc ADSs provided that the transfer instrument is not executed in, and at all times remains outside, the UK and does not relate to any property situate or to any matter or
thing to be done in the UK. Electronic paperless purchases of Rio Tinto plc shares are subject to stamp duty reserve tax (SDRT) at a rate of 0.5%. Purchases of Rio Tinto plc shares using a stock transfer form are subject to Stamp Duty at
a rate of 0.5% on transactions over £1,000 (rounded up to the nearest £5). Conversions of Rio Tinto plc shares into Rio Tinto plc ADSs will be subject to additional stamp duty or SDRT at a rate of 1.5% on all transfers to the depositary
or its nominee.
Australian taxation of shareholdings in Rio Tinto Limited
Taxation of dividends
US holders are not normally
liable to Australian withholding tax on dividends paid by Rio Tinto Limited because such dividends are normally fully franked under the Australian dividend imputation system, meaning that they are paid out of income that has borne Australian income
tax. Any unfranked dividends would suffer Australian withholding tax which under the Australian income tax convention is limited to 15 per cent of the gross dividend.
34
Capital gains
US holders are not normally subject to any Australian tax on the disposal of Rio Tinto Limited ADSs or shares unless they have been used in carrying on a trade
or business wholly or partly through a permanent establishment in Australia, or the gain is in the nature of income sourced in Australia.
Gift,
estate and inheritance tax
Australia does not impose any gift, estate or inheritance taxes in relation to gifts of shares or upon the death of a
shareholder.
Stamp duty
An issue or transfer
of Rio Tinto Limited shares does not require the payment of Australian stamp duty.
US federal income tax
In general, taking into account the earlier assumptions that each obligation of the Deposit Agreement and any related agreement will be performed according to
its terms, for US federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the shares represented by those ADRs. Exchanges of shares for ADRs, and ADRs for shares, generally will not be subject to US federal
income tax.
Taxation of dividends
Under the
US federal income tax laws, and subject to the Passive Foreign Investment Company (PFIC) Rules discussed below, if you are a US holder, the gross amount of any distribution the Group pays out of its current or accumulated earnings and profits (as
determined for US federal income tax purposes) is subject to US federal income taxation as dividend income. The dividend will not be eligible for the dividends-received deduction generally allowed to US corporations in respect of dividends received
from other US corporations. Distributions in excess of current and accumulated earnings and profits, as determined for US federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the shares or
ADSs and thereafter as capital gain. Rio Tinto does not maintain calculations of its earnings and profits in accordance with US federal income tax accounting principles. US holders should therefore assume that any distributions the Group pays with
respect to ADSs or Shares will be reported as ordinary dividend income.
Dividends paid to a non-corporate US holder generally may be taxable at the
reduced rate normally applicable to long-term capital gains provided the shares are readily tradable on an established securities market in the United States or the company qualifies for the benefits of an income tax treaty between the United States
and the relevant jurisdiction and certain other requirements are met. Rio Tinto plc ADSs are traded on the NYSE. Rio Tinto Limited believes it qualifies for the benefits of the convention between the US and Australia. A US holder may be eligible for
this reduced rate only if it has held the shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date.
The dividend is taxable to you when you, in the case of shares, or the depositary, in the case of ADSs, receive the dividend, actually or constructively. The
amount of the dividend distribution that you must include in your income as a US holder will be the US dollar value of the non-US dollar payments made, determined at the spot UK pound/US dollar rate (in the case of Rio Tinto plc) or the spot
Australian dollar/US dollar rate (in the case of Rio Tinto Limited) on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into US dollars. Generally, any gain or loss resulting
from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into US dollars will be treated as ordinary income or loss and will not be eligible for the reduced
tax rate normally applicable to capital gains. The gain or loss generally will be income or loss from sources within the US for foreign tax credit limitation purposes.
You must include any Australian tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. Subject to certain
limitations, any Australian tax withheld in accordance with the convention between the US and Australia and paid over to Australia will be creditable or deductible
35
against your US federal income tax liability. For foreign tax credit purposes, dividends will generally be income from sources outside the US and will, depending on your circumstances, generally
be either passive or general income which, in either case, is treated separately from other types of income for purposes of computing the foreign tax credit allowable to you. The rules regarding foreign tax credits are
complex and US holders should consult their own tax advisors regarding the outstanding and calculation of foreign tax credits and the application of the foreign tax credit rules to their particular situation.
Taxation of capital gains
Subject to the PFIC
Rules discussed below, if you are a US holder and you sell or otherwise dispose of the Groups ADSs or shares, you will recognise a capital gain or loss for US federal income tax purposes equal to the difference between the US dollar value of
the amount that you realise and your tax basis, determined in US dollars, in your shares or ADSs. The capital gain of a non-corporate US holder is generally taxed at preferential rates where the holder has a holding period greater than one year. The
gain or loss will generally be income or loss from sources within the US for foreign tax credit limitation purposes.
Passive Foreign Investment
Company Rules
We believe that the Groups shares or ADSs should not be treated as stock of a PFIC for US federal income tax purposes for the 2016
taxable year, but this conclusion is a factual determination that is made annually and thus may be subject to change. If we were to be treated as a PFIC, US holders generally would be required (i) to pay a special addition to US tax on certain
distributions and gains on sale of shares or ADSs, and (ii) to pay tax on any gain from the sale of shares or ADSs at ordinary income (rather than capital gains) rates in addition to paying the special addition to tax on this gain.
Additionally, dividends that you receive from us will not be eligible for the reduced rate of tax described above under Taxation of dividends. US holders should consult their own tax advisors regarding the potential application of the
PFIC rules.
Backup Withholding and Information Reporting
The proceeds of a sale or other disposition, as well as dividends and other proceeds, with respect to shares or ADSs by a US paying agent or other US
intermediary will be reported to the IRS and to the US holder as may be required under applicable regulations. Backup withholding may apply to these payments if the US holder fails to provide an accurate taxpayer identification number or
certification of exempt status or fails to comply with applicable certification requirements. Certain US holders are not subject to backup withholding. US holders should consult their tax advisers about these rules and any other reporting
obligations that may apply to the ownership or disposition of shares or ADSs, including requirements related to the holding of certain foreign financial assets.
10.F Dividends and paying agents
Not applicable.
10.G Statement by experts
Not applicable.
10.H Documents on display
Rio Tinto is subject to the
Securities and Exchange Commission reporting requirements for foreign companies. This Form 20-F, which corresponds with the Form 10-K for US public companies, was filed with the SEC on 2 March 2017. Rio Tintos Form 20-F and other filings
can be viewed on the Rio Tinto website as well as the SEC website at www.sec.gov. ADR holders may also read without charge and copy at prescribed rates any document filed at the public reference facilities of the SECs principal office at 100 F
Street NE, Washington, DC 20549, US. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.
10.I Subsidiary information
Not applicable.
36