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

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating on Rio Tinto Plc & Rio Tinto Ltd. (Rio or the Company) at “A” with a Stable trend. The confirmation is supported by the strength of the Company’s business risk profile, based on Rio’s size and long-life, low-cost operations, and the Company’s robust credit metrics because of the ongoing strength of commodity prices, particularly iron ore prices. The Stable trend reflects the Company’s (1) strong liquidity position at the end of 2021 that is backed by cash, cash equivalents, current liquid investments, and undrawn credit facilities of approximately $22.7 billion and (2) a favourable debt repayment schedule with no material maturities until 2024 and the next material maturity not until 2028. The liquidity provides a significant cushion to counter events such as the Coronavirus Disease (COVID-19) pandemic’s negative impacts on the global economy and Russia’s invasion of Ukraine.

Iron ore demand and prices started to weaken in the second half of 2021, largely due to China curtailing steel production ahead of the 2022 Olympic Games. Chinese steel production was down approximately 10% year over year in January 2022 and February 2022 according to The TEX Report. However, demand has recovered post-Olympics but is currently at risk because of the Russian invasion of Ukraine, which has resulted in rising power prices in Europe and steel production curtailments. While iron ore prices have been strong in 2022, with 62% Fe iron ore (CFR Qingdao China) prices up 23% year-to-date according to The TEX Report, the longer the conflict in Ukraine persists, the higher the risk of accelerated demand destruction later in 2022.

Over the past year, Rio has made progress in improving its community relations including the establishment of its Integrated Heritage Management Process, which had reviewed more than 2,200 heritage sites in Australia’s Pilbara region by the end of 2021. After consultation with the Traditional Owners, Rio removed 100 million dry tonnes of iron ore reserves in 2020 and 2021. As well, on February 14, 2022, Rio announced its Social, Cultural Heritage Management Plan with the Yinhawangka people for the proposed Greater Paraburdoo Iron Ore Hub. As a result, DBRS Morningstar no longer considers this environmental, social, and governance (ESG) factor to be relevant. While Rio has made progress in repairing its community relations, the Company continues to face governance challenges, including a recent external report outlining a toxic work culture at its worksites; as a result, DBRS Morningstar considered this ESG factor to be relevant and factored it into the rating.

DBRS Morningstar notes that a negative rating action is unlikely but could occur if benchmark 62% Fe iron ore prices decline to the $40 to $50 per tonne range for at least a year, or about 50% from current forecast levels. Even with the Company’s credit metrics in the AA category, a material improvement in Rio’s business risk profile would be required before a positive rating action could occur.

ESG CONSIDERATIONS
DBRS Morningstar no longer considers the community relations factor as relevant because the Company has made progress in repairing its community relations. However, the Company continues to face governance challenges, including a recent external report outlining a toxic work culture at its worksites, which DBRS Morningstar considers relevant with respect to the corporate/transaction governance factor.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating Companies in the Mining Industry (August 16, 2021; https://www.dbrsmorningstar.com/research/383106), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

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@dbrsmorningstar.com.

This rating was not initiated at the request of the rated entity.

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

This is an unsolicited credit rating.

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

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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