Executive Memo

RIO TINTO -ESG AND RESTRUCTURING

Raminder Kaur | ZZBU8702-Corporate Finance | 05.02.23

ENVIRONMENTAL, SOCIAL & GOVERNANCE
Rio Tinto, a leading global mining group, is committed to Environmental, Social, and
Governance (ESG) activities. They focus on responsible production, climate change, water
stewardship, biodiversity, human rights, community engagement, and transparency in their
operations.
In terms of environmental responsibility, Rio Tinto is committed to reducing its carbon
footprint and managing its environmental impact. They have set ambitious targets to reach
net zero emissions by 2050 and reduce their absolute emissions by 15% by 2030.
In the social aspect, Rio Tinto aims to respect human rights, foster relationships with
communities, and ensure the health and safety of their employees. They have policies to
ensure fair labor practices, community development, and respect for indigenous rights.
In terms of governance, Rio Tinto is committed to maintaining high standards of corporate
governance, business integrity, and transparency. They have a robust governance structure
in place, with clear roles and responsibilities for their board and management.
Overall, Rio Tinto's ESG activities are aimed at creating sustainable and responsible mining
practices that benefit their stakeholders and the environment.

Sustainability Strategy

In 2018, we launched our first integrated sustainability strategy. This strategy commits us to
adopt high standards, often going beyond legal requirements, on the sustainability issues
that are material to our business, our employees, the communities that host us, and the
customers that buy and use our products. The company's goal is to achieve consistent, high-
quality social and environmental performance across all our operations and to increase our
stakeholders' knowledge of how we work through meaningful disclosures and transparency.

The strategy we have developed, which can be summarized into three pillars. These pillars have
been carefully crafted to guide our organization toward achieving our goals and objectives effectively.

The first pillar focuses on running a safe, responsible, and profitable business.

The first pillar focuses on running a safe, responsible, and profitable business. Safety is our
top priority, and we have implemented robust standards, processes, and tools to ensure the
health and safety of our employees, the environment, and the communities in which we
operate. Additionally, profitability is vital in creating sustained value for our shareholders,
communities, governments, and employees. We are dedicated to upholding employee
rights, business ethics and integrity, and environmental respect as integral aspects of our
operations. Transparency plays a crucial role as we believe that providing access to
information about our business is vital in building trust with our stakeholders. Hence, we
regularly disclose relevant information on how we conduct our business and report on our
sustainability performance.

The second pillar revolves around the success of our communities and
our contribution to governments and partners, including Indigenous
groups: collaborating to enable long-term benefits where we
operate.

The second pillar revolves around the success and well-being of our communities and our
collaboration with governments and partners, including Indigenous groups. We strive to
leave a lasting, positive legacy wherever we operate. Our approach to community
development is aligned with the Sustainable Development Goals and considers global
technological, economic, and social changes. We are exploring holistic ways to make a
meaningful contribution, including enhancing our partnerships with government
development bodies at national, state, and provincial levels, as well as international
institutions like the World Bank Group. Supporting global initiatives like the Extractive
Industries Transparency Initiative ensures that the funds we disburse in taxes and royalties
to governments are transparently disclosed, thereby facilitating socio-economic
development and meeting community needs. We are actively seeking ways to leverage
financial tools, including those of social impact investors, to maximize the positive impact of
our community investments. Furthermore, we are investing in skills training that aligns with
the demands of the future workforce. By partnering with government entities and
educational institutions, we aim to provide people with nationally recognized qualifications
in automation, empowering them to adapt and seize opportunities.

Employment and job creation are central to our economic contribution in each of the 35
countries where we have a footprint. In 2019, we paid $4.5 billion in wages and other
employment costs.

The third pillar embodies our dedication: pioneering human progress

through sustainability, including the materials we produce and the
innovations we bring to market, aligned with the priorities of the
coming low-carbon economy.

The third pillar embodies our dedication to pioneering human progress through
sustainability, manifesting in the materials we produce and the innovations we bring to the
market. Mindful of the realities of climate change and its potential consequences, we have
integrated environmental, social, and governance (ESG) considerations into every aspect of
our decision-making process, including community engagement and actions to address
climate change. In 2015, we expressed our support for the outcomes of the Paris Agreement
and its long-term goal of limiting global average temperature rise to well below 2°C. We
recognize that this ambition requires collective efforts from governments and companies
alike. Hence, we strive to align ourselves with the priorities of the coming low-carbon
economy, contributing to a sustainable future for all.
Rio Restructuring:
Rio Tinto has successfully concluded its acquisition of Turquoise Hill Resources Ltd. This
acquisition was finalized at a consideration amount of approximately $3.1 billion, which will
simplify Rio Tinto's ownership of the globally renowned Oyu Tolgoi mine in Mongolia. As a
result of this acquisition, Rio Tinto now holds a controlling 66% direct interest in the Oyu
Tolgoi project, with the remaining 34% being owned by the Government of Mongolia
through Erdenes Oyu Tolgoi. The completion of this transaction was made possible after
receiving approval from the Yukon court in Canada, as well as the support of the majority of
TRQ minority shareholders.

The potential benefits that Rio Tinto would gain through the purchase of Turquoise Hill
Resources.

By acquiring Turquoise Hill, Rio Tinto will have the opportunity to fully control production at
Oyu Tolgoi, thus ensuring its profitability and reducing any associated risks that existed
before the acquisition.

It is worth noting that the Oyu Tolgoi mine not only encompasses open pit copper deposits
but also underground deposits that have revealed the presence of other precious minerals
such as gold and silver. However, the focus remains on copper exploration due to the recent
price increase, heightened demand, and market undersupply. Rio Tinto's size and influence
will enable it to capitalize on various locations within the Oyu Tolgoi mine site, maximizing
its potential.

In addition to the financial advantages, the acquisition of Turquoise Hill Resources will give
Rio Tinto access to key markets and strengthen its international presence. This will provide
the company with political and macroeconomic influence, enabling it to exert control over
the spot prices of commodities within these new markets.
IMPLICATIONS

The industry-wide implications of Rio Tinto's operations are significant. As one of the world's
leading iron ore suppliers, Rio Tinto's business decisions and strategies can influence the
global mining industry. For instance, during the 2000s commodities boom, Rio Tinto, like
other major mining companies, was swept up in the rush for growth, which had implications
for capital allocation in the industry.
Additionally, Rio Tinto's development of HIsmelt technology, which allows to production of
steel directly from low-grade iron ore, has the potential to revolutionize the steel-making
process, impacting the industry's approach to raw material sourcing and processing.
Furthermore, the company's operations and strategies can influence industry trends and
outlooks, as well as investment decisions.

BHP, with a market capitalization of approximately $42 billion, stands as one of Rio's largest
competitors in the market. Similarly to BHP, RIO also prioritizes strategies aimed at
promoting environmentally conscious operations and protecting indigenous heritage. RIO
has also faced issues such as the destruction of an indigenous heritage site and the social
implications of a male-dominated culture.

In response to these challenges, Rio has made pledges to improve its remote asset culture
and to prioritize the consideration of indigenous heritage sites when potential damage is
identified. These initiatives have the potential to set a precedent for other operators in the
industry, compelling them to increase their considerations for similar situations.

As a contractor, Rio must consistently perform above industry expectations to secure

contracts and maintain strong relationships with clients. These clients bear the ultimate
responsibility towards the society in which they operate, requiring them to provide
assurances of rehabilitating and protecting the ecosystems they impact.

Conclusion

Lastly, Rio Tinto’s ESG performance is quite attractive to investors. This shows that
the company is forward-thinking and ensures that it retains its position as a leader in the
mining industry and can still secure its future. A company with an outstanding ESG
performance has decreased levels of capital costs and an improved valuation. This is what
investors want to be part of companies that are sensitive to ESG issues, this is, the
future that we all want to be part of. Rio Tinto is on the right path.

REFERENCES
Rio Tinto completes acquisition of Turquoise Hill
Annual Report 2021 (markitdigital.com) Annual Report 2021 – Strategic Report (markitdigital.com)
Rio Tinto Climate Change Report 2022 (markitdigital.com)
PowerPoint Presentation (markitdigital.com)