Rio Tinto $RIO (-1,04%)
$RIO (+0,43%) is targeting $5.0 billion to $10.0 billion of value creation through divestitures and productivity improvements as new CEO Simon Trott looks to simplify the Group and reduce execution risk.
In his first major strategy meeting almost five months into his tenure, Trott said the company wants to become the "most valuable" mining company in the world and be "stronger, more powerful and simpler".
Rio Tinto is focusing on iron ore, copper, aluminum and lithium and is tightening capital discipline across the company.
The mining group emphasizes profitability positioning, citing first quartile EBITDA margins for Rio's assets of 66% (iron ore), 57% (copper) 28% (aluminum) and 37% (lithium), pointing to "world-class assets" such as Pilbara and Simandou and the Iron Ore Company of Canada for iron ore, Oyu Tolgoi and Escondida and Kennecott for copper and South America for lithium.
Trott's view on divestitures is broad and blunt: assets that Rio "does not need to own" include titanium, borates, land, infrastructure and processing facilities, with non-core entities such as titanium dioxide and borates specifically highlighted. Beyond the direct sale, Rio is looking at commercial, partnership or ownership changes in the areas of land, infrastructure, mining and processing facilities, as well as the potential sale of smaller product lines.
Rio expects capital expenditure to fall below USD 10.0 billion per year from 2028 as major projects come to an end and the company scales back its investment in decarbonization.
The budget for decarbonization has been reduced from the original USD 5.0 to 6.0 billion to USD 1.0 to 2.0 billion by 2030.
Growth in the lithium sector will also be more restricted, meaning that new lithium projects will only be driven forward "if they are supported by the markets and returns".
In terms of costs, Rio is aiming to reduce unit costs by 4% from 2024 to 2030 while "releasing cash" from projects where third-party financing is below Rio's cost of capital.
Trott has already cut senior positions and suspended spending on BioIron and the Jadar lithium project in Serbia, which is expected to result in annual productivity gains of around $650 million.
Trott also said Rio is working with major shareholder Chinalco to remove governance restrictions that have limited share buybacks.
Operationally, copper is being moved to the forefront.
Rio has raised its forecast for copper production in 2025 following stronger activity at Oyu Tolgoi and now expects copper production in 2025 to be up to 3% higher than previously estimated, with 860,000 to 875,000 tons of copper in 2025 compared to 780,000 to 850,000 tons previously, followed by 800,000 to 870,000 tons in 2026.
Rio is targeting annual production of 1.0 million tons by 2030 and expects copper production at Oyu Tolgoi to increase by more than 50% this year and by around 15% in 2026.
Iron ore remains the volume driver, with production in Pilbara estimated at 323 to 338 million tons in 2026.
The new Simandou mine in Guinea shipped its first shipment of ore this week and is expected to produce 5 to 10 million tons in 2026, while BMO pointed out that this 5 to 10 million tons (on a 100% basis) represents a slower increase than its estimate of 19 million tons.