Rio Tinto Plc (NYSE: RIO)

Rio Tinto Plc (NYSE: RIO) is the world’s second-largest mining company, behind BHP Billiton, producing iron ore, copper, aluminum, diamonds, borates, salt and titanium. The Anglo-Australian company’s history dates back to 1873, when it was originally founded as part of a conglomerate seeking to exploit the Rio Tinto copper mine in Spain. Since then, the company has gone on to become one of the world’s largest mining and processing firms, with ongoing operations in 36 different countries spread across six continents.

The Rio Tinto Group is a combination of Rio Tinto Plc, a London-listed company headquartered in the UK, and Rio Tinto Limited, which is listed on the Australian Stock Exchange and headquartered out of Melbourne, Australia. The company’s depositary receipts are also traded on the New York Stock Exchange, giving it listings on three major global stock exchanges.

Earnings Primarily Driven by Iron Ore

Rio Tinto’s diversified mining operations are split into four key product groups: aluminum, copper & diamonds, energy & minerals, and iron ore. As of 2018, iron ore accounted for 59% of the mining giant’s underlying EBITDA. Aluminum was next at 16%, followed by copper & diamonds at 14% and energy & minerals at 11%.

Rio Tinto’s iron ore operations are primarily concentrated around the Pilbara region of Western Australia, where the company operates 16 mines and four port facilities and manages over 1,000 miles of rail. The company reported that iron ore revenues and EBITDA rose by 2% in the first half of 2020, to $11.5 billion and $7.7 billion, respectively, with iron ore prices remaining relatively stable at $85.10 per tonne, largely due to continued strong demand from China and constrained seaborne supply. Rio Tinto has guided for total iron ore shipments of 324-334 million tons in 2020 (relative to 2019’s 327.4 million tons).

Exiting the Fossil Fuel Business

In 2018, Rio Tinto sold its stake in the Kestrel coal mine for a gross consideration of $2.25 billion, bringing an end to a multi-year process through which Rio Tinto became the first major mining company to exit the coal business. As recently as 2013, Rio Tinto was producing upward of 34 million tons of thermal and coking coal per annum, making it one of the world’s top 10 producers. However, since then, Rio Tinto has sought to allocate capital away from the fossil fuel while divesting itself of its existing coal assets, whose sales have generated over $9 billion in total proceeds for the group.

Management Team

J.S. Jacques became chief executive of Rio Tinto in 2016. Since then, he has led the successful implementation of the company’s value-over-volume strategy. From 2016 through the first half of 2019, the company declared a record $30 billion in cash to its shareholders while reducing net debt by $14 billion. It also significantly strengthened its portfolio, realizing $12 billion in sales proceeds, pre-tax. In 2018, the company became the only major player in the industry to have a portfolio free of fossil fuel production. Jacques has been a member of the International Council on Mining and Metals (ICMM) since July 2016, and he joined the European Roundtable of Industrialists (ERT) in May 2018, the Global CEO Council in Beijing in June 2019, the Business Council of Australia in November 2019 and the U.S. Business Council in January 2020.

Jakob Stausholm joined Rio Tinto in September 2018 as Executive Director and Chief Financial Officer. Prior to joining Rio Tinto, Stausholm was the Chief Strategy, Finance and Transformation Officer for the Maersk Group, with oversight of the group’s strategy, digitization, IT and legal, as well as the transformation and shared services functions. He also served as group CFO of global facility service provider ISS. Prior to this, Stausholm worked for 19 years for Shell across Europe, Latin America and the Asia-Pacific region, including roles such as vice president of finance for Asia-Pacific and, earlier, as chief internal auditor. From 2009 through 2016, Stausholm served as a non-executive director of Statoil (now Equinor), including the last six years of his tenure as chairman of the audit committee. From 2006 to 2008, Stausholm was a non-executive director of Woodside Petroleum.

Investor Highlights
  • Rio Tinto is the world’s second-largest mining giant, producing and refining a range of products including iron ore, copper, aluminum, diamonds, borates, salt and titanium
  • The company’s operations are divided into four key groups – aluminum, copper & diamonds, energy & minerals, and iron ore
  • Today, the company derives over 50% of its EBITDA from its iron ore business, boosted by low production costs from its operations in Western Australia’s Pilbara Region, as well as resilient iron ore pricing due to strong demand from Chinese steel mills
  • The company divested its coal mining assets as of 2018, becoming the world’s first major miner to entirely exit the production of fossil fuels
  • During the first half of 2020, Rio Tinto’s reported EBITDA was down 6% year-over-year, which was largely a result of a decline in copper and diamond prices, though its iron ore business remained stable
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