Debt investors

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. 

The Group operates a floating rates policy for the management of its economic exposure to foreign exchange rate risks. It does not seek to hedge this floating exposure and will re-float, where possible, any material rates that are fixed. However, currency protection measures may be deemed appropriate in specific commercial circumstances.

External funds are predominantly raised (or invested) in U.S. dollars (or hedged to U.S. dollars) as this is the dominant currency of the Group.

Commodities

The Group operates a floating prices policy for the management of its economic exposure to commodity price risk. It does not seek to hedge this floating exposure and will re-float, where possible, any material price that is fixed. Where this is impossible (or sub-optimal) any non-floating price risks are managed within defined market risk tolerances. Derivatives are used as and when required in order to manage the Group’s exposure in accordance with this underlying financial risk management principle.

Credit

The Group is exposed to credit risk from its operating activities (primarily from customer receivables) and from its financing activities. Credit risk is managed within defined credit risk frameworks which set the risk appetite, limits, mitigations and monitoring.

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 Treasury in accordance with a Board-approved framework. 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.

Capital is allocated in a consistent and disciplined manner, prioritising sustaining capital expenditure, followed by the ordinary dividend and then an iterative allocation between investing in compelling growth opportunities, maintaining balance sheet strength and delivering further returns to shareholders. Total cash returns to shareholders are expected to be in a range of 40% to 60% of underlying earnings in aggregate throughout the commodity cycle.