Financial instruments

6 Months Ended

Jun. 30, 2024

Disclosure of detailed information about financial instruments [abstract]

10. Financial instruments

Valuation hierarchy of financial instruments carried at fair value on a recurring basis

The table below shows the classifications of our financial instruments by valuation method in accordance with IFRS 13 “Fair Value Measurement” at 30 June 2024 and 31 December 2023.

All instruments shown as being held at fair value have been classified as fair value through the profit and loss unless specifically footnoted.


	30 June 2024					31 December 2023
	Held at fair value			Held at amortised cost US$m	Total US$m	Held at fair value			Held at amortised cost US$m	Total US$m
	Level 1(a) US$m	Level 2(b) US$m	Level 3(c) US$m			Level 1(a) US$m	Level 2(b) US$m	Level 3(c) US$m
Assets



Cash and cash equivalents(d)	4,129	—	—	5,127	9,256	2,722	—	—	6,951	9,673


Investments in equity shares and funds(e)	82	—	136	—	218	85	—	96	—	181


Other investments, including loans(f)	474	—	300	21	795	896	—	228	153	1,277











Trade and other financial receivables(g)	16	1,115	—	2,055	3,186	9	1,383	—	1,851	3,243


Forward, option and embedded derivatives contracts, not designated as hedges(h)	—	32	59	—	91	—	28	26	—	54
Derivatives related to net debt(i)	—	37	—	—	37	—	87	—	—	87














Liabilities



Trade and other financial payables(j)	—	(80)	—	(6,005)	(6,085)	—	(47)	—	(6,277)	(6,324)



Forward, option and embedded derivatives contracts, designated as hedges(h)	—	—	(158)	—	(158)	—	—	(174)	—	(174)
Forward, option and embedded derivatives contracts, not designated as hedges(h)	—	(64)	(65)	—	(129)	—	(63)	(29)	—	(92)
Derivatives related to net debt(i)	—	(532)	—	—	(532)	—	(516)	—	—	(516)

(a)Valuation is based on unadjusted quoted prices in active markets for identical financial instruments.

(b)Valuation is based on inputs that are observable for the financial instruments, which include quoted prices for similar instruments or identical instruments in markets which are not considered to be active, or inputs, either directly or indirectly based on observable market data.

10. Financial instruments (continued)

(c)Valuation is based on inputs that cannot be observed using market data (unobservable inputs). The change in valuation of our level 3 instruments for the period to 30 June 2024 and 31 December 2023 is as follows:


	30 June 2024	31 December 2023
Level 3 financial assets and liabilities	US$m	US$m
Opening balance	147	131

Currency translation adjustments	(1)	(2)
Total realised gains/(losses) included in:
– consolidated sales revenue	—	12
– net operating costs	(11)	(18)
Total unrealised gains/(losses) included in:

– net operating costs	94	43
Total unrealised gains/(losses) transferred into other comprehensive income through cash flow hedges	9	(1)
Additions to financial assets/(liabilities)	50	29

Disposals/maturity of financial instruments	(16)	(47)

Closing balance	272	147
Net gains included in the income statement for assets and liabilities held at period end	84	31

(d)Our Cash and cash equivalents of US$9,256 million (31 December 2023: US$9,673 million), includes US$4,129 million (31 December 2023: US$2,722 million) relating to money market funds which are treated as fair value through profit or loss (FVPL) under IFRS 9 with the fair value movements reported as finance income.

(e)Investments in equity shares and funds include US$192 million (31 December 2023: US$157 million) of equity shares, not held for trading, where we have irrevocably elected to present fair value gains and losses on revaluation in other comprehensive income (FVOCI). The election is made at an individual investment level.

(f)Other investments, including loans, covers cash deposits in rehabilitation funds, government bonds, managed investment funds and royalty receivables.

(g)Trade receivables include provisionally priced invoices. The related revenue is initially based on forward market selling prices for the quotation periods stipulated in the contracts with changes between the provisional price and the final price recorded separately within “Other revenue”. The selling price can be measured reliably for the Group's products, as it operates in active and freely traded commodity markets. At 30 June 2024, US$1,080 million (31 December 2023: US$1,362 million) of provisionally priced receivables were recognised.

(h)Level 3 derivatives mainly consist of derivatives embedded in electricity purchase contracts linked to the LME, midwest premium and billet premium with terms expiring between 2025 and 2036 (31 December 2023: 2025 and 2036). Derivatives related to renewable power purchase agreements are linked to forward electricity prices with terms expiring between 2053 and 2054.

(i)Net debt derivatives include interest rate swaps and cross-currency swaps. As part of the International Swaps and Derivatives Association (ISDA) Fallbacks Protocol, on 1 July 2023 we completed the transition of our US LIBOR derivatives to SOFR on cessation of US LIBOR at 30 June 2023. There was no impact on our hedging arrangements after taking into account the IFRS 9 ‘Financial Instruments’ LIBOR reform reliefs.

(j)Trade and other financial payables comprise trade payables, other financial payables, accruals and amounts due to equity accounted units.

There were no material transfers between level 1 and level 2, or between level 2 and level 3 in the current or prior period.

10. Financial instruments (continued)

Valuation techniques and inputs

The techniques used to value our more significant fair value assets/(liabilities) categorised under level 2 and level 3 are summarised below:

30 June 2024

31 December 2023

Description

Fair value
US$m

Valuation technique

Significant Inputs

Level 2

Interest rate swaps

(212)

(163)

Discounted cash flows

•Applicable market quoted swap yield curves

•Credit default spread

Cross currency interest rate swaps

(283)

(266)

Discounted cash flows

•Applicable market quoted swap yield curves

•Credit default spread

•Market quoted FX rate

Provisionally priced receivables

1,080

1,362

Closely related listed product

•Applicable forward quoted metal price

Level 3

Renewable power purchase agreements

(7)

—

Discounted cash flows

•Forward electricity price

•Energy volume

Derivatives embedded in electricity contracts

(157)

(186)

Option pricing model

•LME forward aluminium price

•Midwest premium and billet premium

Royalty receivables

279

214

Discounted cash flows

•Forward commodity price

•Mine production

Sensitivity analysis in respect of level 3 financial instruments

For assets/(liabilities) classified under level 3, the effect of changing the significant unobservable inputs on carrying value has been calculated using a movement that we deem to be reasonably probable.

Net derivative liabilities related to our renewable power purchase agreements have a fair value of US$7 million at 30 June 2024 (31 December 2023: nil). The fair value is calculated as the present value of the future contracted cash flows using risk-adjusted forecast prices including credit adjustments. A 10% increase in forecast electricity prices over the remaining term of the contract would result in a US$221 million increase in fair value and a 10% decrease in forecast electricity prices would result in a US$221 million decrease in fair value.

To value the long-term aluminium embedded power derivatives, we use unobservable inputs when the term of the derivative extends beyond observable market prices. Changing the level 3 inputs to reasonably possible alternative assumptions does not change the fair value significantly, taking into account the expected remaining term of contracts for either reported period. The fair value of these derivatives is a net liability of US$157 million at 30 June 2024 (31 December 2023: US$186 million).

10. Financial instruments (continued)

Royalty receivables include amounts arising from our divested coal businesses with a carrying value of US$279 million (31 December 2023: US$214 million). These are classified as “Other investments, including loans” within "Other financial assets". The fair values are determined using level 3 unobservable inputs. These royalty receivables include US$97 million from forecast production beyond 2030. These have not been adjusted for potential changes in production rates that could occur due to climate change targets impacting the operator.

The main unobservable input is the long-term coal price used over the life of these royalty receivables. A 15% increase in the coal spot price would result in a US$26 million increase (31 December 2023: US$64 million increase) in the carrying value. A 15% decrease in the coal spot price would result in a US$81 million decrease (31 December 2023: US$39 million decrease) in the carrying value. We have used a 15% assumption to calculate our exposure as it represents the annual coal price movement that we deem to be reasonably probable (on an annual basis over the long run).

Fair values disclosure of financial instruments

The following table shows the carrying value and fair value of our borrowings including those which are not carried at an amount which approximates their fair value 30 June 2024 and 31 December 2023. The fair values of some of our financial instruments approximate their carrying values because of their short maturity, or because they carry floating rates of interest.


	30 June 2024		31 December 2023
	Carrying value US$m	Fair value US$m	Carrying value US$m	Fair value US$m
Listed bonds	8,532	8,221	8,607	8,672
Oyu Tolgoi project finance	3,851	4,085	3,850	4,090
Other	499	501	544	494
Total borrowings (including overdrafts)	12,882	12,807	13,001	13,256

Borrowings relating to listed bonds are categorised as level 1 in the fair value hierarchy while those relating to project finance drawn down by Oyu Tolgoi use a number of level 3 valuation inputs.

In the prior period, we refinanced the Oyu Tolgoi project finance on 16 February 2023 with a syndicate of international financial institutions, export credit agencies and commercial lenders. The lenders agreed to a deferral of the principal repayments by three years to June 2026 and to an extension of the final maturity date by five years from 2030 to 2035. As part of refinancing, the debt transitioned to the SOFR benchmark to which we applied the Phase 2 IBOR reform relief under IFRS 9. The refinancing did not result in a derecognition of the drawn down amount, however we recognised an accounting loss on modification of US$123 million related to changes other than the benchmark transition and capitalised transaction costs incurred of US$50 million.

Our remaining borrowings have a fair value measured by discounting estimated cash flows with an applicable market quoted yield, and are categorised as level 2 in the fair value hierarchy.

Our borrowings are subject to a number of financial and non-financial covenants. The Group complied with these covenants during the period ending 30 June 2024 and expects to comply with these covenants for at least 12 months after the reporting date.