5.A Operating results The information set forth under the headings: •“Chairman’s Statement” on pages 7 to 9; •“Financial Review” on pages 31 to 38; •“Business Reviews-Iron Ore” on pages 43 to 45; •“Business Reviews-Aluminium” on pages 47 to 49; •“Business Reviews-Copper & Diamonds” on pages 51 to 53; •“Business Reviews-Energy & Minerals” on pages 55 to 57 •“Business Reviews-Innovation” on pages 58 and 59; •“Business Reviews-Commercial” on pages 60 and 61; •“Sustainability” on pages 62 to 91; •“Governance-Additional Statutory Disclosure-Operating and financial review” on pages 186 and 187; •“Governance-Additional Statutory Disclosure-Government regulations” on page 189; •“Governance-Additional Statutory Disclosure-Environmental regulations” on page 189; and •“Financial Statements Note 29-Financial instruments and risk management” on pages 249 to 259 of the Annual report 2020 is incorporated herein by reference. Additional Financial Information 2020 net earnings of $9.8 billion were $1.8 billion higher than 2019 net earnings of $8.0 billion. Net earnings represent amounts attributable to owners of Rio Tinto. International Financial Reporting Standards (IFRS) requires that the profit/(loss) for the period reported in the income statement should also include earnings/(losses) attributable to non-controlling interests in subsidiaries. The table below lists the principal factors driving the movement in net earnings between periods and reconciles to profit for the year. To provide additional insight into the performance of our business, we report underlying EBITDA and underlying earnings, which are defined in “Financial Statements Note 2-Operating segments” on pages 223 to 226 of the Annual report 2020. 17 Financial performance of 2020 compared to 2019 2020 vs 2019 $m $m 2019 net earnings 8,010 Prices(a) 3,407 Exchange rates(a) (103) Volume and mix(a) (452) General inflation(a) (251) Energy(a) 461 Operating cash cost movements(a) (450) One-off items(a) 153 Non-cash / other(a) (60) Total changes in underlying EBITDA 2,705 Decrease in depreciation and amortisation (pre-tax) in underlying earnings 275 Decrease in interest and finance items (pre-tax) in underlying earnings 143 Increase in tax on underlying earnings (839) Increase in underlying earnings attributable to outside interests (209) Total change in underlying earnings(b) 2,075 Decrease in net impairment charges 543 Decrease in losses on consolidation and disposal of interest in businesses 291 Movement in exchange differences and gains/losses on debt (1,064) Other (86) Total changes in exclusions from underlying earnings (316) 2020 net earnings 9,769 Profit attributable to non-controlling interests 631 Profit for the year 10,400 (a)These variances represent the impact on underlying EBITDA. (b)Earnings contributions from Group businesses and business segments are based on underlying earnings. Amounts excluded from net earnings in arriving at underlying earnings are described in “Financial Statements Note 2-Operating segments” on page 226 of the Annual report 2020. Prices Commodity price movements in 2020 increased underlying EBITDA by $3,407 million compared with 2019. This was primarily driven by the strength in pricing for iron ore (+$3,262 million) and copper (+$405 million) and was partly offset by lower prices for aluminium, alumina and bauxite (-$314 million). The 2020 monthly average Platts index for 62% iron fines adjusted to an FOB basis was 19% higher on average compared with 2019, driven by continued supply disruptions in the seaborne market and strong demand following record Chinese steel output. The average London Metal Exchange (LME) price for copper was 3% higher, while the LME aluminium price was 5% lower, compared with 2019. The gold price rose 27%. The midwest premium for aluminium in the US averaged $313 per tonne, 2% lower than in 2019. 18 Exchange rates Compared with 2019, on average, the US dollar was broadly flat against the Australian and Canadian dollars but strengthened by 12% against the South African rand. Currency movements, which lowered underlying EBITDA by $103 million relative to 2019, mainly related to exchange rate losses on receivables following the significant strengthening of the Australian dollar at 2020 year-end. Volumes and product mix Underlying EBITDA was $452 million lower than 2019 from movements in sales volumes and changes in product mix across the portfolio. Although iron ore shipments from the Pilbara rose by 1%, the year-on-year gains are mostly included in Other, reflecting recovery from the fire at Cape Lambert A port in 2019. Other key variances included lower gold volumes following a reduction in grades at Oyu Tolgoi and Kennecott, lower titanium dioxide feedstock volumes and lower sales of value added products in our aluminium business in line with market demand. Energy Average movements in energy prices compared with 2019 improved underlying EBITDA by $461 million, mainly due to lower diesel prices and reduced coal prices for two of our Pacific Aluminium smelters. Operating cash cost movements* The impact of higher cash operating costs, which we reflect on a unit cost basis, reduced underlying EBITDA by $450 million compared with 2019. There was continued respite on cost inflation for certain raw materials for Aluminium, in particular caustic soda, pitch, petroleum coke and alloys. However, this was outweighed by other cost pressures, notably fixed cost inefficiencies at Kennecott, due to the lower grades and the extended smelter maintenance, and higher unit cash costs at Oyu Tolgoi in line with lower output. * Operating cash cost improvements are derived from the difference between the current and prior year full cash cost of sales per unit multiplied by prior year volume sold. This financial performance indicator is used by management internally to assess performance and therefore is considered relevant to users of the accounts. Exploration and evaluation spend Our exploration and evaluation spend was largely unchanged at $625 million. This went to our greenfield programmes and highest value projects, particularly on evaluating the Resolution copper project in Arizona, advancing our Winu copper/gold deposit in Australia and progressing our Jadar lithium-borate project in Serbia. In addition, $82 million for iron ore feasibility studies in the Pilbara was recognised as capital expenditure. One off items One-off items aggregated to be $153 million less than in 2019. 2020 one-offs primarily reflected earlier than planned pot-lining replacement at the Kitimat aluminium smelter ($51 million) and an increased impact from curtailment of operations at RBM ($23 million). These were offset by the non-recurrence of 2019 events, including the $199 million charge at Escondida to reflect cancellation of existing coal powered energy contracts following a switch to renewables and $68 million for challenges faced at our ISAL and Kitimat aluminium smelters. Non-cash costs/other Movements in non-cash costs and other items, which lowered underlying EBITDA by $60 million compared with 2019, mainly reflected additional costs ($333 million) incurred from COVID-19 across the Group such as screening, equipment hire, roster changes, temporary relocation and hygiene. This was offset by recovery from the fire at the Cape Lambert A port in the Pilbara in 2019 ($184 million) and lower provisions in respect of legacy operations ($23 million). Depreciation and amortisation, net interest and tax The depreciation and amortisation charge was $275 million lower than 2019, mainly due to a lower asset base following impairments in 2019 and in the first half of 2020, together with accelerated depreciation in 2019 following the pot failures at Kitimat. Lower interest and finance items (pre-tax) were reflective of a lower level of net debt on average during the year, in part due to repayment of $526 million of Euro Bonds, which matured in May 2020. It also reflected more of our debt being at floating interest rates. 19 The 2020 effective corporate income tax rate on underlying earnings, excluding equity accounted units, was 29.5%, in line with 2019. The effective tax rate on underlying earnings in Australia was 32% in 2020 compared with 31% in 2019. We anticipate an effective tax rate on underlying earnings of approximately 30% in 2021. Further details of the taxation charge and tax reconciliation are disclosed in “Financial Statements Note 9-Taxation” on page 232 of the Annual report 2020. Items excluded from underlying earnings Refer to page 22 below for a detailed reconciliation between underlying earnings and net earnings. Profit Net earnings and underlying earnings refer to amounts attributable to the owners of Rio Tinto. The net profit attributable to the owners of Rio Tinto in 2020 was $9.8 billion (2019: $8.0 billion). We recorded a profit after tax in 2020 of $10.4 billion (2019: $7.0 billion) of which a profit of $0.6 billion (2019 loss: $1.0 billion) was attributable to non-controlling interests. Financial performance of 2019 compared to 2018 2019 net earnings of $8.0 billion were $5.6 billion lower than 2018 net earnings of $13.6 billion. The table below lists the principal factors driving the movement in net earnings between periods and reconciles to profit for the year. 2019 vs 2018 $m $m 2018 net earnings 13,638 Prices(a) 4,382 Exchange rates(a) 529 Volume and mix(a) (20) General inflation(a) (303) Energy(a) 75 Operating cash cost movements (a) (523) Higher exploration and evaluation spend(a) (136) One-off items (a) (16) Absence of underlying EBITDA from assets divested in 2018, including coking coal(a) (1,246) Non-cash / other(a) 319 Total changes in underlying EBITDA 3,061 Decrease in depreciation and amortisation (pre-tax) in underlying earnings (366) Decrease in interest and finance items (pre-tax) in underlying earnings 32 Increase in tax on underlying earnings (1,011) Increase in underlying earnings attributable to outside interests (151) Total change in underlying earnings(b) 1,565 Increase in net impairment charges (1,554) Decrease in gains on consolidation and gains on disposals (4,287) Movement in exchange differences and gains/losses on derivatives (904) Other (448) Total changes in exclusions from underlying earnings (7,193) 2019 net earnings 8,010 Profit attributable to non-controlling interests (1,038) Profit for the year 6,972 (a)These variances represent the impact on underlying EBITDA. 20 (b)Earnings contributions from Group businesses and business segments are based on underlying earnings. Amounts excluded from net earnings in arriving at underlying earnings are described in “Financial Statements Note 2-Operating segments” on page 226 of the Annual report 2020. Prices Commodity price movements in 2019 increased underlying EBITDA by $4,382 million compared with 2018. This was primarily driven by the strength in the iron ore price and was partly offset by lower prices for copper and aluminium. The Platts index for 62% iron fines was 39% higher on average compared with 2018 on a free on board (FOB) basis, driven by supply disruptions in the seaborne market and strong demand following record Chinese steel output. Average London Metal Exchange (LME) prices for copper and aluminium were 8% and 15% lower, respectively, compared with 2018, as global manufacturing activity slowed. The gold price was 10% higher. The 10% tariff on US imports of aluminium from Canada, in place from 1 June 2018, was removed on 19 May 2019, following agreement between the US and Canadian governments. The midwest premium for aluminium in the US averaged $320 per tonne - 24% lower than in 2018. Exchange rates Compared with 2018, on average the US dollar strengthened by 7% against the Australian dollar, by 3% against the Canadian dollar and by 9% against the South African rand. Currency movements increased underlying EBITDA by $529 million relative to 2018. Volumes Underlying EBITDA decreased by $20 million compared with 2018 from movements in sales volumes and changes in product mix. A 3% decline in iron ore shipments from the Pilbara, where we experienced weather disruptions and operational challenges at some of our mines in the first half of 2019, were mostly offset by increased bauxite shipments, improved aluminium product mix and higher by-product volumes (gold and molybdenum) from Rio Tinto Kennecott and Oyu Tolgoi. Energy Average movements in energy prices compared with 2018 improved underlying EBITDA by $75 million, mainly due to lower diesel prices. Operating cash cost movements* Our cash operating costs rose by $523 million compared with 2018 (on a unit cost basis), primarily reflecting an increase in iron ore unit costs, driven by the first half challenges. There was some respite on cost inflation for certain raw materials for Aluminium, in particular caustic soda and petroleum coke. However, this was partly offset by inflationary pressures on other costs. * Operating cash cost improvements are derived from the difference between the current and prior year full cash cost of sales per unit multiplied by prior year volume sold. This financial performance indicator is used by management internally to assess performance and therefore is considered relevant to users of the accounts. Exploration and evaluation spend We spent $136 million, or 28%, more on exploration and evaluation compared with last year. This went to our highest value projects, particularly on evaluating the Resolution copper project in Arizona, advancing our Winu copper/gold deposit in Australia and progressing our Falcon diamond project in Canada. One off items One-off items netted out to be $16 million less than in 2018. 2019 underlying EBITDA includes the impact of a $199 million charge at Escondida to reflect the cancellation of existing coal power contracts, a $68 million impact from the curtailment of operations at Richards Bay Minerals (RBM) and $68 million for operational challenges faced at our ISAL and Kitimat aluminium smelters. In 2018 we suspended operations for two months at Iron Ore Company of Canada before reaching a new labour agreement ($236 million impact). We also suspended production at Rio Tinto Iron & Titanium, following a fatality at our Sorel-Tracy plant and labour disruptions at RBM ($132 million impact). 21 Absence of underlying EBITDA from assets divested in 2018, including coking coal In 2019 underlying EBITDA decreased by $1,246 million due to significant divestments in 2018 primarily the coking coal business and the Grasberg copper mine. Non-cash costs/other Following implementation of IFRS 16 "Leases" on 1 January 2019, a large proportion of our lease expense comprises charges for depreciation and interest and is not included in cash operating costs. There was a consequent benefit to underlying EBITDA of $319 million from this change in treatment. Depreciation and amortisation, net interest and tax Our depreciation and amortisation charge was $366 million higher than 2018. This was primarily due to the inclusion of depreciation on leases brought on to the balance sheet on adoption of IFRS 16 and completion of the Amrun bauxite mine. The increase was partly offset by the impact of the weaker Australian and Canadian dollars against the US dollar, along with assets divested in 2018. Interest and finance items (pre-tax) were broadly in line with 2018. This was mainly due to the bond tender we completed in 2018, which reduced our gross debt by $1.9 billion equivalent and incurred $94 million in early redemption costs in 2018. In 2019, there was also a lower level of average net debt and an increase in capitalised interest. This was offset by the inclusion of interest expense on leases following adoption of IFRS 16 "Leases" in 2019. The 2019 effective corporate income tax rate on underlying earnings, excluding equity accounted units, was 30%, compared with 29% in 2018. The effective tax rate on underlying earnings in Australia was 31% in 2019 compared with 30% in 2018. We anticipate an effective tax rate on underlying earnings of approximately 30% in 2020. Items excluded from underlying earnings Refer below for a detailed reconciliation between underlying earnings and net earnings. Profit Net earnings and underlying earnings refer to amounts attributable to the owners of Rio Tinto. The net profit attributable to the owners of Rio Tinto in 2019 was $8.0 billion (2018: $13.6 billion). We recorded a profit after tax in 2019 of $7.0 billion (2018: $13.9 billion) of which a loss of $1.0 billion (2018 profit: $0.3 billion) was attributable to non-controlling interests. Exclusions from underlying earnings 2018-2020 Earnings contributions from Group businesses and business segments are based on underlying earnings. Amounts excluded from net earnings in arriving at underlying earnings are summarised in the discussion of year-on-year results below. 2020 2019 2018 $m $m $m Underlying earnings 12,448 10,373 8,808 Items excluded from underlying earnings Impairment charges (1,115) (1,658) (104) Net (losses)/gains on consolidation and disposal of interests in businesses — (291) 3,996 Foreign exchange and derivative (losses)/gains on US dollar net debt and intragroup balances and derivatives not qualifying for hedge accounting (1,264) (200) 704 Gain on sale of wharf and land in Kitimat, Canada — — 569 Net losses from movements to closure estimates (non-operating and fully impaired sites) (300) — (335) Other exclusions — (214) — Net earnings 9,769 8,010 13,638 2020 Net impairment charges decreased by $543 million compared with 2019. We recognised $1,115 million of impairment charges in 2020, comprised of $472 million related to three of our Pacific Aluminium smelters (NZAS, Bell Bay and Boyne), $131 million related to the ISAL smelter in Iceland, $220 million for the Sohar smelter in Oman and $292 million related to our interest in the Diavik diamond mine. 22 In 2020, we recognised non-cash exchange and derivative losses of $1,264 million. This was mainly on US dollar debt in non-US dollar functional currency Group companies, intragroup balances, and on the revaluation of certain derivatives which do not qualify for hedge accounting. These losses compared with a 2019 loss of $200 million, giving rise to a negative year-on-year movement of $1,064 million. The exchange losses are largely offset by currency translation gains recognised in equity. The quantum of US dollar debt is largely unaffected and we will repay it from US dollar sales receipts. In 2020, we excluded net additional closure costs of $300 million from underlying earnings principally relating to a non-operating site (Gove), a fully impaired site (Argyle) and the net earnings impact in respect of increases to closure provisions following a reduction to the closure discount rate. These are included in other exclusions. 2019 Net impairment charges increased by $1.6 billion compared with 2018, primarily related to the Oyu Tolgoi underground project in Mongolia and the Yarwun alumina refinery in Queensland, Australia. We recognised an impairment charge of $0.8 billion (after tax and non-controlling interests) on the Oyu Tolgoi project, reflecting forecast delays to first production and increased capital spend on the development. We also recognised a $0.8 billion post-tax impairment charge on the Yarwun alumina refinery following ramp-up of the Amrun expansion at Weipa, which resulted in a reassessment of our cash generating units. Weipa is now considered to generate cash inflows largely independent from the downstream alumina operations with which, until 2019, it was aggregated for accounting purposes. In 2018, we recognised $0.1 billion of after tax charges, mainly relating to the carrying value of the ISAL aluminium smelter in Iceland following its reclassification to assets held for sale. In 2019, we recognised a further $0.1 billion post-tax charge as these assets were reclassified back out of assets held for sale. Gains on disposals were $4.3 billion lower than 2018. In 2019, we recognised a $0.3 billion loss (after tax) from the sale of Rössing Uranium, including a non-cash adjustment for historical foreign exchange losses. In 2018, we realised net gains of $4.0 billion (after tax), primarily from the sale of our Hail Creek and Kestrel coking coal businesses in Australia, the sale of our interest in the Grasberg copper mine in Indonesia and the formation of the ELYSIS joint venture in Canada. Exchange differences and gains/losses on derivatives were $0.9 billion lower than 2018. In 2019, these gave rise to a $0.2 billion after tax loss. This compared with gains of $0.7 billion in 2018 - mainly on US dollar debt in non-US dollar functional currency Group companies, intragroup balances and on the revaluation of certain derivatives which do not qualify for hedge accounting. These exchange gains are largely offset by currency translation losses recognised in equity. The quantum of US dollar debt is largely unaffected and we will repay it from US dollar sales receipts. There were $0.4 billion in other changes in items excluded from underlying earnings. In 2019, we recognised a $0.2 billion loss (after tax) related to provisions for obligations in respect of legacy operations. In 2018, we recognised a $0.6 billion gain on sale of surplus land at Kitimat and a $0.3 billion increase in the closure provision at the Argyle diamond mine. 2018 In 2018, we recognised $104 million of post-tax impairment charges, mainly relating to the carrying value of the ISAL aluminium smelter in Iceland following its reclassification to assets held for sale. 2018 net gains on consolidation and disposal of interests in businesses of $4.0 billion (post-tax) included the sale of our Hail Creek and Kestrel coking coal businesses in Australia, the sale of our interest in Grasberg in Indonesia and the formation of the ELYSIS joint venture in Canada. We created this joint venture in May with Alcoa to develop a carbon-free aluminium smelting process and recognised a gain of $141 million (post-tax) for the fair value uplift on forming the joint venture. In 2018, we recognised non-cash exchange and derivative gains of $0.7 billion. This was mainly on US dollar debt in non-US dollar functional currency Group companies, intragroup balances, and on the revaluation of certain derivatives which did not qualify for hedge accounting. The exchange gains were largely offset by currency translation losses recognised in equity. The quantum of US dollar debt was largely unaffected. Other exclusions of $0.2 billion included gains on the sale of surplus land at Kitimat in Canada ($0.6 billion), partially offset by charges recognised to increase closure provisions at ERA and Argyle in Australia ($0.3 billion). 23 Underlying Earnings by product group 2018-2020 2020 2019 2018 $m $m $m Iron Ore 11,398 9,638 6,531 Aluminium 471 599 1,347 Copper & Diamonds 763 554 1,054 Energy & Minerals(a) 577 611 995 Other operations (54) (89) (102) Other items/Intrasegment eliminations (477) (587) (690) Exploration and evaluation (216) (231) (193) Net interest (14) (122) (134) Group underlying earnings 12,448 10,373 8,808 Exclusions (2,679) (2,363) 4,830 Net Earnings 9,769 8,010 13,638 (a)Includes the Simandou iron ore project in Guinea and Iron Ore Company of Canada. Sales Revenue Consolidated sales revenue for 2020 of $44.6 billion was $1.4 billion or 3% higher than the prior period. Gross product sales (including the sales revenue of equity accounted units on a proportionately consolidated basis, after adjusting for sales to subsidiaries) increased from $45.4 billion to $47.0 billion. Rio Tinto’s sales revenue continues to be predominantly attributable to iron ore and aluminium. Prices 2020 2019 2018 Commodity Source Unit $ $ $ Average prices Iron ore 62% Fe Fines FOB Platts Index less Baltic Exchange Freight Rate dmt(a) 101.3 85.0 61.8 Aluminium LME(b) Tonne 1,702 1,791 2,110 Copper LME(b) Pound 2.81 2.73 2.97 Gold London Bullion Market (LBMA) Ounce 1,770 1,393 1,269 Year end spot price Aluminium Tonne 1,978 1,523 1,863 Copper Pound 3.51 2.79 2.70 Gold Ounce 1,888 1,523 1,282 (a)Dry metric tonne (b)LME cash price The above table shows published prices for Rio Tinto’s commodities for the last three years where these are publicly available, and where there is a reasonable degree of correlation between the published prices and Rio Tinto’s realised prices. Group sales revenue will not necessarily move in line with these published prices for a number of reasons which are discussed below. The discussion of revenues below relates to the Group’s gross product sales from sale of commodities, as included in the “Financial Statements Note 2-Operating segments” on pages 223 to 226 of the Annual report 2020. 24 Iron Ore 2020 gross product sales compared with 2019 Gross product sales increased by $3.4 billion (14%) to $27.5 billion in 2020. Gross product sales for our Pilbara operations included freight revenue of $1.5 billion (2019: $1.7 billion). The increase is attributable to the 2020 monthly average Platts index for 62% iron fines adjusted to an FOB basis was 19% higher on average compared with 2019, driven by continued supply disruptions in the seaborne market and strong demand following record Chinese steel output. We increased our iron ore shipments by 1% and production by 2% compared with 2019, whilst implementing strict measures to manage COVID-19. In 2020, we priced approximately 13% of sales by reference to the prior quarter’s average index lagged by one month with the remainder sold either on current quarter average, current month average or on the spot market. We made approximately 70% of sales including freight and 30% on an FOB basis. In 2020, we achieved an average iron ore price of $91.0 per wet metric tonne on an FOB basis (2019: $79.0 per wet metric tonne) across our product suite. This equates to $98.9 per dry metric tonne, assuming 8% moisture (2019: $85.9 per dry metric tonne), which compares with the monthly average Platts index for 62% iron fines converted to an FOB basis of $101.3 per dry metric tonne (2019: $84.9 per dry metric tonne). The slightly lower realised price compared to the Platts index was due to lower market premiums for lump and the effect of the sales priced by reference to the prior quarter’s average index lagged by one month in a rising price environment throughout 2020. 2019 gross product sales compared with 2018 Gross product sales increased by $5.4 billion (29%) to $24.1 billion in 2019. The gross product sales for our Pilbara operations included freight revenue of $1.7 billion (2018: $1.7 billion). The significant increase is attributable to higher prices as the Platts index for 62% iron fines was 39% higher on average compared with 2018 on a free on board (FOB) basis. This was partly offset by the effect of lower shipments from the Pilbara, which decreased 3% from the previous period to 327 million tonnes. In 2019, we priced approximately 76% of our sales with reference to the average index price for the month of shipment and 16% with reference to the prior quarter’s average index lagged by one month, with the remainder sold either on current quarter average, current month average or on the spot market. We made approximately 68% of sales including freight and 32% on an FOB basis. In 2019, we achieved an average iron ore price of $79.0 per wet metric tonne on an FOB basis (2018: $57.8 per wet metric tonne). This equates to $85.9 per dry metric tonne (2018: $62.8 per dry metric tonne). Aluminium 2020 gross product sales compared with 2019 Aluminium’s gross product sales are from aluminium and related products such as alumina and bauxite. Gross product sales decreased by 10% to $9.3 billion in 2020. This reflects the price declines in alumina and aluminium metal and reduced demand for value-added product (VAP), driven by market conditions from the impact of COVID-19. In 2020, we achieved an average realised aluminium price of $1,946 per tonne, 9% lower than 2019 ($2,132 per tonne). This comprised the LME price, a market premium and a product (VAP) premium. The cash LME price averaged $1,702 per tonne, 5% lower than 2019, even after a sharp recovery in the second half of 2020. In our key US market, the midwest premium dropped 2% to $313 per tonne on average in 2020. VAP represented 43% of the primary metal we sold, in line with market demand (2019: 51%), and generated product premiums averaging $213 per tonne of VAP sold (2019: $234 per tonne). Market demand for VAP rebounded in the fourth quarter of 2020, returning to normal levels. 25 2019 gross product sales compared with 2018 Aluminium’s gross product sales are from aluminium and related products such as alumina and bauxite. Gross product sales decreased by 15% to $10.3 billion in 2019. This reflects the significant price declines in alumina and aluminium metal offset by increases in third-party bauxite sales. In 2019 we achieved an average realised aluminium price of $2,132 per tonne (2018: $2,470 per tonne). This comprised the LME price, a market premium and a value-added product (VAP) premium. The cash LME price averaged $1,791 per tonne, 15% lower than 2018. In our key US market, the midwest premium dropped 24% to $320 per tonne on average in 2019. VAP represented 51% of the primary metal we sold (2018: 54%, excluding the Dunkerque smelter which we sold in 2018) and generated attractive product premiums averaging $234 per tonne of VAP sold (2018: $227 per tonne). We paid a 10% tariff on our Canadian aluminium exports to the United States under Section 232 until the tariff was removed on 19 May 2019. Copper & Diamonds 2020 gross product sales compared with 2019 Gross product sales of $5.4 billion was 7% lower than 2019. This reflected weak market conditions in the first half, COVID-19 restrictions and a 5.7 magnitude earthquake in Utah in March. In addition, delays in restarting the Kennecott smelter, following a planned shutdown, and a temporary reduction in copper and gold grades reduced sales volumes. Our average realised copper price increased by 3% to 283 US cents per pound, recovering in the second half from first half lows. 2019 gross product sales compared with 2018 Gross product sales of $5.8 billion was 10% lower than 2018. This reflected lower average realised copper prices and lower grades at all our operations, resulting in lower mined and refined copper production volumes. The impact was partly offset by higher throughput from Escondida, productivity improvements at Oyu Tolgoi and improvements in ore processed at Kennecott. Our average realised copper price decreased by 7% to 275 US cents per pound, which was comparable with an 8% decline in the LME price to 273 US cents per pound. Energy & Minerals 2020 gross product sales compared with 2019 Gross product sales for the product group in 2020 fell by 3% to $5.0 billion. This reflected the impact of COVID-19 restrictions and weaker market conditions in Minerals (titanium dioxide feedstocks and borates), partially offset by IOC shipping 8% higher volumes and benefiting from stronger pricing. 2019 gross product sales compared with 2018 Gross product sales for the product group in 2019 fell by 6% to $5.2 billion. Excluding the contribution from the divested coal business in 2018, 2019 revenue of $5.2 billion was 15% higher than 2018. The increase reflects the recovery in volumes at Rio Tinto Iron & Titanium and Iron Ore Company of Canada and higher prices for iron ore pellets and concentrate and titanium dioxide feedstocks. IOC production was 18% higher than 2018, when operations were impacted by a two-month strike. Titanium dioxide feedstock production was 8% higher than 2018, reflecting improved operational performance and the restart of furnaces. 26 Cash flow 2020 cash flow compared with 2019 We generated $15.9 billion in net cash from our operating activities, 6% higher than 2019. This increase was driven primarily by higher underlying EBITDA from higher iron ore prices, net of an increase in tax paid in line with profits, a modest rise in working capital (primarily higher prices in receivables), increased dividends paid to joint venture partners and lower dividends received from equity accounted units. We invested $6.2 billion in capital expenditure in 2020 which we funded from operating activities. We expect to continue funding our capital programme from internal sources, except for the Oyu Tolgoi underground development, which is project-financed. We generated $9.4 billion of free cash flow, 3% higher than 2019, reflecting our higher operating cash flow and consistent capital expenditure. Free cash flow is calculated using the following IFRS measures: For year ended 31 December 2020 $m 2019 $m Net cash generated from operating activities 15,875 14,912 Purchases of property, plant and equipment and intangible assets (6,189) (5,488) Sales of property, plant and equipment and intangible assets 45 49 Lease principal payments (324) (315) Free cash flow 9,407 9,158 We paid $6.1 billion in dividends to our shareholders. We also repurchased $0.2 billion of our shares, all of which were bought from the market in the UK in 2020. A full consolidated cash flow statement is contained in the Financial Statements on page 202 of the Annual report 2020. 2019 cash flow compared with 2018 We generated $14.9 billion in net cash from our operating activities, 26% higher than 2018. This increase was driven primarily by higher underlying EBITDA from higher iron ore prices and the ongoing management of working capital. We invested $5.5 billion in capital expenditure in 2019 which remains at the same level as 2018. Key projects included the Koodaideri iron ore mine and the completion of the primary production shaft at Oyu Tolgoi, along with sustaining capital spend. We generated $9.2 billion of free cash flow, 31% higher than 2018, reflecting our higher operating cash flow and consistent capital expenditure. Free cash flow now includes an adjustment to include lease principal repayments of $315 million following adoption in 2019 of IFRS 16 "Leases". Balance sheet at 31 December 2020 Our net debt, reconciled to IFRS measures in the Financial Statements Note 23 - Consolidated net (debt)/cash on page 243 of the Annual report 2020, of $0.7 billion decreased by $3.0 billion in 2020, reflecting dividend payments of $6.1 billion and $0.2 billion of share buy-backs, more than offset by our strong free cash flow. Our net gearing ratio (net debt to total capital) declined to 1% at 31 December 2020 (31 December 2019: 7%). Refer to page 36 of the Annual report 2020. Our total financing liabilities at 31 December 2020 were US$13.8 billion (31 December 2019: $14.3 billion) and the weighted average maturity was around nine years. At 31 December 2020, approximately 86% of these liabilities were at floating interest rates (94% excluding leases). The maximum amount within non-current borrowings maturing in any one calendar year was $1.8 billion, which matures in 2025. We had $12.9 billion in cash and cash equivalents plus other short-term cash investments at 31 December 2020 (31 December 2019: $10.6 billion) and we have $7.5 billion of fully committed Revolving Credit Facilities, which remained undrawn throughout the period, and mature in November 2023. 27 Provision for closure costs This year we have enhanced our disclosure on Provisions for close-down and restoration costs and environmental clean-up obligations, which at 31 December 2020, were $13.3 billion (31 December 2019: $11.1 billion). The principal movements during the year were currency appreciation ($0.7 billion), reduction in discount rate ($1.0 billion), changes to existing and new provisions ($0.6 billion) and drawdowns in the provision through spend ($0.4 billion). Of the $13.3 billion in provisions, $10.7 billion relates to operating sites and $2.6 billion is for legacy sites. Remaining lives of operations and infrastructure range from one to over 50 years with an average for all sites, weighted by present closure obligation, of around 17 years (2019: 18 years). The provisions are based on risk-adjusted cash flows. In September 2020, we completed a review of the discount rate used to present value the obligations and updated it to a real-rate of 1.5% (previously 2.0%), applied prospectively from that date. Financial instruments and risk management The Group’s policies with regard to financial instruments and risk management are clearly defined and consistently applied. They are a fundamental part of the Group’s long-term strategy covering areas such as foreign exchange risk, interest rate risk, commodity price risk, credit risk, liquidity risk and capital management. Further details of our Financial instruments and risk management are disclosed in “Financial Statements Note 29-Financial instruments and risk management” on pages 249 to 259 of the Annual report 2020. The Annual report 2020 shows the full extent of the Group’s financial commitments, including debt. The risk factors to which the Group is subject are summarised above in Item 3.D, “Risk factors”. Dividend The 2020 interim dividend was 155.0 cents (2019: 151.0 US cents) and the final dividend was determined as 309.0 US cents (2019: 231.0 US cents) and a special dividend of 93.0 US cents per share. In addition, the directors of Rio Tinto announced and paid an interim special dividend in 2019 of 61.0 US cents per share. Dividends paid on Rio Tinto plc and Rio Tinto Limited shares are equalised on a net cash basis; that is, without taking into account any associated tax credits. Dividends are determined in US dollars. Rio Tinto plc dividends are paid and declared in pounds sterling and Rio Tinto Limited dividends are declared and paid in Australian dollars, converted at exchange rates on 17 February 2021. Details relating to the dividend policy, determination and payment of dividends in sterling, Australian dollars and other currencies and on the payment of dividends to holders of American Depositary Receipts (ADRs) are included under the heading “Shareholder information-Markets” on page 377 of the Annual report 2020 and above in Item 3.A, “Selected financial data”. Capital and liquidity risk management The Group’s total capital is defined as equity attributable to owners of Rio Tinto plus equity attributable to non-controlling interests and net debt, as shown below: Total capital 2020 2019 $m $m Equity attributable to owners of Rio Tinto 47,054 40,532 Equity attributable to non-controlling interests 4,849 4,710 Net debt (Financial Statements Note 23 of the Annual report 2020) 664 3,651 Total capital 52,567 48,893 The Group’s material capital and evaluation projects are listed under the heading “Portfolio management” on page 39 of the Annual report 2020. We expect that contractual commitments for expenditure, together with other expenditure and liquidity requirements, will be met from internal cash flow and, to the extent necessary, from the existing facilities described in “Financial Statements Note 29-Financial instruments and risk management”, part A(b)(i) on pages 250 and 251 of the Annual report 2020. This note also provides further details of our liquidity and capital risk management. 28 Treasury management and financial instruments Details of our Treasury management and financial instruments are disclosed in “Financial Statements Note 29-Financial instruments and risk management” on pages 249 to 259 of the Annual report 2020. Foreign exchange The following sensitivities give the estimated effect on underlying earnings assuming that each exchange rate moves in isolation. The relationship between currencies and commodity prices is a complex one and movements in exchange rates can cause movements in commodity prices and vice versa. Where the functional currency of an operation is that of a country for which production of commodities is an important feature of the economy, such as the Australian dollar, there is a certain degree of natural protection against cyclical fluctuations, in that the currency tends to be weak, reducing costs in US dollar terms, when commodity prices are low, and vice versa. Earnings sensitivities – Exchange rate Average exchange rate for 2020 Effect on underlying EBITDA of 10% change in full year average US cents +/- $m Australian dollar 0.69 617 Canadian dollar 0.75 201 The exchange rate sensitivities quoted above include the effect on net operating costs of movements in exchange rates but exclude the effect of the revaluation of foreign currency financial assets and liabilities. They should therefore be used with caution. Further details of our exposure to foreign currency fluctuations and currency derivatives, and our approach to currency hedging, are contained within “Financial Statements Note 29-Financial instruments and risk management”, part A(b)(iv), on pages 254 to 255 of the Annual report 2020. Interest rates Details of our exposure to interest rate fluctuations are contained within “Financial Statements Note 29-Financial instruments and risk management”, part A(b)(v), on pages 255 to 256 of the Annual report 2020. Commodity prices The approximate effect on the Group’s underlying EBITDA of a ten per cent change from the full year average market price in 2020 for the following products would be: Average market price for 2020 Effect on underlying EBITDA of 10% change in full year average Commodity Unit $ +/- $m Iron ore 62% Fe Fines FOB dmt 101.3 2,318 Aluminium Tonne 1,702 577 Copper Pound 2.81 370 Gold Ounce 1,770 62 The sensitivities give the estimated impact on net EBITDA of changes in prices assuming that all other variables remain constant. These should be used with caution. As noted previously, the relationship between currencies and commodity prices is a complex one and changes in exchange rates can influence commodity prices and vice versa. Further details of our exposure to commodity price fluctuations are contained within “Financial Statements Note 29-Financial instruments and risk management”, on part A(b)(ii), on pages 251 to 253 of the Annual report 2020. Credit risks Details of our exposure to credit risks relating to financial receivables, financial instruments and cash deposits, are contained within “Financial Statements Note 29-Financial instruments and risk management”, part A(b)(iii), on pages 253 to 254 of the Annual report 2020. 29 Disposals and acquisitions Information regarding disposals and acquisitions is provided in “Financial Statements Note 36-Purchases and sales of subsidiaries, joint ventures, associates and other interests in businesses” on page 268 of the Annual report 2020. Critical accounting policies and estimates Many of the amounts included in the financial statements involve the use of judgment and/or estimates. These judgments and estimates are based on management’s best knowledge of the relevant facts and circumstances, having regard to previous experience, but actual results may differ from the amounts included in the financial statements. Information about such judgments and estimation is contained under “Judgments in applying accounting policies and key sources of estimation uncertainty” in “Financial Statements Note 1-Principal accounting policies” on page 208 of the Annual report 2020. 5.B Liquidity and capital resources The information set forth under the headings: •“Portfolio Management-Projects” on page 39; •“Business Reviews-Iron Ore-New projects and growth options” on page 45; •“Business Reviews-Aluminium-New projects and growth options” on page 49; •“Business Reviews-Copper & Diamonds-Other new projects and growth options” on page 53; •“Business Reviews-Energy & Minerals-New projects and growth options” on page 57; •“Financial Statements Note 21-Borrowings and other financial liabilities” on page 242; and •“Financial Statements Note 29-Financial instruments and risk management” on pages 249 to 259 of the Annual report 2020 is incorporated herein by reference. See Item 5.A, “Additional financial information-Financial instruments and risk management” and “Additional financial information-Capital and liquidity risk management” above. See Item 5.E and 5.F below which presents information in relation to our material off balance sheet arrangements and contractual commitments. 5.C Research and development, patents and licenses The information set forth under the headings: •“Business Reviews-Business Development” on pages 40 and 41; •“Business Reviews-Innovation” on pages 58 and 59; •“Governance-Additional Statutory Disclosure-Exploration, research and development” on page 189; and •“Financial Statements Note 4-Net operating costs (excluding items shown separately)” on page 228 of the Annual report 2020 is incorporated herein by reference. 5.D Trend information The information set forth under the headings: •“2020 at a Glance” on pages 2 and 3; •“Chairman’s Statement” on pages 7 to 9; •“Juukan Gorge” on pages 10 and 11; •“Chief Executive’s Statement” on pages 13 to 15; •“Our Business Model” on page 16; 30 •“Our Values” on page 17; •“Our Stakeholders” on pages 18 and 19; •“Strategic Context” on pages 20 and 21; •“Our Strategy” on pages 22 and 23; •“Key Performance Indicators” on pages 24 to 28; •“Chief Financial Officer’s Statement” on pages 29 and 30; •“Financial Review” on pages 31 to 38; •“Business Reviews-Business Development” on pages 40 and 41; •“Business Reviews-Iron Ore” on pages 43 to 45; •“Business Reviews-Aluminium” on pages 47 to 49; •“Business Reviews-Copper & Diamonds” on pages 51 to 53; •“Business Reviews-Energy & Minerals” on pages 55 to 57; •“Business Reviews-Innovation” on pages 58 and 59; and •“Business Reviews-Commercial” on pages 60 and 61 of the Annual report 2020 is incorporated herein by reference. 5.E Off-balance sheet arrangements Off balance sheet arrangements and contractual commitments Information regarding the Group’s off balance sheet arrangements and contractual commitments can be found below: –Post retirement commitments and funding arrangements is provided in “Financial Statements Note 42-Post-retirement benefits” on pages 274 to 279 of the Annual report 2020. –Information regarding the Group’s close-down and restoration obligations is provided in “Financial Statements Note 25-Provisions (including post-retirement benefits)” on page 244 and 245 of the Annual report 2020. –Information regarding contingent liabilities, guarantees and commitments is provided in “Financial Statements Note 30-Contingencies and commitments” on pages 259 to 261 of the Annual report 2020. –Information on the Group's commitments relating to leases is provided in “Financial Statements Note 22-Leases” on pages 242 and 243 of the Annual report 2020. –Information regarding the Group's obligation to its financial liabilities is provided in “Financial Statements Note 29-Financial instruments and risk management” on pages 249 to 259 of the Annual report 2020. –Information regarding taxes payable obligations is provided on the Group's balance sheet. Taxes payable include balances that relate to uncertain tax positions. This may mean the commitment is greater or less than that provided. We expect that these contractual commitments for expenditure, together with other expenditure and liquidity requirements, will be met from internal cash flows and, to the extent necessary, from existing facilities. Except as disclosed in “Financial Statements Note 20-Cash and cash equivalents” on page 241 of the Annual report 2020, there are no material legal or economic restrictions on the ability of our subsidiaries to transfer funds to the company in the form of cash dividends, loans, or advances. 31 5.F Tabular disclosure of contractual obligations The table below presents information in relation to our material off balance sheet arrangements and contractual commitments described in Item 5.E. <1 yr 1-3 yrs 3-5 yrs > 5 yrs Total At 31 December 2020 $m $m $m $m $m Expenditure commitments in relation to: Other (capital commitments) (3,021) (97) 0 (34) (3,152) (3,021) (97) 0 (34) (3,152) Long-term debt and other financial obligations*: Trade and other financial payables (5,251) (68) (53) (394) (5,766) Borrowings before Swaps (351) (1,410) (3,148) (7,477) (12,386) Lease liability payments (271) (386) (185) (724) (1,566) Expected Future Interest payments (525) (1,017) (896) (2,999) (5,437) Asset retirement obligations (776) (1,203) (1,433) (13,988) (17,400) Purchase obligations (3,100) (3,006) (2,090) (8,437) (16,633) Other (28) (23) (18) (162) (231) (10,302) (7,113) (7,823) (34,181) (59,419) Total (13,323) (7,210) (7,823) (34,215) (62,571) *Other contractual commitments that the Group has where the maturity profile is unknown include pension obligations of $3,055 million, taxes payable of $2,327 million and guarantees of $146 million. Taxes payable include balances that relate to uncertain tax positions. This may mean the commitment is greater or less than that provided. The Group also has short term lease commitments of $155 million and leases committed but not yet commenced of $125 million which have not been disclosed in the table above. 5.G Safe harbor The information set forth under the heading “Forward-looking statements” on page 384 of the Annual report 2020 is incorporated herein by reference.