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Debt Investors

Credit Profile

Rio Tinto is a leading international mining group in which two companies, Rio Tinto plc and Rio Tinto Limited are combined in a dual listed companies (DLC) structure. Rio Tinto plc and Rio Tinto Limited and their respective groups operate together as a single economic enterprise.

Following the approval of the DLC merger, Rio Tinto plc and Rio Tinto Limited entered into a DLC merger sharing agreement pursuant to which each company agreed:

  • to ensure that the businesses of Rio Tinto plc and Rio Tinto Limited are managed on a unified basis

  • to ensure that the boards of directors of each company comprise the same individuals

  • to give effect to certain arrangements designed to provide shareholders of each company with a common economic interest in the Rio Tinto Group

In addition, as part of the DLC structure, each company entered into a deed poll guarantee in favour of certain creditors of the other company and the obligations of other persons which are guaranteed by the other company subject to certain limited exceptions.

Credit Ratings

The Rio Tinto Group has a contractual relationship with both Moody's Investor Services and Standard & Poor's for the provision of rating information. Management of the Group meets these agencies at least annually and shares with them the Group's latest financial projections and business plan.

Both Rio Tinto plc and Rio Tinto Limited continue to enjoy investment grade ratings.

The following table shows Rio Tinto's current credit ratings.

 

Agency
Long term rating & outlook
Short term rating

Moody's Investor Services

A2 (stable)

P-1

Standard & Poor's

A (stable)

A-1


Treasury Management & Policies

Rio Tinto’s policies on financial risk management are defined such that the Group has a capital structure in place to manage the organisation through the commodity cycle and that the Group’s exposures may float with the market. Any exceptions to this general principle are formally approved. The Group is exposed to capital, liquidity, commodity price, credit, foreign exchange and interest rate risks.

Rio Tinto does not acquire or issue derivative financial instruments for trading or speculative purposes; nor does it believe that it has material exposure to such trading or speculative holdings through its investments in joint arrangements and associates. However, derivatives are used as and when required in order to manage the Group’s exposure in accordance with its underlying financial risk management principles.

  • Interest Rates
  • Foreign Exchange
  • Commodities
  • Credit
  • Liquidity & Capital

Interest Rates

The Group’s interest rate management policy is generally to borrow and invest at floating interest rates. This approach is based on historical lower cost of borrowing at floating rates and historical correlation between interest rates and commodity prices. In certain circumstances, a higher proportion of fixed-rate funding may be considered appropriate.

Foreign Exchange

Rio Tinto’s earnings, cash flows and shareholders’ equity are influenced by a wide variety of currencies due to the geographic diversity of the Group’s sales and the countries in which it operates. The US dollar is the currency in which the majority of the Group’s sales are denominated. Operating costs are influenced by the currencies of those countries where the Group’s mines and processing plants are located and also by those currencies in which the costs of imported equipment and services are determined. Apart from the US dollar, the Australian and Canadian dollars are the most important currencies influencing costs. In any particular year, currency fluctuations may have a significant impact on Rio Tinto’s financial results. 

Borrowings and cash are predominantly denominated in US dollars, either directly or through the use of derivatives.

Commodities

The Group’s normal policy is to sell its products at prevailing market prices. Exceptions to this rule are subject to strict limits laid down by the Rio Tinto board and to rigid internal controls.

Credit

The Group is exposed to credit risk from its operating activities (primarily from customer receivables) and from its financing activities.

Customer credit risk is managed by the Commercial team. Credit limits are established for all customers based on internal or external rating criteria.  Shipments to major customers are often covered by letters of credit or other forms of credit insurance.

Credit risk from investments is managed by Group Treasury in accordance with a board-approved policy. Investments of surplus funds are made only with approved investment grade (BBB- or above) counterparties who have specific credit limits. 

Liquidity & Capital

The Group’s overriding objective when managing capital and liquidity is to safeguard the business as a going concern by maintaining a strong balance sheet whilst maximising returns for shareholders. 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 throughout the commodity cycle.