Morningstar DBRS Confirms Rio Tinto Plc & Rio Tinto Ltd.’s Issuer Rating at “A” With a Stable Trend

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating on Rio Tinto Plc & Rio Tinto Ltd. (Rio or the Company) at “A” with a Stable trend.

KEY CREDIT RATING CONSIDERATIONS
The credit rating confirmation is supported by the strength of the Company’s business risk profile, based on Rio’s significant size, long-life reserves, low-cost operations, and the expectations that the Company’s credit metrics should remain robust. The Stable trend reflects the Company’s solid financial outlook and strong liquidity position. At the end of 2023, the Company had approximately $18.1 billion in cash, cash equivalents, current liquid investments, and undrawn credit facilities, which provides a significant cushion to counter the broader impact of ongoing geopolitical tensions and the impact of restrictive monetary policies that have been adopted by Central Banks to combat inflation.

CREDIT RATING DRIVERS
We note that a negative rating action is unlikely but could occur if benchmark 62% Fe iron ore prices were to decline to the $60 to $70 per tonne range for at least a year, or about a 40% decline from current forecast levels, all else being equal. Even with the Company’s credit metrics in the low end of the AA category, a material improvement in Rio’s business risk profile, such as a credit accretive acquisition, would be required before a positive rating action could occur.

EARNINGS OUTLOOK
Based on using the mid-range of management guidance for volumes and unit costs and Bloomberg consensus commodity price forecasts as of March 6, 2024, Morningstar DBRS expects 2024 revenues to be in the $58.0 billion range, or higher compared with $54.0 billion in 2023, while adjusted EBITDA is also expected to increase to approximately $22.5 billion compared with $21.7 billion in 2023.

FINANCIAL OUTLOOK
Rio is expected to deliver adjusted operating cash flow this year of $17.2 billion, an increase from $16.1 billion in 2023, while capex in 2024 is expected to be $10.0 billion which is in line with management guidance. Overall, all of the Company's financial metrics are expected to remain mostly in the same categories in 2024 and remain supportive of the rating. That said, ongoing geopolitical tensions and restrictive monetary policies being adopted by Central Banks around the world pose challenges for the global economy.

CREDIT RATING RATIONALE
Rio’s business risk profile is assessed at the lower end of the “A” category based on the Company’s robust reserves, low operating cost structure, and position as an industry leader where it is an established global diversified mining producer.

In 2023, the impact of the lower Morningstar DBRS-adjusted cash flow combined with moderately higher Morningstar DBRS-adjusted debt resulted in adjusted debt-to-EBITDA and EBITDA-to-interest metrics to move lower into the AA (low) and A (high) categories, respectively. However, the adjusted cash flow-to-debt and debt-to-capital metrics remained in the AA and A (high) categories, respectively.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Governance (G) factors
Rio continues to face governance challenges related to disrespectful behaviour in the workplace, including sexual harassment, bullying, and racism, but has entered into a partnership with BHP and Fortescue for a pilot program that is focused on changing culture and behaviours. Nonetheless, Morningstar DBRS considered the Corporate Governance ESG factor to be relevant and factored it into the credit rating.

There were no Environmental and Social factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030 (January 23, 2024).

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of Rio, the relative weighting of the BRA factors was approximately equal.

(B) Weighting of FRA Factors
In the analysis of Rio, the relative weighting of the FRA factors was approximately equal.

(C) Weighting of the BRA and the FRA
In the analysis of Rio, the BRA carries greater weight than the FRA.

Notes:
All figures are in U.S. dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:
Global Methodology for Rating Companies in the Mining and Forest Products Industries (January 30, 2024), https://dbrs.morningstar.com/research/427243/global-methodology-for-rating-companies-in-the-mining-and-forest-products-industries

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/397223.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the credit rating process for this credit rating action.

Morningstar DBRS did not have access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is an unsolicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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