Rio Tinto shareholders bank billions

Materials World magazine
29 Aug 2019

The Australian miner reports high profits despite Mongolian pushback.

Rio Tinto has experienced recent financial fluxes due to widely differing project results. On 1 August 2019, CEO Jean-Sebastien Jacques announced that company shareholders were to receive returns of US$3.5bln, which included a US$1bln special dividend.

This profit came from rising iron ore prices and the success of Rio Tinto’s Pilbara operation, in Australia. ‘We have delivered strong financial results with underlying EBITDA of US$10.3bln and EBITDA margin of 47%. Our financial performance was driven by our Pilbara operations with a 72% EBITDA margin, underpinned by strong iron ore prices,’ Jacques said.

But in the previous month the firm was forced to write off US$800mln from its Oyu Tolgoi project in Mongolia. Capital for Oyu Tolgoi – set to be one of the world’s biggest copper mines when operational – has increased by US$1.2–1.9bln, taking the total up to an estimated US$6.5–7.2bln.

A project update on Rio Tinto’s website said the delays were due to potential risks in shaft sinking and stability of the panel boundaries, which necessitated mine design changes. ‘The ground conditions are more challenging than expected and we are having to review our mine plan and consider a number of options,’ Growth & Innovation Group Executive, Stephen McIntosh, said. The update stated that, depending on which mine design is chosen, sustainable production could be achieved between May 2022 and June 2023, representing a 16–30 month delay.

Oyu Tolgoi is a 66:34 joint venture between Rio Tinto and the Mongolian government and has suffered political struggles from the start. Further controversy is likely as, at time of writing, the Mongolian parliament announced plans to hold a vote in late August 2019 on whether to change the mining agreement again in order to demand greater transparency of copper export prices and for earlier dividends.

Finalised in 2015 under the name the Dubai Agreement, the Mongolian parliamentary working party for the project said the agreement was never officially ratified so is not legally binding, therefore it is subject to change.

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