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Homework answers / question archive / CASE STUDY  EXTRACT FROM THE ANNUAL REPORT 2018, RIO TINTO PLC (Mining sector)      Chief Executive's Review (extracts)  Around the world, geopolitical uncertainty and its economic and social implications are  challenging long-held traditions

CASE STUDY  EXTRACT FROM THE ANNUAL REPORT 2018, RIO TINTO PLC (Mining sector)      Chief Executive's Review (extracts)  Around the world, geopolitical uncertainty and its economic and social implications are  challenging long-held traditions

Management

CASE STUDY  EXTRACT FROM THE ANNUAL REPORT 2018, RIO TINTO PLC (Mining sector) 

 

 

Chief Executive's Review (extracts) 

Around the world, geopolitical uncertainty and its economic and social implications are 

challenging long-held traditions. Our industry is also evolving, as changes in technology add to 

both the opportunity and challenge before us. At Rio Tinto, our absolute focus on safety, 

performance, portfolio, partners and people is why I am confident we will continue to meet 

challenges, leverage opportunities - and pioneer human progress. 

This year, we start by remembering Francis Lalancette, Muzi Patrick Nhlenyama and Daniel 

Patterson - our colleagues who went to work but did not return home. Like all of us at Rio Tinto, 

I am deeply saddened by their tragic deaths and the irreplaceable loss to their families, friends and 

colleagues. We must do better on safety. Nothing is more important and I can assure you we are 

fully focused on this across our entire business. 

We also remember the tragedy in Brumadinho, in Brazil, in early 2019. Our thoughts remain with 

the many who lost their lives or are still missing, and their families and communities. Our industry 

must do better.

At Rio Tinto, we have had a global tailings standard since 2015, and three levels of governance: 

asset-level, which includes reviewing facility design and operational controls; assurance of 

compliance with the standard through business conformance audits and technical reviews; and a 

programme of independent external audits. We continually assess ways to further strengthen these 

processes - work that will receive additional focus in 2019. 

Performance 

2018 marked another solid year for our company: we declared $13.5 billion (US dollars) of cash 

returns to shareholders - the highest in Rio Tinto history. We also delivered on a number of our 

strategic priorities - strengthening our portfolio, advancing our growth options and divesting assets 

for value, while maintaining balance sheet strength and building critical capabilities. 

In a relatively stable pricing environment, we delivered $40.5 billion in consolidated sales revenue, 

$18.1 billion of underlying EBITDA, and an EBITDA margin of 42%. This year, we made a 

significant investment in capabilities and technology to unlock future productivity, which we 

expect to ramp-up and deliver an incremental $0.6 billion in free cash flow in 2019. We remain on 

track to deliver $1.5 billion a year in additional free cash flow from productivity improvements 

from 2021. 

Operating cash flow for the year was $11.8 billion, and we ended the year once again with a strong 

balance sheet, reducing net debt by $4.1 billion and ending the year with net cash of $0.3 billion. 

With expected outflows in 2019, including a $4.0 billion special dividend to our shareholders, our 

net debt is expected to rise in the first half of the year. These results are in part due to our 

company's solid operational performance, in particular at our copper assets, which delivered a 

33% year-on-year increase in mined production. Iron ore shipments and production also rose, 

while bauxite and aluminium were slightly lower. We are also making our business safer and more 

efficient. In 2018, for the first time, our driverless trains - up to 2.4 kilometres in length - delivered 

iron ore from our mines in the Pilbara, to our port in Cape Lambert, in Western Australia. With 

the programme fully implemented by the end of 2018, we have now completed more than 1.6 

million kilometres in driverless mode. 

Portfolio 

We continued to significantly reshape our portfolio in 2018, with the sale of our interests in the 

Hail Creek and Kestrel coal mines and the Valeria and Winchester South coal development 

projects in Australia, marking the end of our coking coal activities. We divested other assets,including our stake in the Grasberg copper mine in Indonesia and the Dunkerque aluminium 

smelter in France. We also took steps to divest our interests in the Rössing Uranium business in 

Namibia. We are returning $7.2 billion to shareholders from the proceeds of sales completed in 

2018. 

Indeed, over the past three years, we have significantly reshaped our portfolio, realising $12 billion 

in sales proceeds, pre-tax. However, this has not come at the expense of growth: with a smaller 

but higher-quality asset base, we grew production by just under 3% year-on-year on a copper-

equivalent basis. Many of these disposals have also changed our exposure to environmental, social 

and governance risks, differentiating our portfolio from those of our industry peers. 

We also invested in high-quality growth. In December 2018, we shipped our first tonnes of bauxite 

from our Amrun mine in Queensland, Australia - six weeks ahead of schedule. 

In November, we announced the development of the $2.6 billion Koodaideri iron ore project - our 

most technologically advanced mine - in the Pilbara, Western Australia. The world-class 

underground copper project at Oyu Tolgoi, in Mongolia, also progressed, including the signing of 

the Power Source Framework Agreement. The detailed engineering design work and overall 

construction is mostly on track, but more detailed geotechnical information and difficult ground 

conditions have required a review of the mine design. This, combined with fit-out and 

commissioning challenges with the main production shaft, is ultimately expected to result in a 

further revised ramp-up schedule to sustainable first production (beyond the nine-month delay 

indicated in October 2018). Detailed design work is underway to estimate the impact these issues 

will have on cost and schedule. 

Partners 

Our focus on partnership continued and intensified in 2018, with the launch of a collaboration to 

further develop greenhouse-gas-emissions-free aluminium smelting technology: our Elysis joint 

venture with Alcoa is supported by Apple and the governments of Canada and Quebec. We also 

announced that we would provide Aluminium Stewardship Initiative (ASI)-certified responsible 

aluminium to Nespresso - Rio Tinto is the first company to have its metal certified by the ASI. 

We continued to strengthen our partnership with China, and our Chinese customers. In June, we 

ran the first of five learning programs in Perth, Australia, with China's State-Owned Assets 

Supervisions and Administration Commission (SASAC), which supervises and manages state-

owned assets. In Western Australia, where automation may have a disruptive impact on ourcommunities, we launched a partnership with the government of Western Australia and South 

Metropolitan TAFE (Technical and Further Education) to develop the first nationally-recognized 

courses in automation. This partnership aims to train and certify people in new skills, making them 

easily transferable - so that people can follow opportunity wherever they find it. 

And in Canada, the home of our aluminium business, we strengthened our partnership with the 

provincial government and renewed the Quebec Agreement, a framework for further investment 

in our aluminium business in the province. 

We know we can be part of the solution on sustainability issues, which today are becoming more 

complex and intensifying the challenge before us. In 2018, we developed an integrated approach 

to sustainability, linked to the United Nations' Sustainable Development Goals, which we 

introduced to investors and civil society groups in the latter half of the year. 

Rio Tinto has been recognized as a leader in transparent tax reporting. We were the first in the 

industry to disclose our payments to governments, and we have been reporting on our taxes and 

royalties paid, and our economic contribution, in increasing detail since 2010. Our 2018 Taxes 

paid report, which details this contribution, will be published in April 2019. Also, in 2019, we 

released our first report in line with the recommendations of the Task Force on Climate-related 

Financial Disclosures. This articulates our climate-related risks and opportunities, including those 

related to a 2°C climate change scenario. 

People 

As I travelled around the world this year, visiting our assets and offices, what energised me most 

was our people, their ideas, their enthusiasm for our business and the commitment they have to 

making Rio Tinto a safer, more productive and more responsible company. Our success this year 

is due to their hard work and dedication, and I thank them for all they do, every day - at every 

asset, and in every office. 

In 2018, we focused on building our technical and leadership capabilities to equip our people and 

our company for continued success. A new program - RioExcel - lets technical specialists build a 

career as experts in their respective fields, from geology to process engineering to asset 

management. We also established three centers of excellence - underground mining, surface 

mining and processing - that bring together the company's foremost technical experts to partner 

with our assets, mitigate risk and deliver value.Our aspiration is to continue to pioneer our industry, with a culture that welcomes and nurtures 

new ideas and higher performance. Cultures that do this are also, by definition, inclusive and 

diverse. We are working to bring more women into our business. In 2018, 36% of our graduate 

intake were women; we aim to make this 50%. We also have a target to improve the proportion of 

women in senior management by 2% every year. 

A look ahead 

As we look to the future, we see markets remaining volatile, with some risk of a trade war and a 

deceleration in economic activity. At Rio Tinto, we will continue our strong focus on value over 

volume, growth and mine-to-market productivity. Partnership and sustainability must remain 

important priorities. We will continue to make every effort to keep our people safe, healthy, and 

equipped to meet the challenges of the coming years. With a world-class portfolio, a strong balance 

sheet and people who I am convinced are some of the best in the business, we are well positioned 

to withstand these challenges - and to create new opportunities. We will continue to drive 

productivity and aim to deliver superior value as we produce the materials essential to human 

progress. 

J-S JACQUES 

Chief Executive 

27 February 2019 

Complete Annual Report 2018 for Rio Tinto PLC available at: www.riotinto.com

QUESTIONS

1. The amount of capacity an organization will have depends on its view of current and future 

demand. It is when its view of future demand is different from current demand that this 

issue becomes important. What are the implications of this statement for managing supply 

in the case study organization? [25 marks] 

2. Analyze the importance of planning and control with regard to the case study organization 

in view of the observation that the degree of uncertainty in demand affects the balance 

between planning and control. The greater the uncertainty the more difficult it is to plan, 

and so greater emphasis must be placed on control. [25 marks]

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