Rio Tinto delivers underlying EBITDA of $26.3 billion and total dividends of 492 US cents per share
22 February 2023
Rio Tinto Chief Executive Jakob Stausholm said: “We are building a stronger Rio Tinto and delivering against our four objectives. Our operational performance has improved, as evidenced by a number of second half records being set at our Pilbara iron ore mine and rail system. We are also investing for the future, doubling our stake in the Oyu Tolgoi copper-gold project in Mongolia through the acquisition of Turquoise Hill Resources, progressing the Rincon Lithium Project in Argentina and reaching milestone agreements that underpin the long-term success of our Pilbara iron ore business.
“We continue to focus on making lasting change to strengthen our workplace culture and to building better relationships with Indigenous peoples, communities and other partners. At all times we will seek to find better ways, in line with our purpose. We clearly have more to do but I am encouraged by the progress we are making.
“Despite challenging market conditions, we remain resilient because of the quality of our assets, our great people and the strength of our balance sheet. That is why we delivered strong financial results with underlying EBITDA of $26.3 billion, free cash flow of $9.0 billion and underlying earnings of $13.3 billion, after taxes and government royalties of $8.4 billion. This enables us to continue to invest in strengthening the business while also paying a total dividend of $8.0 billion, a 60% payout, in line with our policy.
“The uplift in our operational performance, strengthening of external relationships and investment in the long-term strength of the business ensure we will be able to continue to pay attractive dividends and invest in sustaining and growing our portfolio, while contributing to society’s drive to net zero.”
| At year end | 2022 | 2021 | 2020 | Changevs 2021 | Changevs 2020 |
| Net cash generated from operating activities (US$ millions) | 16,134 | 25,345 | 15,875 | (36) % | 2 % |
| Purchases of property, plant and equipment and intangible assets (US$ millions) | 6,750 | 7,384 | 6,189 | (9) % | 9 % |
| Free cash flow1 (US$ millions) | 9,010 | 17,664 | 9,407 | (49) % | (4) % |
| Consolidated sales revenue (US$ millions) | 55,554 | 63,495 | 44,611 | (13) % | 25 % |
| Underlying EBITDA1 (US$ millions) | 26,272 | 37,720 | 23,902 | (30) % | 10 % |
| Profit after tax attributable to owners of Rio Tinto (net earnings) (US$ millions) | 12,420 | 21,094 | 9,769 | (41) % | 27 % |
| Underlying earnings per share (EPS)1 (US cents) | 819.6 | 1,321.1 | 769.6 | (38) % | 6 % |
| Ordinary dividend per share (US cents) | 492.0 | 793.0 | 464.0 | (38) % | 6 % |
| Special dividend per share (US cents) | – | 247.0 | 93.0 | (100) % | (100) % |
| Total dividend per share (US cents) | 492.0 | 1,040.0 | 557.0 | (53) % | (12) % |
| Net (debt)/cash1 (US$ millions) | (4,188) | 1,576 | (664) | ||
| Underlying return on capital employed (ROCE)1 | 25% | 44% | 27% |
1 This financial performance indicator is a non-IFRS (as defined below) alternative performance measure (APM). It is used internally by management to assess the performance of the business and is therefore considered relevant to readers of this document. It is presented here to give more clarity around the underlying business performance of the Group’s operations. APMs are reconciled to directly comparable IFRS financial measures on pages 69 to 78 . Our financial results are prepared in accordance with IFRS – see page 35 for further information. Footnotes are set out in full on page 17 .
• We are committed to having a safe work environment, preventing catastrophic events and reducing injuries. We had a fourth year in a row of zero fatalities and our all-injury frequency rate has remained stable at 0.40. We continue to implement our safety maturity model which, as our blueprint for safety, describes the systems and behaviours we apply to create a strong safety culture.
Solid financial results in 2022, set against a context of record prices in 2021
• $16.1 billion net cash generated from operating activities, 36% lower than 2021. This included items of a non-recurring nature which were not representative of the underlying strength of the performance of the business, which, in aggregate, reduced operating cash flow by around $2 billion.See page 5 for more detail. Free cash flow1 of $9.0 billion included capital expenditure of $6.8 billion, which decreased 9% as we commissioned our current programme of Pilbara replacement projects, notably Gudai-Darri.
• $12.4 billion of net earnings, 41% lower than 2021, reflected the movement in commodity prices, the impact of higher energy and raw materials prices on our operations, and higher rates of inflation on our operating costs and closure liabilities. Effective tax rate on net earnings of 30.9% compared with 27.7% in 2021, with the increase being primarily due to the $0.8 billion write down of deferred tax assets in the US.
• $26.3 billion underlying EBITDA1 was 30% below 2021, with an underlying EBITDA margin1 of 45%.
• $13.3 billion underlying earnings1 (underlying EPS1 of 819.6 US cents) were 38% below 2021.
• $4.2 billion of net debt1 at year end, compared with net cash1 of $1.6 billion at the start of the year, primarily reflected the free cash flow1 of $9.0 billion, offset by $11.7 billion of cash returns to shareholders and $3.8 billion for the acquisitions of Turquoise Hill Resources (TRQ)2 and Rincon Lithium Project.
• $8.0 billion full-year dividend, equivalent to 492 US cents per share. This represents 60% of underlying earnings, in line with our shareholder returns policy.
Delivering on our strategy
• We have put climate change and the low-carbon transition at the heart of our strategy. We are decarbonising our assets; helping our customers decarbonise by developing new products and technologies; and growing in materials enabling the energy transition. We will deliver our strategy through four clear objectives, which guide how we operate. Progressing our strategy and four objectives will ensure that we provide the materials the world needs while maximising shareholder returns and strengthening our position as a partner of choice for our customers and other key stakeholders.
• We continue our work on social licence to restore trust and rebuild relationships, particularly with Indigenous peoples, with an absolute determination to achieve impeccable ESG credentials:
â—¦ We are implementing all recommendations from the comprehensive external review of our workplace culture publi shed in February to ensure that everyone at Rio Tinto has a safe, respectful and inclusive workplace. Some immediate actions include training 91% of more than 7,000 leaders in 2022 in the foundations of building psychological safety, exceeding our target of 80%.
â—¦ We increased our gender diversity by 1.4 percentage points to 22.9%, but fell short of our target to raise female representation by two percentage points. The increases were distributed across all levels of the organisation with female senior leaders increasing from 27.4% to 28.3%. We have also increased the number of Indigenous leaders in our workforce to 46 (November 2020: 6), through internal promotion and recruitment.
â—¦ In October, we published our second Communities & Social Performance (CSP) progress report on actions addressing the 2020 Board Review of Cultural Heritage Management. It includes direct feedback from the Pilbara Traditional Owners and details the actions the company has taken to rebuild relationships with Indigenous peoples and external stakeholders . We are moving to a model of co-management of Country in our Pilbara iron ore business, and we are updating agreements with Indigenous peoples. In May, we signed a Heads of Agreement with the Puutu Kunti Kurrama and Pinikura (PKKP) people which will guide the co-management of Puutu Kunti Kurrama and Pinikura country where mining takes place. In November, we agreed with the PKKP Aboriginal Corporation to create the Juukan Gorge Legacy Foundation as part of a remedy agreement relating to the destruction of the rock shelters at Juukan Gorge in May 2020. We also signed an updated agreement with Yindjibarndi Aboriginal Corporation in Western Australia in November and signed the first agr eement with the Pekuakamiulnuatsh First Nation in Quebec in December.
• To achieve our objective of becoming the best operator, we continue to roll out the Safe Production System (SPS). We achieved our SPS deployment target for 2022 with 30 deployments across 16 sites, which resulted in improved performance at those sites. Roll-outs are ongoing to continuously improve safety, strengthen employee engagement and sustainably lift operational performance across our global portfolio.
• We made significant progress with our objective to excel in development with the following key milestones in the year:
â—¦ we delivered first ore from Gudai-Darri, our first greenfield iron ore mine in the Pilbara in more than a decade. The ramp-up continues to progress as planned, with the 43 million tonne per year capacity expected to be reached on a sustained basis during 2023.
â—¦ we agreed to enter a joint venture with China Baowu Steel Group Co. Ltd with respect to the Western Range iron ore project in the Pilbara, investing $2 billion ($1.3 billion Rio Tinto share3) to develop the 25 million tonne per year capacity project. We have received all primary environmental and Australian Government approvals, while Chinese regulatory approvals continue to progress as planned. The joint venture is anticipated to commence in March, once the operational elements of the JV are in place. Rio Tinto commenced early works site mobilisation and awarded major contracts.
â—¦ we agreed , together with Wright Prospecting Pty Ltd, to modernise the joint venture covering the Rhodes Ridge project in the East Pilbara. The participants have commenced an Order of Magnitude study which will consider development of an operation before the end of the decade with initial plant capacity of up to 40 million tonnes annually, subject to receipt of relevant approvals.
â—¦ we fired 19 drawbells in 2022 from the Hugo North copper-gold underground mine at Oyu Tolgoi in Mongolia. Drawbell progression accelerated as a result of improvement initiatives, bringing projected first sustainable production from Panel 0 forward to the first quarter of 2023. This followed the comprehensive agreement announced on 25 January 2022, which reset the relationship between partners and resulted in the start of underground operations.
â—¦ we c omplete d the purchase of non-controlling interests in TRQ for $3.1 billion2, simplifying ownership of the Oyu Tolgoi mine, significantly strengthening our copper portfolio and demonstrating our long-term commitment to the project and to Mongolia.
â—¦ following completion of the $825 million Rincon acquisition, the Board approved $194 million to develop a small starter battery-grade lithium carbonate plant with a capacity of 3,000 tonnes per year. The investment includes early works to support a full-scale operation. Construction activities progressed on phase one camp facilities with rooms for 250 persons completed. Airstrip permits were received and contractors mobilised. First saleable production is expected in the first half of 2024.
â—¦ we increased our exploration and evaluation spend by 24% to $897 million in 2022, as we ramped up our activities in Guinea, Argentina and Australia.
Progress towards our Scope 1 and 2 emissions targets
| Mt CO2e | 2022 | 2021 | 2018* |
| Scope 1 emissions | 22.8 | 22.8 | 23.7 |
| Scope 2 emissions | 7.5 | 8.2 | 8.9 |
| Total | 30.3 | 31.0 | 32.5 |
*Adjusted 2018 baseline due to divestments and acquisitions. Actual emissions in 2018 were 33.7Mt CO2e. Figures are more precise than the rounded numbers shown.
• Our Scope 1 and 2 emissions targets of 15% reductions by 2025 and 50% by 2030 are aligned with 1.5°C – the stretch goal of the Paris Agreement – and are really challenging. In contrast to many of our peers, about 80% of our emissions are driven by processing and producing metals and minerals which are high temperature, hard-to-abate activities. The remaining 20% are from our mining operations. The low-carbon transition is complex: developing new technologies and implementing major projects to decarbonise our business will take time.
• In 2022, our Scope 1 and 2 emissions were 30.3Mt CO2e (31.0Mt in 2021), a reduction of 7% below our 2018 baseline. This is primarily the result of switching to renewable power at Kennecott and Escondida in prior years, as well as lower than planned production from the Kitimat and Boyne aluminium smelters in 2022. We did not advance the actual implementation of our abatement projects as fast as we would have liked last year, so our capital expenditure on decarbonisation projects was $94 million, lower than we anticipated when we set our targets. Challenges have included late delivery of equipment, resourcing constraints impacting study progress, construction and commissioning delays and project readiness.
• In response, we established six abatement programmes, with dedicated people, to focus on the decarbonisation challenges that cut across our product groups: repowering our Pacific Aluminium Operations, renewables, aluminium anodes (ELYSISTM)), alumina process heat, minerals processing and diesel transition. We are building capability and gaining a deeper understanding of our decarbonisation challenge (both constraints and opportunities), and our related operational expenditure increased to approximately $140 million in 2022. As a result, we are better placed to deliver the complex and large-scale structural changes to our energy system needed to achieve our 2030 target.
• Given the long lead times for some of these projects, we established one additional programme to increase our investments in Nature-based Solutions projects and now expect these to make a more significant contribution to our targets. If done well, these projects can play a substantial role in addressing carbon emissions and biodiversity loss, while also providing benefits to local communities. Our people working on these ‘6+1’ abatement programmes, along with our substantial investments in technology, will drive the innovation and transformation needed to accelerate our low carbon transition and ensure the long-term resilience of our business.
• Our 2022 Climate Change Report is available on our website, riotinto.com.
Resilient cash flow from operations
| Year ended 31 December 2022 | Year ended 31 December 2021 | |
| US$m | US$m | |
| Net cash generated from operating activities | 16,134 | 25,345 |
| Purchases of property, plant and equipment and intangible assets | (6,750) | (7,384) |
| Sales of property, plant and equipment | – | 61 |
| Lease principal payments | (374) | (358) |
| Free cash flow1 | 9,010 | 17,664 |
| Disposals | 80 | 4 |
| Cash receipt from sale of Cortez royalty | 525 | – |
| Dividends paid to equity shareholders | (11,727) | (15,357) |
| Acquisitions relating to Rincon and McEwen Copper | (850) | – |
| Purchase of the minority interest in Turquoise Hill Resources Ltd2 | (2,961) | – |
| Other | 159 | (71) |
| (Decrease)/Increase in net (debt)/cash1 | (5,764) | 2,240 |
Footnotes are set out in full on page 17 .
• $16.1 billion in net cash generated from operating activities, 36% lower than 2021, was primarily driven by price movements for our major commodities and a $0.5 billion rise in working capital, primarily due to elevated prices for raw materials in aluminium inventory. We also incurred some items of a non-recurring nature which were not representative of the underlying strength of the performance of the business. These comprised; higher tax payments (relative to profit) in 2022 as a result of a $1.1 billion (A$1.5 billion) final payment to the Australian Taxation Office (ATO) in respect of 2021 profits; $0.4 billion (A$0.6 billion) settlement with the ATO in respect of 12 historical years; and $0.4 billion of cash losses from currency hedges on our external dividends. At the end of 2022, we had no material outstanding tax payable on Australian profits.
• We made some significant investments in growth with the $0.8 billion acquisition of Rincon and the $3.0 billion2 purchase of non-controlling interests in TRQ (including transaction costs), giving us a 66% shareholding in the Oyu Tolgoi copper-gold mine, our largest growth project. Our capital expenditure of $6.8 billion encompassed $0.6 billion of growth capital, $2.2 billion of replacement capital, $3.9 billion of sustaining capital and $0.1 billion of decarbonisation spend. We funded our capital expenditure from operating activities and expect to continue funding our capital programme from internal sources, except for the Oyu Tolgoi underground development, which is project-financed.
• $11.7 billion of dividends paid in 2022, being the 2021 final ordinary and special dividends paid in April 2022 ($7.6 billion) and the 2022 interim ordinary dividend paid in September ($4.1 billion), including foreign exchange impacts.
• The above movements, together with disposals including the $525 million of cash received from the sale of the gross production royalty at the Cortez Complex in Nevada, USA (Cortez royalty), resulted in net cash1 decreasing by $5.8 billion in 2022, and gave rise to net debt1 of $4.2 billion at 31 December 2022.
Guidance
• In 2023, we expect our share of capital investment (refer to APMs on page 75 and 76) to be around $8.0 billion (previously $8.0 to $9.0 billion), including growth capital of around $2.0 billion, depending on the ramp-up of spend at Simandou. In 2024 and 2025, this rises to $9.0 to $10.0 billion per year, including the ambition to invest up to $3.0 billion in growth per year, depending on opportunities. Each year also includes sustaining capital of around $3.5 billion, of which around $1.5 billion a year is for Pilbara iron ore (subject to ongoing inflationary pressure and exchange rates) and $2.0 to $3.0 billion of replacement capital. Around 40% of our share of capital investment is denominated in Australian dollars. Guidance includes around $1.5 billion over the next three years on decarbonisation projects, mainly relating to Pilbara renewables: this will accelerate thereafter, bringing our best estimate to around $7.5 billion, in aggregate, out to 2030. This remains subject to Traditional Owner and other stakeholder engagement, regulatory approvals and technology developments.
• Effective tax rate on underlying earnings is expected to be around 30% in 2023.
| Unit costs | 2022 Actuals | 2023 Guidance |
| Pilbara iron ore unit cash costs, free on board (FOB) basis – US$ per wet metric tonne4 | 21.3 | 21.0-22.5 |
| Australian dollar exchange rate | 0.69 | 0.70 |
| Copper C1 unit costs (includes Kennecott, Oyu Tolgoi and Escondida) – US cents per lb | 163 | 160-180 |
| Production (Rio Tinto share, unless otherwise stated) | 2022 Actuals | 2023 Guidance |
| Pilbara iron ore (shipments, 100% basis) (Mt) | 322 | 320 to 335 |
| Bauxite (Mt) | 55 | 54 to 57 |
| Alumina (Mt) | 7.5 | 7.7 to 8.0 |
| Aluminium (Mt) | 3.0 | 3.1 to 3.3 |
| Mined copper (kt) | 521 | 650 to 7105 |
| Refined copper (kt) | 209 | 180 to 210 |
| Diamonds (M carats) | 4.7 | 3.0 to 3.8 |
| Titanium dioxide slag (Mt) | 1.2 | 1.1 to 1.4 |
| IOC6 iron ore pellets and concentrate (Mt) | 10.3 | 10.5 to 11.5 |
| Boric oxide equivalent (Mt) | 0.5 | ~0.5 |
Footnotes set out in full on page 17 .
• Production and unit cost guidance is consistent with our Fourth Quarter Operations Review released on 17 January 2023.
• Iron ore shipments and bauxite production guidance remain subject to weather and market conditions. Pilbara shipments guidance remains subject to progressing the ramp-up from new mines and management of cultural heritage.
Underlying EBITDA and underlying earnings by product group
| Underlying EBITDA | Underlying earnings | |||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | |
| Year ended 31 December | US$m | US$m | % | US$m | US$m | % |
| Iron Ore | 18,612 | 27,592 | (33) % | 11,182 | 17,323 | (35) % |
| Aluminium | 3,672 | 4,382 | (16) % | 1,472 | 2,468 | (40) % |
| Copper | 2,376 | 3,969 | (40) % | 521 | 1,579 | (67) % |
| Minerals | 2,419 | 2,603 | (7) % | 849 | 888 | (4) % |
| Reportable segment total | 27,079 | 38,546 | (30) % | 14,024 | 22,258 | (37) % |
| Other operations | (16) | (28) | (43) % | (340) | (84) | 305 % |
| Inter-segment transactions | 24 | 42 | (43) % | 26 | 19 | 37 % |
| Central pension costs, share-based payments, insurance and derivatives | 377 | 110 | 243 % | 374 | 133 | 181 % |
| Restructuring, project and one-off costs | (173) | (80) | 116 % | (87) | (51) | 71 % |
| Other central costs | (766) | (613) | 25 % | (651) | (585) | 11 % |
| Central exploration and evaluation | (253) | (257) | (2) % | (209) | (215) | (3) % |
| Net interest | 138 | (95) | (245) % | |||
| Total | 26,272 | 37,720 | (30) % | 13,275 | 21,380 | (38) % |
Underlying EBITDA and underlying earnings are APMs used by management to assess the performance of the business, and provide additional information which investors may find useful. APMs are reconciled to directly comparable IFRS financial measures on pages 69 to 78 .
Central and other costs
Pre-tax central pension costs, share-based payments, insurance and derivatives were a $377 million credit compared with a $110 million credit in 2021, reflecting gains on derivatives recognised in 2022 of $132 million, compared to derivative losses recognised in 2021 of $97 million, along with lower central pension costs.
On a pre-tax basis, restructuring, project and one-off central costs were 116% higher than 2021 mainly associated with corporate projects, in particular workstreams surrounding Everyday Respect.
Other central costs of $766 million were 25% higher than in 2021, reflecting the Group’s investment in the rollout of SPS across the Group, our enhanced capability to progress our ESG and CSP objectives and investment in technology, R&D and associated partnerships.
Net interest increased $233 million to a credit of $138 million due to higher interest rates, an increase in cash balances through the year and the absence of losses on early redemption of bonds recorded in 2021.
Continuing to invest in greenfield exploration
We have a strong portfolio of greenfield exploration projects in early exploration and studies stages, with activity in 18 countries across seven commodities. This is reflected in our pre-tax central spend of $253 million in 2022. The bulk of this exploration expenditure was focused on copper projects in Australia, Colombia, Namibia, Peru, the United States and Zambia; diamonds in Angola; and heavy mineral sands projects in Australia and South Africa. Exploration is ongoing for nickel in Canada and Finland and in lithium across all regions, with opportunities emerging in the United States and Africa. Mine-lease exploration continued at Rio Tinto managed businesses, including Pilbara Iron in Australia, Diavik in Canada and Cape York bauxite operations in Australia.
Commentary on financial results
To provide additional insight into the performance of our business, we report underlying EBITDA and underlying earnings. The principal factors explaining the movements in underlying EBITDA are set out in this table.
| US$m | |
| 2021 underlying EBITDA | 37,720 |
| Prices | (8,101) |
| Exchange rates | 801 |
| Volumes and mix | 606 |
| General inflation | (1,478) |
| Energy | (1,169) |
| Operating cash unit costs | (2,202) |
| Higher exploration and evaluation expenditure | (171) |
| Non-cash costs/other | 266 |
| 2022 underlying EBITDA | 26,272 |
Solid financial results impacted by significant movements in commodity prices
We saw significant movement in pricing for our commodities, amidst growing recession fears and a decline in consumer confidence.
Movements in commodity prices resulted in a $8,101 million decline in underlying EBITDA overall compared with 2021. This was primarily from lower iron ore prices ($9,155 million) and lower London Metal Exchange (LME) copper prices and a negative provisional pricing impact ($733 million). This was partly offset by a price uplift for our Aluminium business ($886 million), driven by a first-half rise in LME prices, improved product premiums and higher alumina pricing, which fell away sharply in the second half. We have included a table of prices and exchange rates on page 79 .
The monthly average Platts index for 62% iron fines converted to a Free on Board (FOB) basis was 25% lower on average compared with 2021.
The average LME price for copper was 6% lower, while the average LME aluminium price was 9% higher, compared with 2021. The gold price was flat compared with 2021.
The midwest premium duty paid for aluminium in the US averaged $655 per tonne, 12% higher than in 2021.
Weaker local currencies during 2022
Compared with 2021, on average, the US dollar strengthened by 8% against the Australian dollar and by 4% against the Canadian dollar. Currency movements increased underlying EBITDA by $801 million relative to 2021.
Improvement in sales volumes and mix
Higher sales volumes and changes in product mix across the portfolio increased underlying EBITDA by $606 million compared to 2021. T his was mostly attributable to increased iron ore sales from the ramp-up of Gudai-Darri along with higher portside sales in China, and favourable value-added product premiums for our Aluminium business.
Impact of rising inflation and significantly higher energy prices
Average movements in energy prices compared with 2021 reduced underlying EBITDA by $1,169 million, mainly due to higher diesel prices for our trucks, trains and ships. In addition, rising general price inflation across our global operations resulted in a $1,478 million reduction in underlying EBITDA, including $0.2 billion for the impact of higher than expected inflation on closure provisions (for closed or fully impaired sites and environmental liabilities).
Disciplined focus on costs offset some of the market-linked increases
We remained focused on cost control throughout the year, in particular maintaining discipline on fixed costs. However, a rise in our operating cash unit costs reduced underlying EBITDA by $2,202 million (on a unit cost basis) compared with 2021. This mainly reflected cyclical cost pressures from higher market-linked prices for raw materials, in particular in our Aluminium business. We also experienced fixed cost inefficiencies from lower volumes at our Pacific alumina refineries and at the Boyne aluminium smelter due to production disruptions. In addition, we increased resourcing in our iron ore business to support the ramp-up at Gudai-Darri and targeted investment in pit health and asset maintenance across the Pilbara.
Increasing our global exploration and evaluation activity
We increased our exploration and evaluation expenditure by $171 million, or 24%, to $897 million. This was mainly attributable to increased activity at the Simandou iron ore project in Guinea and the Rincon Lithium Project in Argentina.
Non-cash costs/other
Movements in non-cash costs, one-off and other items increased underlying EBITDA by $266 million compared with 2021. This mainly reflected the acquisition of the remaining 40% of Diavik in November 2021 (+$163 million), lower incremental COVID-19 costs (+$123 million), gain on asset sale at Kennecott (+$133 million) and lower charges to the income statement on updates to closure cost estimates relating to closed and legacy sites (+$166 million). This was partially offset by reduced capacity at the Kitimat aluminium smelter (-$329 million) as ramp-up activities progressed in 2022 following the strike which commenced in July 2021.
Net earnings
The principal factors explaining the movements in underlying earnings and net earnings are set out below.
| US$m | |
| 2021 net earnings | 21,094 |
| Total changes in underlying EBITDA | (11,448) |
| Increase in depreciation and amortisation (pre-tax) in underlying earnings | (319) |
| Increase in interest and finance items (pre-tax) in underlying earnings | (1,112) |
| Decrease in tax on underlying earnings | 3,949 |
| Decrease in underlying earnings attributable to outside interests | 825 |
| Total changes in underlying earnings | (8,105) |
| Changes in exclusions from underlying earnings: | |
| Write-off of Federal deferred tax assets in the United States | (820) |
| Movement in exchange differences and gains/losses on derivatives | (683) |
| Gain recognised by Kitimat relating to LNG Canada’s project | (230) |
| Loss on disposal of interest in subsidiary | (105) |
| Movement in impairment charges net of reversals | 145 |
| Movement in closure estimates (non-operating and fully impaired sites) | 793 |
| Gain on sale of Cortez royalty | 331 |
| 2022 net earnings | 12,420 |
Depreciation and amortisation, net interest and finance items, tax and non-controlling interests
The depreciation and amortisation charge was $319 million higher than 2021, mainly due to an increase in capitalised closure costs in 2021 at a number of our Aluminium sites. Our capital base was also higher in Iron Ore, Copper and Minerals as a result of our investment activities. This was partially offset by a stronger US dollar against the Australian dollar.
Interest and finance items (pre-tax) were higher mainly as a result of a $1,101 million increase in amortisation of discount on provisions, as higher inflation had an impact on the Group’s closure and restoration/environmental liabilities. The amortisation charge of $1,517 million (2021: $415 million) incorporates an estimate of inflation at the start of each six-month reporting period. At the end of each half year we update the underlying cash flows for the latest estimate of experienced inflation for the current financial year and record this as “changes to existing provisions”. For operating sites this adjustment usually results in a corresponding adjustment to Property, plant and equipment, and for closed and fully impaired sites the adjustment is charged or credited to the Income statement. These income statement amounts are included within underlying earnings except for the re-measurement of provisions for legacy sites that were never operated by Rio Tinto.
The 2022 effective corporate income tax rate on pre-tax earnings, excluding equity accounted units, was 30.9%, compared with 27.7% in 2021. The effective tax rate on pre-tax earnings in Australia was 31.7% in 2022, compared with 30.7% in 2021. We r eached agreement with the Australian Taxation Office (ATO) on all tax matters in dispute. As part of this agreement, in August we paid the ATO additional tax of A$613 million for the period from 2010 to 2021. Over this 12-year period, we paid nearly A$80 billion in tax and royalties in Australia.
Items excluded from underlying earnings
The Inflation Reduction Actof 2022 in the United States may give rise to investment credits on some of our existing projects, with longer dated projects potentially becoming more favourable. However, it also includes a new Corporate Alternative Minimum Tax regime, which has led to the Group reviewing the carrying value of US Federal deferred tax balances. The resulting $820 million write down of Federal deferred tax assets has been excluded from underlying earnings on the grounds of materiality.
In 2022, we recognised an exchange and derivative loss of $137 million. This includes losses of $373 million on revaluation of certain derivatives which do not qualify for hedge accounting. These include currency hedges relating to our external dividends, and exchange losses of $262 million on US dollar debt in non-US dollar functional currency Group companies, partly offset by $478 million of exchange gains on intragroup balances. These losses compared with a 2021 gain of $546 million, giving rise to an unfavourable year-on-year movement of $683 million. The exchange gains are largely offset by currency translation losses recognised in equity. The quantum of US dollar debt is largely unaffected and we will repay it from US dollar sales receipts.
During 2022, LNG Canada elected to terminate their option to purchase additional land at Kitimat, Canada. This resulted in a $106 million gain which includes the release of deferred income and receipt of a cancellation fee payment. During 2021, we recognised a $336 million gain on recognition of a new wharf at Kitimat that was built and paid for by LNG Canada. These gains have been excluded from underlying earnings consistent with prior years, as they are part of a series of material transactions unrelated to the core business.
Impairment charges, net of reversals, decreased by $145 million compared with 2021. In 2022, we impaired the remaining full value of the Boyne Smelter in Queensland, Australia, as a result of reduced capacity and the high cost of energy from the coal-fired power station impacting economic performance. In 2022, we also completed the sale of the Roughrider uranium undeveloped project in Saskatchewan, Canada, which resulted in a reversal of previous impairments.
There is a detailed explanation of the impairment process on pages 50 to 51 .
In 2022, we recognised $178 million in closure costs representing adjustments to the closure estimates relating to legacy sites where the disturbance preceded ownership by Rio Tinto, including inflationary increases to provisions for these sites in excess of the unwind of discount. This was $793 million lower than 2021 closure charges, which related to Energy Resources of Australia (ERA), Gove refinery and Diavik closure provision increases, and further increases at a number of the Group’s legacy sites where the disturbance preceded our ownership.
In 2022, we completed the $525 million sale of a gold royalty which was retained following the disposal of the Cortez mine in 2008. The carrying value of the royalty at 31 December 2021 was $88 million, resulting in a post-tax gain of $331 million. This has been excluded from underlying earnings on the grounds of materiality.
Profit
Net earnings and underlying earnings refer to amounts attributable to the owners of Rio Tinto. The net profit attributable to the owners of Rio Tinto in 2022 was $12.4 billion (2021: $21.1 billion). We recorded a profit after tax in 2022 of $13.1 billion (2021: $22.6 billion) of which a profit of $0.7 billion (2021: $1.5 billion) was attributable to non-controlling interests.
Net earnings and underlying earnings
The differences between underlying earnings and net earnings are set out in this table (all numbers are after tax and exclude non-controlling interests).
| Year ended 31 December 2022 | Year ended 31 December 2021 | |
| US$m | US$m | |
| Underlying earnings | 13,275 | 21,380 |
| Items excluded from underlying earnings | ||
| Impairment charges net of reversals | (52) | (197) |
| Gains recognised by Kitimat relating to LNG Canada’s project | 106 | 336 |
| Loss on disposal of interest in subsidiary | (105) | – |
| Foreign exchange and derivative gains on net debt and intragroup balances and derivatives not qualifying for hedge accounting | (137) | 546 |
| Change in closure estimates (non-operating and fully impaired sites) | (178) | (971) |
| Gain on sale of Cortez royalty | 331 | – |
| Write-off of Federal deferred tax assets in the United States | (820) | – |
| Net earnings | 12,420 | 21,094 |
On pages 72 to 73 there is a detailed reconciliation from underlying earnings to net earnings, including pre-tax amounts and additional explanatory notes. The differences between profit after tax and underlying EBITDA are set out in the table on page 47 .
Balance sheet
Net cash1 reduced by $5.8 billion in 2022, resulting in a net debt1 position of $4.2 billion at 31 December 2022. This reflected $11.7 billion returned to shareholders in the year, $3.0 billion 2 acquisition of the remaining non-controlling interest of TRQ and $0.8 billion acquisition of the Rincon Lithium Project, partially offset by $9.0 billion of free cash flow and the $0.5 billion received from the sale of the Cortez royalty.
Our net gearing ratio1 (net debt/ (cash) to total capital) was 7% at 31 December 2022 (31 December 2021: (3)%), see page 78 .
Our total financing liabilities excluding net debt derivatives at 31 December 2022 (see page 77 ) were $12.3 billion (31 December 2021: $13.5 billion) and the weighted average maturity was around 11 years. At 31 December 2022, approximately 77% of these liabilities were at floating interest rates (85% excluding leases). The maximum amount within non-current borrowings maturing in any one calendar year is $1.5 billion, which matures in 2024.
We had $8.8 billion in cash and cash equivalents plus other short-term cash investments at 31 December 2022 (31 December 2021: $15.2 billion).
Provision for closure costs
At 31 December 2022, provisions for close-down and restoration costs and environmental clean-up obligations were $15.8 billion (31 December 2021: $14.5 billion). The principal movements during the year were the result of a remeasurement of underlying cash flows, including the effect of inflation. This was recorded as an increase to mining properties for current operating sites ($0.5 billion) and as a charge to profit for legacy sites ($0.5 billion). Also contributing to the increase in the provision was amortisation of discount ($1.5 billion) which includes the effect of higher inflation in the year. These increases were partly offset by utilisation of the provision through spend (-$0.6 billion) and a weaker Australian dollar, Canadian dollar and South African rand against the US dollar (-$0.7 billion).
Of the $15.8 billion in provisions, $11.6 billion relates to operating sites and $4.2 billion is for legacy sites. Remaining lives of operations and infrastructure range from one to over 50 years with an average for all sites, weighted by present closure obligation, of around 15 years (2021: 16 years).
The provisions are based on risk-adjusted real cash flows using a real-rate discount rate of 1.5% to reflect obligations at the present value of cash flows on 31 December 2022 terms .
In 2023, we expect to utilise around $0.8 billion of the provisions as we advance our closure activities at Argyle, ERA, Gove alumina refinery and legacy sites.
Our shareholder returns policy
The Board is committed to maintaining an appropriate balance between cash returns to shareholders and investment in the business, with the intention of maximising long-term shareholder value.
At the end of each financial period, the Board determines an appropriate total level of ordinary dividend per share. This takes into account the results for the financial year, the outlook for our major commodities, the Board’s view of the long-term growth prospects of the business and the company’s objective of maintaining a strong balance sheet. The intention is that the balance between the interim and final dividend be weighted to the final dividend.
The Board expects total cash returns to shareholders over the longer term to be in a range of 40% to 60% of underlying earnings in aggregate through the cycle. Acknowledging the cyclical nature of the industry, it is the Board’s intention to supplement the ordinary dividend with additional returns to shareholders in periods of strong earnings and cash generation.
60% payout ratio on the ordinary dividend
| 2022US$bn | 2021US$bn | |
| Ordinary dividend | ||
| Interim | 4.3 | 6.1 |
| Final | 3.7 | 6.7 |
| Full-year ordinary dividend | 8.0 | 12.8 |
| Payout ratio on ordinary dividend | 60% | 60% |
| Additional returns | ||
| Special dividend announced in July 2021, paid in September 2021 | n/a | 3.0 |
| Special dividend announced in February 2022, paid in April 2022 | n/a | 1.0 |
| Total cash returns to shareholders declared* | 8.0 | 16.8 |
| Combined total as % of underlying earnings | 60% | 79% |
* Based on weighted average number of shares and declared dividends per share for the respective periods and excluding foreign exchange impacts on payment.
We determine dividends in US dollars. We declare and pay Rio Tinto plc dividends in pounds sterling and Rio Tinto Limited dividends in Australian dollars. The 2022 final dividend has been converted at exchange rates applicable on 21 February 2023 (the latest practicable date before the dividend was declared). American Depositary Receipt (ADR) holders receive dividends at the declared rate in US dollars.
| Ordinary dividend per share declared | 2022 | 2021 |
| Rio Tinto Group | ||
| Interim (US cents) | 267.00 | 376.00 |
| Final (US cents) | 225.00 | 417.00 |
| Full-year (US cents) | 492.00 | 793.00 |
| Rio Tinto plc | ||
| Interim (UK pence) | 221.63 | 270.84 |
| Final (UK pence) | 185.35 | 306.72 |
| Full-year (UK pence) | 406.98 | 577.56 |
| Rio Tinto Limited | ||
| Interim (Australian cents) | 383.70 | 509.42 |
| Final (Australian cents) | 326.49 | 577.04 |
| Full-year (Australian cents) | 710.19 | 1,086.46 |
| Special dividend per share declared | 2022 | 2021 |
| Rio Tinto Group | ||
| Interim (US cents) | n/a | 185.00 |
| Final (US cents) | n/a | 62.00 |
| Full-year (US cents) | n/a | 247.00 |
| Rio Tinto plc | ||
| Interim (UK pence) | n/a | 133.26 |
| Final (UK pence) | n/a | 45.60 |
| Full-year (UK pence) | n/a | 178.86 |
| Rio Tinto Limited | ||
| Interim (Australian cents) | n/a | 250.64 |
| Final (Australian cents) | n/a | 85.80 |
| Full-year (Australian cents) | n/a | 336.44 |
The 2022 final ordinary dividend to be paid to our Rio Tinto Limited shareholders will be fully franked. The Board expects Rio Tinto Limited to be in a position to pay fully franked dividends for the foreseeable future.
On 20 April 2023, we will pay the 2022 final ordinary dividend to holders of ordinary shares and holders of ADRs on the register at the close of business on 10 March 2023 (record date). The ex-dividend date is 9 March 2023.
Rio Tinto plc shareholders may choose to receive their dividend in Australian dollars or New Zealand dollars, and Rio Tinto Limited shareholders may choose to receive theirs in pounds sterling or New Zealand dollars. Currency conversions will be based on the pound sterling, Australian dollar and New Zealand dollar exchange rates five business days before the dividend payment date. Rio Tinto plc and Rio Tinto Limited shareholders must register their currency elections by 28 March 2023.
We will operate our Dividend Reinvestment Plans for the 2022 final dividend (visit riotinto.com for details). Rio Tinto plc and Rio Tinto Limited shareholders’ election notice for the Dividend Reinvestment Plans must be received by 28 March 2023. Purchases under the Dividend Reinvestment Plan are made on or as soon as practicable after the dividend payment date and at prevailing market prices. There is no discount available.