Thank you, Alice. Good morning and good evening, everybody, and welcome to our 2020 full year results presentation. Due to ongoing restrictions as a result of the COVID pandemic, we are holding this presentation virtually. As usual, there will be time At the end of the presentation, for Q and A with Jacob, Peter and our Chairman, Simon Thomson. Now I would like to take a few seconds to point you to draw your attention to the cautionary statement on Slide 2, which contains important information on the basis of which this presentation has been prepared.
With that done, please let me hand over to Jakob and Peter. Jakob?
Good morning Good evening from Perth. I would like to first acknowledge the traditional owners of the land where I'm presenting from today, The Watugnunga people. I would also like to acknowledge and pay my respect to all traditional owners And indigenous people that host Rio Tinto operations around the world. 2020 was for Rio Tinto a year of extremes, A year when each one of us have faced challenges on a personal and professional level. For Rio, not only did we have to learn to live with a global pandemic, but the events At JUKAN, Gauge was a terrible chapter in Ryutensu's history.
Today, let me reiterate. The rock shelters at JUKAM should never have been touched. We should have dealt with the situation better. It was a dark day for Rio Tinto, for all our employees and for me personally. It rightly caused considerable damage to many of our relationships, But in particular, with the Bumlu, Guti, Gurama and Vinigura people, PKKP for whom it was a devastating breach of trust.
Earlier this week, I visited Dukan Gorge with the Boonu Gauti Gurama PKK elders and personally expressed my deep regret for the damage I witnessed firsthand the pain we had inflicted. It was a confronting experience And had a profound impact on me. I will never forget my visit to Dukan Gorge. I will never forget The hospitality of the Boonu Gauti Gauti Gautama Elders who hosted me and demonstrated A commitment to rebuild our partnership. The work we have to do at UCAN is beyond remediation at the site.
I'm convinced that we must not only remediate the site, but work in partnership with traditional owners on the development of our business for a shared future. It underlined that we must earn the right to become a trusted partner once more for traditional owners, indigenous people, Host communities, governments and other stakeholders. It is going to take time and great effort, but You have my assurance, this remains a key priority for the Board and the executive team. Turning to our 2020 operational performance, I want to thank and congratulate all employees On the agility, resilience and innovation, which enabled the business to manage the challenges of COVID-nineteen, I'm very proud of how we adapted to the challenges thrown at us. The way We will hold our fly in fly out roster arrangements to keep our iron ore business in the Pilbara on track is just one example.
In general, we were able to continue all our activities in a safe manner. As a result, we performed strongly. We continue to prioritize safety. And in 2020, we again achieved a fatality free year. Nothing is more important than operating safely, and we will remain focused on safety every single shift, every single day.
Turning to our financial performance, we achieved underlying EBITDA of $23,900,000,000 and a return on capital employed of 27%. We generated free cash flow of $9,400,000,000 This was after paying $7,800,000,000 in taxes and royalties and investing $6,200,000,000 in gross and sustaining CapEx. From this, we returned $6,300,000,000 to our shareholders. And we did this Against an extremely challenging economic backdrop as governments and businesses everywhere adapted to cope with the pandemic. The main driver for Yutinto in the mining industry remains China.
After some initial weaknesses in the early part of 2020, The Chinese economy has performed strongly benefiting from targeted stimulus. This underpins strong commodity prices, particularly for iron ore. As a company, we also benefited from our host governments recognizing mining as an essential business And allowing us to continue operating and delivering products to our customers. This meant people remained employed, suppliers had our business And taxes and royalties continued to be paid. Our balance sheet remains very strong with net debt of less than 1,000,000,000 At year end, this enabled us to declare a total dividend of $9,000,000,000 representing a 72% payout ratios.
This exceeds our policy and is in line with our practice during the last 5 years. During 2020, We also made further progress in addressing climate change. Mining and products we produce are vital in the transition to a low carbon economy, And we will see who will be at the forefront. To underline our commitment, we have today set our first scope 3 goals. This builds on our existing climate commitments.
We made genuine progress across a number of areas in 2020 and have a strong foundation to build on. But as I said earlier, we also need to improve in some areas. I'll set out how in a moment, but let me first hand over to Peter to run through the performance in more detail.
Thank you, Jakob. Good morning and good afternoon, everyone. I'm honored to be here as interim CFO. I've worked at Rio for the past 27 years across a number of roles, including Group Controller, Head of Health, Safety, Environment and Communities and Head of Investor Relations. Let me first turn to the market, starting with iron ore.
Overall, global fuel production fell by 1% in 2020. While China lifted its output to a new record Of just over 1,000,000,000 tonnes, we witnessed a 9% decline in the rest of the world. This gave rise to solid growth In China's demand for seaborne iron ore, which was exacerbated by disruption to the scrap market from the pandemic. At the same time, Severe weather events constrained supply, although cumulative shipments from the majors actually increased By 2% or 25,000,000 tonnes. Chinese domestic iron ore supply also expanded by just over 7% to around 290,000,000 tonnes to meet the record demand.
These factors led to a 17% increase And the delivered price of iron ore in 2020, and this has been sustained so far this year. Turning to Slide 7. While our iron ore business has benefited from robust demand and resilient prices, Other commodities have seen more volatility, but we did see a marked recovery in the second half of the year. Demand for primary aluminum declined by about 3% in 2020. COVID-nineteen severely impacted consumption, although with notable differences in regional recovery rate.
This was gradual in the West, while China's was V shaped, driving up prices in the second half. The copper price fell to a low of US0.29 dollars per pound in March, again due to COVID-nineteen. The rebound was led once more by recovering Chinese demand, supply tightness and declining inventories. Prices reached a 7 year high of USD 0.61 per pound in December, Chased up by net long investor positions of around 2,000,000 tonnes, less than 12 months ago, These had been over 1,100,000 tonnes net short. Underlying demand for titanium dioxide pigment Fell sharply in the Q2, leading to a deterioration in feedstock demand by the middle of the year.
However, structural factors remain favorable for high grade titanium dioxide feedstock and zircon supply. Now on to our financial results for 2020, summarized on Slide 8. As Jakob already mentioned, we've announced a very resilient set of financials against the backdrop of unprecedented conditions stemming from the pandemic. Starting with revenue. The 3% increase in revenue was mostly driven by price, In particular, iron ore.
Profitability increased further, lifting return on capital employed to 27% and underlying earnings to $12,400,000,000 Net earnings reflect excluded items of $2,700,000,000 notably exchange losses and impairments in aluminum and diamond. We further strengthened our balance sheet With net debt of $700,000,000 at year end, the Board was therefore able to declare total dividends per share for the year of USD 5.57 Let's now take a closer look at underlying EBITDA and cash flow. As you can see on Slide 9, the biggest driver in 2020 was commodity prices. These boosted EBITDA by $3,400,000,000 in aggregate, nearly all of which was iron ore. Lower volumes were mainly from a reduction in gold grades at Oyu Tolgoi and reduced refined copper sales at Kennecott Due to smelter maintenance, we also saw lower sales of value added aluminum and titanium dioxide feedstock, both driven by market conditions.
Despite disruptions to operations and markets caused by COVID, Our operational performance was strong, and we delivered production broadly in line with guidance. Our focus on cost control and productivity improvements continued throughout the year. Lower energy costs Increased underlying EBITDA by $500,000,000 mainly from lower diesel prices and reduced coal prices for 2 of our Pacal smelters. We also benefited from continued respite on cost inflation for certain raw materials for our aluminum business. However, this was outweighed by other cost pressures, notably fixed cost inefficiencies in our copper business from the lower volumes.
Overall, our higher unit cash cost, excluding energy and inflation, reduced underlying EBITDA by $450,000,000 In addition, we incurred around $300,000,000 associated with tackling COVID-nineteen across our operations, which we have included in other. So all in all, a stable performance with EBITDA of $24,000,000,000 up 13% on 2019. Turning to Slide 10. In 2020, we further improved our return on invested capital to to 27%. Our industry leading profitability is an ongoing feature of our performance.
For 19 of the past 20 years, we've delivered double digit return on invested capital. Most importantly, as shown on Slide 11, we have a business model that turns earnings into cash. Ever since we amended our capital allocation framework back in 2013, we've delivered strong and stable free cash flow, averaging $6,800,000,000 over the last 8 years. And we did it again in 2020, Generating €9,400,000,000 of free cash flow. Let's now take a closer look at our product group, starting with iron ore.
Before talking about our iron ore performance, I would like to echo Yakov's words about the deep regret We feel about the tragic event at Hugang Gorge. We've reassessed all our activities that have the potential to impact heritage sites. We'll continue to review mine plans to ensure protection A site of exceptional cultural value, and we've increased monitoring of operating activities. We've also integrated heritage management into our mining operations so that our iron ore business now has primary responsibility for communities and social performance. Jakob will come back to this.
In 2020, we increased our iron ore shipments by 1% and production by 2%. Improvements to our mine and asset health supported record total material moved, a solid performance considering weather disruption and strict measures to manage COVID-nineteen. These COVID-nineteen procedures are now business as usual for us. This translated into an underlying EBITDA of $18,800,000,000 which was 17% higher And 2019, we did experience a rise in unit costs, and I'll unpack that later. Free cash flow of $10,200,000,000 was up 7% and included a near 70% increase in capital spend.
This was mainly related to increased construction activity at Gudadary, our new 43,000,000 ton per year hub, which is due to ramp up in 2022. 2021 is set to be a key year As we tie in approximately 90,000,000 tons of replacement mine capacity at our existing hubs in Rogue Valley, West Angeles and West O'Thornen Finkein as well as Gudadawi. Our shipment guidance for 2021 takes into account the risks associated with this. Let me now turn to look at our iron ore unit cash costs on Slide 13. Since 2015, these have been stable for between $13 $0.15 a tonne.
In 2020, we came in just Above that at $15.40 Two factors account for the increment. COVID-nineteen costs were $0.60 a tonne Due to controls we put in place to keep our people safe, such as additional cleaning and flights, screening and roster changes. We also experienced a higher monthly volatility in the iron ore price and a sharp appreciation in the Australian dollar at year end. This triggered exchange effects, including losses on U. S.
Dollars receivables booked in our Australian dollar entities. Importantly, our underlying cost performance was flat year on year. In 2021, we see unit cash costs rise to just over $17 a tonne at the midpoint of our guidance. The biggest Single effect is currency. For many years, we've benefited from a relatively weak Australian dollar, but this is now reversed.
We're assuming an exchange rate of $0.77 which adds about $1.60 or 12 percent to unit costs. As I just mentioned, 2021 is an important year for the new replacement mines in Gudadary. Commissioning costs With its yet limited production, give rise to an extra $0.50 per tonne. Additional study The next wave of replacement mines, including Gudadari Phase 2 and Western Range, along with other resource development costs, Add a further €0.30 And finally, other items such as underlying inflation and higher fuel, partially offset by efficiencies at $0.40 While we have not provided specific cost guidance beyond 2021, We will be entering 2022 in much better shape. There will be an impact from our continuing brownfield development, which will include some longer hauls and steeper inclines.
But these will be offset by the benefits from increased production capabilities at Gudadari and the other replacement mine, if market demand is there. We can also see further Moving on to aluminum on Slide 14. Our financials demonstrate that this is the best integrated aluminum business globally. Production was stable Despite COVID related impacts on our operations and also on our markets, which gave rise to lower sales prices and reduced demand for value added product. Our focus on operational stability and cash flow generation, Along with lower input pricing, enabled us to deliver a solid underlying EBITDA, just 6% lower And $1,900,000,000 in operating cash flow.
The 3% return on capital employed reflects the toughest market The industry in 2015. Despite this, we actually increased free cash flow by 9% The $900,000,000 and profitability improved substantially in the 4th quarter, which augurs well for a better ROCE in 2021. We continue to take action to address less competitive assets. On that front, We were very pleased to make 2 recent announcements. Last month, we reached agreement on a new electricity supply from Meridian Energy, which allows us to continue operating the TY Point smelter in New Zealand until December 2024.
And just this week, we reached an amended power agreement in Iceland that will allow ICEL to continue operating with an improved competitive position. Let's now take a look at our Copper and Diamonds Group on Slide 15. 2020 started with weak market conditions, COVID-nineteen restrictions and a 5.7 magnitude Earthquake in Utah. We also experienced delays in restarting the Kennicott smelter following a planned shutdown And a temporary reduction in grades of both Kennicott and Oyu Tolgoi. However, a strong recovery in the copper price and fully operational smelter by October, coupled with very tight cost control, led to a 5% increase in EBITDA to $2,200,000,000 With margins ramping up to 47%.
The $600,000,000 negative free cash flow Reflected lower dividends from Escondida and a sustained level of investment of $1,700,000,000 This mainly related to the Oyu Tolgoi underground project, where we made significant progress, ending the year with a definitive estimate For Panel 0, in line with the ranges we first announced in July 2019. We were also careful not to float any of our other projects, Such as the fast move pushback at Kennicost. This sets us up well for 2021 as we gradually access higher grade. Jakob will talk more about OT shortly. Turning now to Energy and Minerals on Slide 16.
The business was flexible and resilient from an operational perspective, while fully complying with significant COVID restrictions in the U. S, Canada and South Africa. At the Iron Ore Company of Canada, we took advantage of stronger market conditions in Asia In the first half of the year, we switched our product mix, prioritizing concentrate over pellet And then return to higher pellet production as European demand recovered. Underlying EBITDA of $1,600,000,000 With 7% lower, with IOC shipping 8% higher volumes and benefiting from stronger prices, While mineral was impacted by the COVID-nineteen restrictions and weaker market condition, We progressed our evaluation projects with $200,000,000 of funding approved for the YADAR lithium borate feasibility study, which we expect to complete by the end of this year. Despite these challenges, Energy and Minerals recorded a very respectable 12% return on capital employed.
Now there is one thing that will not change at Rio Tinto, And that is our capital allocation framework, as shown on Slide 17. You would have seen this slide many times before, but it's important to point out we remain Fully committed to it. Sustaining capital is a priority, followed by the ordinary dividends. We then allocate between the balance sheet, Replacements in growth opportunities and additional shareholder returns. We're convinced that growth has to be about value generation And returns for our shareholders, this is not about volume.
It is about building sustainable cash flow. Over the past few years, we have consistently talked about a disciplined ramp up of our capital investments. This is exactly what we're doing. Slide 18 shows 2020 CapEx at $6,200,000,000 13% higher. COVID restrictions did slow the pace of spend in the first half.
But while Zolte South remains on full suspension, We have not had to cancel any projects. We now expect to invest around EUR 7,500,000,000 this year And next year, bringing the spend for 2020 to 2022 to around $21,000,000,000 a $1,000,000,000 increase. This increase is totally related to currency effects. Around half of our CapEx is Australian dollar denominated, And our guidance is based on an exchange rate of 0.77% versus 0.68% when we first provided guidance in October 2019. We introduced 2023 guidance for the first time at $7,500,000,000 This includes a substantial amount of yet to be approved projects.
As shown on Slide 19, Our balance sheet remains very strong. Net debt dropped further to just $700,000,000 or $1,500,000,000 On a pro form a basis, when you include 2020 taxes paid in arrears. We also have high liquidity of over $20,000,000,000 An elongated finance portfolio with average maturity of liabilities of around 9 years. During uncertain times, our balance sheet strength ensures we're able to continue to invest in the business to provide superior returns to our shareholders And create optionality. Now on shareholder returns on Slide 20.
Our policy, which dates Back to 2016 is to pay out 40% to 60% of underlying earnings on average through the cycle. Acknowledging the cyclical nature of our industry, the Board supplements the ordinary dividend with additional returns to shareholders Inferior is a strong earnings and cash generation. As you can see from this chart, over the last 5 years, We have consistently exceeded our policy with an average payout ratio of around 73%. 2020 was no exception. Today, we announced the final ordinary dividend of $5,000,000,000 And a €1,500,000,000 special dividend, bringing the total payout ratio to 72%.
On that note, I'll pass back to Jakob.
Thanks, Peter. I think you very effectively demonstrated many of Rio's core strengths. Our foundation is fundamentally strong, But there's also room for improvement. Our 2020 safety performance is the strongest In our 150 years' history, safety must remain our first priority. One accident, However minor is one too many.
Our people and our world class assets continue to deliver strong free cash flow, Resilient in almost all market conditions. And when it comes to allocating cash, as Peter said, we are absolutely To maintaining the discipline that you've come to expect from Ryutensio. These qualities are in my view at the core of YUTENZA's strong performance and must be maintained. In fact, we should build upon our strengths while also addressing the clear opportunities we have to do even better. We will pursue this by focusing on 4 areas.
Firstly, simply put, Rio Tinto must be the best operator. Our 2020 results demonstrate our operational strengths and improvements, especially with the additional challenges of COVID-nineteen. While we can further sharpen the consistency of our performance, more than anything, this is about leadership and empowerment. Secondly, I firmly believe that the foundation for our commercial success is impeccable ESG credentials. Our failure at DUGANT Gorge highlights how much work we have to do.
You have my commitment that we will drive towards consistently high ESG performance. Thirdly, we must excel in development from identifying opportunities to maturing and development in order to build the portfolio for the next decade and beyond. We will do this by using all our capabilities While maintaining an absolute commitment to capital discipline, however, we will only pursue opportunities that create value. We will not chase volume or commodities where there isn't value or the asset don't fit our portfolio. Finally, beyond performing in those areas, we must step up our external engagement, become a more outward looking company Fully participating in the societies in which we operate, this is our social license to operate and it is judged by others And it is essential for our long term success.
Now, My first task as Chief Executive was to carefully choose my leadership team. I fundamentally believe in teamwork. It will not be me taking all the decisions, and I'm certainly not the one who has all the answers. So setting the team It was absolutely crucial. 3 weeks ago, I announced our new leadership team, a major change with almost everyone new in job.
I decided to make these wide changes partly to ensure we had the best possible leader in each position, Partly to ensure the best possible team dynamics and also to make the changes now so that we have a stable team that Geeta can develop on the journey we have in the years to come. As part of the evaluation process, It was particularly highlight for me to learn how strong a leadership bench we have internally. I found exactly What I was looking for and I stand today in front of you very proud of the new leadership team. This is an experienced and very able team. They know Ryutinto very well and are all committed to unleashing the company's full potential.
I'm truly excited about what we can achieve together. The new executive leadership team will be effective only a few weeks from now and then the real work starts. Let me offer you a bit insight into the agenda that we will that we together will pursue. We have today announced a set of results, excellent financial performance and an improved operational performance in 2020 compared with 2019. But I believe there's room for improvement and we will pursue this.
To start, we must achieve operational excellence by unlocking real and sustainable improvements at each asset. This will be done by ensuring every single operation We have some of the most talented people in the industry, truly experts in their fields. We must allow them to make The maximum contribution in unlocking agents at every level of the organization. Finally, The effort will be integrated into the new Tinto production system that will capture these improvements, embed them and sustain them for the long term. Arnold, as the new Chief Operating Officer, is the right person to drive these improvements.
He brings deep mining an operational experience gained over 30 years in the industry. He has a proven track record of achieving operational excellence Through sustainable productivity improvements and cost reductions in a global business. However, This will be about teamwork with the Product Group Chief Executives and our Head of Technical and Safety all working together. When I joined Rio Tinto 2 years ago, one of the attributes that attracted me to the company was a long standing track record and commitment to This understandably has understandably damaged our standing, I believe that Viotemto has sound ESG credentials. However, I see it as a core value, a foundation for our business to have impeccable ESG credentials.
We are taking actions to increase the focus on How we work with communities, particularly the traditional owners. A vital step has been to enhance our governance in this space. We are modernizing and improving agreements, eliminating confidentiality clauses and being fully transparent when traditional owners agree. We also have a critical role to play in transitioning to a more sustainable economic model. Our portfolio of high quality iron ore, copper, aluminum and minerals are not easily substituted in our vital for a greener future.
We exited the colon in 2018, so today we don't extract fossil fuels. Last year, we set clear 2,030 CO2 emission targets and set an ambition of being net 0 by 2,050. Today, We set out our first Scope 3 goals and a commitment to working with our customers and their customers to reduce emissions and decarbonize the production of certain vessels. And we will include climate change targets in management incentive plans. And our TCFD aligned climate change report We'll be put to an advisory vote at our 2022 Annual General Meetings.
These are all significant changes that will drive behavior in our approach to tackling climate change. Turning to our portfolio and how we renew it over time, We must double down on development to create the portfolio for the next decade and the decade beyond. We have time to do so. Our portfolio should not be seen through a quarterly lens, but in terms of decades. Our history has demonstrated an ability to continue to renew our portfolio, and we must pursue this with excellence, Daring to take some risks within our tight capital allocation framework.
The list of projects are mostly known. There are important decisions to be taken in the next 12 months. We will, as a team, work them as hard as we can, But also commit to make rational choices. We have focused our major investment projects, including replacement mines in the Pilbara, where we remain on time and on budget ramp up Our Taltor underground and the Kennicott pushback. At the Yara project, we have advanced to the feasibility study stage and declared a maiden ore reserve.
The study is Project development and execution, sharpening our capabilities. For example, we're doing things differently at Reno with a more agile development pathway. We continue to work with our partners to optimize the Simedu project. We expect to complete the first phase of the technical optimization work of the infrastructure in the first half of twenty twenty one. Activity at the mine area has commenced and an update of the social and environmental impact assessment is underway.
At Resolution Copper, The final environmental impact statement led by the U. S. Forest Service was published last month. This is an important step, Although we are a number of years away from being in a position to considering sanctioning a full development. Finally, we continue to strengthen our project pipeline through our sector leading exploration activity.
Oyu Tolgoi is an impressive mine. It started producing in 2014 and has already delivered over 1,000,000 tons of copper. When fully ramped up, it will be the world's 4th largest copper mine. The underground expansion is well progressed and we have overcome various technical and geotechnical challenges. We have identified a clear pathway for the ongoing development of the underground with target date for sustainable production for Panel 0, about 2022.
Safety and productivity at the mine are consistently At the top end of the entire Rio Tinto portfolio, Oya Tolgoi is Mongolia's largest private sector employer. More than 95% Of the 12,000 employees are Mongolian. Oya Tolgoi is a top 3 taxpayer in the country And the largest foreign direct investor. Since 2010, over $11,000,000,000 has been spent In Mongolia, including salaries, payment to Mongolian suppliers and almost $3,000,000,000 paid to the government. Although construction work has slowed due to the COVID-nineteen restrictions, we remain on track to make a decision on the undercut in 2021.
We also continue to have constructive discussions with the Mongolian government about increasing the benefit I'm in regular dialogue with all stakeholders. Bolt Pata has already set his team And they have commenced discussions with the government of Mongolia. I remain convinced that we will be able to find mutually acceptable solutions As the Oyu Tolgoi development is not only an impressive engineering achievement delivering the needed copper To the world, but it is fundamentally a development for the benefit of the Mongolian people. I'd like to conclude With my 4th area of focus, to truly unleash the full potential as well as looking at how we can improve what we do internally, We need to be more outward looking and earn and protect our social license. As I said earlier, We must understand our role in society and investing in building meaningful relationships and partnerships, giving back to society and thereby Earn trust, it will be others who will judge our social license.
Clearly, this must happen by all of us wherever we are in the world. However, given the significance of Australia through Utensil, I've created the role of Chief Executive of Australia And Kelly Hager is the ideal person for that role. She's a proven operator with firsthand experience of building relationships with host communities, governments and other stakeholders. She will lead our effort with stakeholders across Australia Working closely with me and other Australian based ex co members. So let me summarize.
We have again achieved a strong safety and financial performance in 2020. We have strong foundations to build upon and a clear path forward To become best operator, build impeccable ESG credentials and excel in development and with a clear focus on gaining a strong social license. I'm looking forward to you meeting our new executive leadership during the year and no later than at the Capital Markets Day in the second half. We now have a full agenda ahead, and I must say, I'm really looking forward to the work to progress the agenda, develop our executive team and make Ryoutin to even stronger and over time See our great company earn back its respect and credibility with all our stakeholders. In other words, Rio Tinto is very well placed, but we can do better inside and outside the mine gate, and we will.
Thank you for listening in. We are now happy to answer questions you might have.
Thank you.
Thank you, Jacob and Peter. Operator, Alice, we can now take questions. Thank you.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. And our first question comes from the line of Paul Young from Goldman Sachs. Please ask your question. Your line is open.
Thank you and good morning, Jakob and Peter. Jakob, a few questions on your iron ore assets and starting with the Pilbara question on on heritage and CapEx. On top of the 4 mines currently under construction, roughly how many additional replacement mines Do you need to approve from 2021 to 2023 to maintain current production beyond 2023? Second question is on Cimindu. It's fascinating to see that some minor work at the mine site has commenced.
Can you confirm again that you are considering an infrastructure joint venture with the Northern Chinese Consortium through this technical Optimization work. And then also can I ask a Part B, how do you think what scenario does Simindu create value for shareholders Considering it would impact the value of the Pilbara? Thank you.
Thank you, Paul. Let me start with your second question about Silandu, I can confirm that we are doing as much work as possible in order to Establish a project and we have an open mindset on how the structure will be. It's not determined our 2 consortiums and We are well placed to be part of That development. So it's too early to conclude anything. I don't see that it's necessarily A negative for our Australian business, Paul, because the global airborne sorry, seaborne Iron ore market is 1,800,000,000 tons, and there is so much need for replacement mines in the decade to come There is space for a single development.
But look, we need to first have a project and look at the profitability of it before We can determine a path forward. Why don't I ask Peter to answer the CapEx question in the Pilbara?
Thanks, yes, Colin. Thanks for the question, Paul. So as I talked about this year, we will bring in The 3 new mines related to our existing hubs in Filborough and then Gudadary comes in and ramps up In 2022, they're the core. So as we go into 2022, we go in there with a pretty sort of clear Sort of set of assets and capacity there to which Sort of is aligned with sort of our infrastructure. What we will start then is sort of and I've started already is the next Phase of studies, we talked about Gisenare Phase II.
We talked about Western Range. Those studies will progress, And they will start to sort of come in, in 2023, 2024. We've already built those into our sort of CapEx Given we've given guidance for 4.23, but you should expect the sort of next set of minds to come in, in that starting in that period. Thanks.
Thank you. Our next question comes from the line of Jason Fairclough from Bank of America. Please ask your question. Your line is open.
Good morning, everybody. Thanks for the call this morning. So just a bit of a simple question on iron ore production targets. So once upon a time, we were told that your iron ore business had a nameplate Capacity of 360,000,000 tonnes a year. Lately, it seems to be more like 330,000,000 and that's even with some pressure on product Quality, how should we think about this in the medium term?
Yes. Thank you, Jason. Look, think actually what you see here is entirely consistent to our Capital Markets Day a year and a half ago, where we talked about where we were About our capacity, which is probably around 360, you've got slightly different capacity on the port where there is capacity. We have further improved the maintenance of the rail, so that's less of a restriction. But we did say 1.5 years ago, the 2020 2021 would be tough for the mines.
We would have to run the mines hard Before good eye direct goes on stream, and that's exactly what we're doing. And therefore, in a way, I'm very proud today to Tell you that our production last year increased by 1% compared to previous year. And if you take the midpoint of our range for this year, there's Fair enough growth this year compared to last year. So I think we are faring exactly as we laid out at the Capital Markets Day. And yes, next year when good Ibuyer comes on stream, we have much more flexibility, but we're only guiding for 1 year.
Thank you.
Sorry, Jakob, if I could just follow-up and in a way this comes back To Paul's question, Do you think that there's a risk here that with the new focus on these heritage sites that your production and for that matter, Pilbara production In general, struggles to stay flat, never mind grow.
Look, I cannot remove all risks And I don't know what would be the outcome of the new legislation in WA, of course. But I must say, and it's only 2 days ago, I was mine site at Brockman and visited Duke and Gorge. When I talk to people, when I talk to the traditional owners, when I talk to our people on-site, We still see lots of opportunities. We need to be to really develop the relationship being Really respectful, but there is a big opportunity for us to develop things together. So I remain optimistic.
And I think so far we have proven that we have been able to continue to produce and that's what we're indicating with the production guidance this year.
Okay. Thank you, Jakob.
Thank you. Our next question comes from the line of Aidan Bijzer from Macquarie. Please ask your question. Your line is open.
Thanks. Good morning, Jakob. Just a question, I guess, more on the sort of management changes and just getting an understanding of your comments before about you think there's now the right people in the right roles. I mean, are we Expecting to see material changes to these divisions and sort of the assets within them? I think that there's sort of these new the new sort of positions have been given license Do that?
Or is it about sort of getting costs down and getting production consistency, as you said, and licenses to operate? I'm just interested in your thoughts around that. Thanks.
Yes, thank you. Look, it's a matter of preserving all the good things of Ryutinto And driving the 4 priorities I laid out in the presentation here, I'm very keen on making the big significant change to the Executive leadership team quickly and stabilized the organization having as little change as possible. I gave you the full thought, should I change, for example, the product group structure. And I together with Consulting with the Board, we decided not to change that. So it's similar structure.
There's a small little change. As you have seen, we have moved diamonds So minerals, so it's now minerals and not energy and minerals. And copper is purely copper, but we brought the CIM and BOO project together with copper. But these are Small adjustments to your model. Otherwise, I want the same structure.
Quite frankly, the worst thing you can do at this point in time, I think,
Thank you. Our next question comes from the line of Linda Stadric from Deutsche Bank. Please ask your question. Your line is open.
Good morning, Jakob. Firstly, just a follow-up on Simandu, just on the time line. Can you shed any light on when you will have to make Or could have to make a major investment decision on the projects or a decision not to participate? Is it this year? Or is it beyond 2021?
And then secondly, on the climate front, you're clearly making tangible progress with the recent partnerships we've seen. But in the context of the results you've Do you think Rios is spending enough on downstream initiatives? And could that €1,000,000,000 climate budget that you have, Could that be revised higher in the near term? Thank you.
Yes. Thank you. Look, We're not going to make a massive investment decision in Simmental this year, but I certainly expect the project It's a focus a lot and we should get much more clarity about how it would look like and how we will work together, etcetera. So it's full steam ahead, but it's a very big project. Going to climate change, yes, Look, we are all in on climate change.
We are very committed, the Board, the executive team. I think you've seen our commitment for our own emissions last year and now with the Scope 3. But we also have to be realistic. The world doesn't have all the answers yet, and you can only progress things that fast. So we could try to spend more money On research and development, but the risk is that we just earn money.
I actually think it's very meaningful joint ventures And it's meaningful money we are spending here. And back to the $1,000,000,000 Really, so far, we have taken Good investment decision that reduce our carbon footprint and actually are also profitable. And as long as it meets both criteria, I see no reasons why we shouldn't be able to accelerate. But again, it is difficult. It's a learning process.
It is a ramp up. We are all in, and we are trying to do as much We can, but I think we are no different from many others in this world that this is a big, big transition where we all have to learn a lot. So I think think you've got the right guidance, and I think the numbers you're seeing here demonstrates a full commitment. Thank you.
Thank you. Thank you. Our next question comes from the line of Lindon Seiden from JPMorgan. Please ask your question.
Thanks very much. Look, the first question is just about the Philbrub. There's a comment in the release about the 90,000,000 tonnes of Capacity ramping up this year, that's a lot of capacity. I'm just wondering if we can unpack that a little bit and talk about Some of the risks around production and how you're dealing with that. And I guess once that's done, Are you prepared to sort of put out there that system capacity at the mine port and rail would all be matched at 360?
The next question is just on Cimindu. I guess before we learn what the sort of scope looks like, Can we talk a bit about the community and heritage issues over there? There's a lot of communities within the center line of the rail. And I'm just wondering from an ESG perspective, is this a project that Rio can actually undertake? And would shareholders support A multibillion dollar investment decision in Guinea.
Thanks.
Lyndon, I might Take your first question there, just on the sort of 90,000,000 tonnes of time. So we have taken that into account In both our guidance on production and our guidance on unit costs, but we are doing those times this year. It is a lot of capacity to bring into the system. And what you've got to remember, effectively, they are this is tying in capacity to existing hubs Where we're building new mines and then connecting them into those existing hubs. So they will come on progressively during the year At those 3 mines, I think it's all been sort of, I think, proceeding to plan.
Clearly, some risks, but all taken into account in guidance. In terms of looking forward to 2022, as Jafar said, we are Pretty much exactly going into 2022, where we talked about the Capital Markets Day in December 2019. With Guidedari in place, That lifts our mine capacity up. And if the market is there, we will have capacity to go higher in the mines And that's back to the floor from Rael. Thanks very much.
Over to you, Jakob, I think on the second question.
Yes. Look, Simandou, let me take that one. I've been there, And it's a big learning experience to go there. It is going to be a very big infrastructure project above anything. And the answer to your question is, I don't know.
But the answer is that the ESD is a table stake for us, And that's one of the reasons we think we can add a lot of value to the development of Sinan Du. And I also sense in my conversations with the And the Ginnie that they think as well as much on these matters as we do. So I see here is an area where we can make a contribution, but you can rest assured that we, I, the Board, are not going to take an investment decision that compromises our ESG credentials. Thank you.
Thank you. Our next question comes from the line of Alain Gabriel from Morgan Stanley. Please ask your question.
Yes. Good morning, gentlemen. One question from my side is on capital allocation. So your balance sheet is nearly in a net cash position. You would probably generate in excess of $20,000,000,000 of free cash for this year on spot with no obvious big ticket items on the horizon.
While you have been consistent with your strategy so far, you think it is now time to revisit your capital allocation framework or introduce more flexibility on how you think about capital returns? Thank you.
Yes. Look, we don't know how the iron ore price we know what the iron ore price is today. We don't know what it is tomorrow. So a bit of a theoretical calculation. But honestly, yes, the debt net debt is very low right And obviously, the stronger the balance sheet, the easier it becomes to allocate our cash.
But I actually think That our capital allocation framework serves us also in a high priced scenarios. I think you already see here, If you look at what we have done here with the dividend adding up to 9,000,000,000 And our free cash flow last year was $9,400,000,000 We are certainly not astenty on paying back dividends. And we are also Slowly but surely, as we have said over the last few years, ramping up our investments. So I think it works, and I think we have the balance right. Thank you.
Thank you.
Thank you. Our next question comes from the line of Miles Olesop from UBS. Please ask your question. Your line is open.
Great. Thank you. Just a couple of questions around Oyu Tolgoi and then the Scope 3 goals that you've set out today. But first of all, with Ory Tolgoi, are you prepared to put more money Into Mongolia, buying out the government stake, increasing kind of your equity ownership one way or the other. And if these discussions don't progress to plan, what Could you is it beyond the point now of freezing spend and stopping underground work?
Yes. Are you prepared to scrap the Dubai agreement? So a little bit more color around the latest grid Oyu Tolgoi and How that could evolve? And then with the Scope 3 goals that have been set out, I mean, how are you going to measure The sort of achievement, 30% reduction in carbon sort of emissions or intensity of your customers. And Yes.
Is that going to be part of your you mentioned that the climate goals are part of management incentive. Is it going to be Scope 3 or As well as Scope 1 and 2 that will be part of the incentivization package. Thank you.
Yes. So, first of all, on Oryotalcoy, we are very committed to it. And We are actually putting in more money every single day because we are investing in the underground development and it's progressing. But there's nothing in the cards that we should start buying out anyone here. We are very comfortable With the risk sharing and the stake that we have in Oyu Tolgoi, what it's all about right now is to have the right conversation And find the right solutions.
And quite frankly, I don't know exactly what the solution is. We are just having Setting a new team here, a little bit of a reset, and we are working very hard on building relationships. As I said, we have Constructive discussions. And the good news is that there is a big win win here for both The country, the government of Mongolia and ourselves. So I just remain convinced that we'll find solutions They're very complex topics.
So I really don't know exactly what the solution is. What is the right if we both have an incentive To find solutions and we have the right relationship, I remain convinced we will get to solutions. So that's where we are on At this point in time, scope 3, yes, we are just entering today. It's an important one. And I think the way you should look at it is a full commitment from our side to work on this.
And I also think the world has changed quite a lot over the last 12 months. We now see a much more united world attacking the climate change agenda. We see I mean, China is at the forefront with the latest commitment to being neutral in 2,060, Which is going to be a massive challenge given the magnitude of the industry in China. We See demands from our customers that we together work on solutions. So I will say to you, we don't know exactly how, But when we join forces and have everyone have the commitment, I'm sure we will find solutions.
Okay. Thank you.
Thank you. Our next question comes from the line of Glyn Lowcock from UBS. Please ask your question. Your line is open.
Good afternoon, Jakob. Welcome to Australia.
Thank you.
Just on the Simadu project, I guess I'm just a little unclear. So you're doing the studies Before you engage? Or have you engaged with the SMB winning consortium at least in the first place? Because They seem to be moving ahead fast. They've already started construction on the port and tend to start construction on the rail if we based on what we're hearing.
Are you at risk of getting left behind? That's the first question. And then the second one is just on dividends. If I'd look at it Pro form a with what you've announced today, the tax catch up in your net debt at year end, it leaves you with pro form a net debt of about 8,000,000,000 So should I think about it going forward, you mentioned you paid out almost 100% of free cash flows. Is that how I should think about it?
I know your policy is unchanged, but is that sort of How I should think about it and dividends, not buybacks going forward? Thanks.
Thank you, Adam, will you take the dividend? I'll come back on Simon.
Thanks, Jakob. Glyn, I think on the dividend, you really should just sort of just review what we've done within the context of our policy previously. It's been very, very Consistent the application of that policy, and I think it serves us extremely well over time. So It really is that 40% to 60% over the cycle of payouts with additional payments As and when the overall settings were sort of conducive to do that. And I think that's exactly what we've done this year.
In terms of form, we'll review it each time. Different shelves have different preferences there. We're very aware of that. But we've gone for a the Board's gone for a special dividend this time. And I think That's where we'll leave it.
So thank you very much, Tim. Jako, back to you.
Yes. Look, I'm maybe not very helpful on this one with Simon Doo, but as you probably can imagine, discussions and negotiations, you might Keep inside closed doors, but I would say that a lot of engagement is happening, and I think it becomes more and more clear how we best can contribute to the development. Looking forward to give you an update, but I'm not able to read much more at this point in time. Thank you.
Thank you.
Thank you. Our next question comes from the line of Raul Ament from Morgan Stanley. Please ask your question.
Good morning, Jacob and Peter. Thanks for taking my questions. I've got 2. First one is on the Pilbara iron ore. Look, You had a small reserve cut today in the iron ore reserve statement.
I just wanted to focus here a bit on the reasons for that. I take it, it was Likely heritage issues and the mine plan for the next 12 to 24 months. So does this Now de risk your production for the iron ore business at least for the next 24 months. And is there any future recalculation risk here to reserves That's the first one. Second one is on Yada.
I understand a portion of that $200,000,000 was budgeted for land acquisitions. How far down are you on that path? And also these direct land acquisitions, does this potentially add to the Complexity in terms of royalties to land owners and then also perhaps the government? And also is there a framework in place with the Serbian government for the project. Thanks.
Thanks very much for the question. So in terms of the silver, yes, we took a small reserve write down 54,000,000 tonnes, which we talked about in the release. I think that has to be put in the overall scale of the business. So when you compare that to the overall reserve position, Especially the results position. It is a relatively small change.
I think what you're really seeing is now that So we've really done a reset about our approach to heritage in the Pilbara. But it's going to be a continual process of us working Engaging with our partners and traditional owners to make sure that we are absolutely sort of in the right place around the ongoing heritage approval. I think the only the thing that clearly we haven't factored in there is the fact that the WA heritage laws are under review. So we just don't know How that will flow through as well. So that's not factored in.
But I think what you're seeing in the big picture is just the sheer scale of sort of the business and the options that we have, The ability to sort of internalize these challenges and just work through them over time And retaining a sort of very robust production base there. So thank you for the question. In terms of YADR, studies are progressing. Yes, there's a portion there of sort of Land acquisitions that will be embedded and will be progressed this year as we go through. Probably just best So the study programs are progressing as we'd expect towards the decision at the end of this year.
Probably That's the sort of best guidance we can give at this moment in time. So thank you very much.
Thanks for that.
Thank you. Our next question comes from the line of Carsten Rink from Credit Suisse. Please ask your question.
Thank you very much. A question from my side is on, I believe, on the potential Removal of underperforming assets. Because the announcement of the closure of your aluminum smelter JV, Alokomie in Netherlands Earlier this week underpins the move of cutting out underperforming assets. Did you already identify all of the underperforming assets? And do you have a percentage of sales number for those business versus group sales you currently review?
That will be quite helpful.
Yes. Thank you. Thanks for the question. I really felt I joined 2, 2.5 years ago, and I felt that just before I Kim, a tremendously well piece of work was done. We sold assets for almost $15,000,000,000 And we sold them at good prices at a good time in the cycle.
And that actually both simplified And purify our portfolio. So we don't have a lot of assets underperforming assets Steve, we are being through a very tough time, particularly for the aluminum smelters. And I'm particularly proud of You probably will remember around a year ago, we put 2 of our smelters up for strategic review. And recently, we Over the last few weeks, we've just announced energy resets, both at our smelter in New Zealand and our smelter in Iceland, Which kind of secured employment and improved the competitiveness. So yes, we are very committed So addressing underperforming assets, but that doesn't mean closure.
It doesn't mean necessarily a sale. There are different ways as well. But rest assured, we are not kind of just accepting to have underperforming assets for the long haul in our portfolio. We still have some work to do On energy reset for particularly some of our Australian smelters. Thank you.
Thank
you.
Thank you. Our next question comes from the line of Tom Niko Kane from JPMorgan.
Good morning, guys. Just two questions. The first on the Pilbara and turning to costs. I wonder if we could just maybe unpack the unit cost guidance for 2021. The increase year on year It's largely attributable to FX, but the top end of the range
would look a little bit
high versus our own forecast Just on FX alone. So I wonder if you could just talk about some of the cost pressures that you may be experiencing in the Pilbara, specifically around labor, haulage, The water table. And then with that incremental 90,000,000 tons of capacity coming in over the next 2 years, Can you confirm that we should be expecting unit costs to start to fall again? Second question is on Simindu. So we've got CapEx guidance is $7,500,000,000 out to 2023.
Can you give us an indication of what the CapEx
Thanks very much. So I might take the first question there on Filvera costs. In terms of the unit costs, I mean, as I said, most of that increase is driven By exchange. So it's the exchange that effectively resets to about $16 when we use what is effectively The exchange rate in the market is at $0.77 From there, though, we as I said, this year is a big transition year For bringing in those incremental tonnes into the system and also for the commissioning of Gudadiere and also for ramping up into the next Phase of studies. So we've highlighted that we have study costs that are also increasing our overall cash unit cost as well.
What we see is when we get it to the end of 2021 into 2022, we're in much better shape. Those sort of one off costs are behind us. So I think when you think about the profile of unit costs, think of us going into 2022 with those costs Sort of so commissioning in the 90,000,000 tonnes then dealt with. And That's sort of all guidance from there at the higher sort of exchange rate. I think that's probably the best guidance I can give.
And I'll hand over to Jacob on Simandou.
Yes. Look, I guess your question is how much we have in our CapEx guidance. And Quite frankly, we don't disclose that because the way you should think about our CapEx guidance is that We risk a portfolio. And as you can imagine, every time we take a decision, it becomes binary, either it's 100% or 0%. So there is a risk part for each of our projects and that's what it constitutes of.
So I'm afraid I can't help you much on that one. Thank you.
Operator, we have time for one more question please.
Excellent. Our final question comes from the line of Richard Atsch from Berenberg. Please ask your question. Your line is open.
Yes. Thanks very much and congrats on a good set of numbers. Two questions. First one, Oyu Tolgoi, As you look out into panels 12 as the mine progresses, where's your head at in terms of having Subdivide those panels into separate sub panels for geotechnical stability and what are the risks around that? And the second one is, I appreciate I'm probably trying on something which you're not going to give, but are you able to give us any kind of ranges of CapEx So, Yadar and Winnie, please.
Just because they're kind of near term and it would be useful to kind of have a handle on what kind of I'll take the numbers that those projects are going to take. Thanks.
Thanks very much for the question on that. So in terms of OT, the studies on panels 12 are still ongoing. So We're not yet ready to sort of talk in detail about those designs because we still have a lot of work to do. We're very, very clear as we've described to market on Panel 0, and we've got the definitive estimate there. But the study is ongoing with Panel 12.
So please just sort of be a bit patient with us for that while we do the work. In terms of Wino and Yatra, Again, we're not yet ready to give sort of guidance on capital. The work is continuing. And as we said, that should come to an end Near the end of this year, when we will be sort of taking decisions on those projects. So just again, sort of just ask your patience On those 2 as well.
Thank you very much.
Great. Peter and Jakob and Simon, thank you very, very much. Everybody, thank you for joining this morning and this evening, and we'll hope to see you soon in the roundtables or in 1 on 1 meetings. Have a good day and a good evening. Thank you.