Rio Tinto Plc · LSE:RIO
Rio Tinto — Investor Day (2004)
61 slides from Rio Tinto's investor day presentation, 2004
Slide 1: Investor Seminar 2004 - Introduction and Strategy
Investor Seminar 2004 Leigh Clifford Introduction and Strategy
Slide 2: Presentation outline; Rio Tinto's strategy
Presentation outline Leigh Clifford Strategy (20 mins) Preston Chiaro Energy (40 mins) Keith Johnson Diamonds (40 mins) Guy Elliott Other product groups (25 mins) Break Leigh Clifford Key Business Processes (50 mins) Guy Elliott Questions & Answers Rio Tinto’s Strategy – focussed on metals and miner
Slide 3: Vision – to be the leading global mining company
Vision – to be the leading global mining company Shareholder value Key metric is NPV Rigorous investment appraisal Growth driven by value Vision – to be the leading global mining company Shareholder value Mining and minerals Focus Large, long life, low cost assets Upstream bias in value chain Sustai
Slide 4: Vision – operational excellence and portfolio development
Vision – to be the leading global mining company Shareholder value In existing businesses - Continuous improvement Focus - Commercial acumen Operational excellence - Procurement and processes Vision – to be the leading global mining company Shareholder value Primary focus on organic growth Opportuni
Slide 5: Vision – technology and human resources
Vision – to be the leading global mining company Shareholder value Seek operational improvements Focus through technology Operational excellence Continue to exploit breakthrough technology (eg HIsmelt®) Portfolio development Technology Vision – to be the leading global mining company Shareholder val
Slide 6: Energy
Vision – to be the leading global mining company Shareholder value Confirmation of the existing strategy Focus Basis for medium term actions Operational excellence Portfolio development Reaffirmed by the Board Technology Human Resources Energy Preston Chiaro 2004
Slide 7: Energy overview
Overview • Global demand for energy is expected to double by 2030 • Growth of all sources of energy is required • Environmental issues can be addressed • Rio Tinto is well positioned to meet this growing demand Rising prices are evidence …. $/bl $/tonne 70 Seaborne Coal 55 Oil 60 45 35 50 25 40 15 3
Slide 8: A market in flux
…of a market… The Economist - July 2002 …that is in flux The Economist - July The Economist - September 2002 2004
Slide 9: Coal will continue to be a substantial source of primary energy
Coal will continue to be a substantial source of primary energy Global electricity generation by source 35 30 25 20 15 10 5 0 2000 2010 2020 2030 Coal Gas Oil Nuclear Renewable Source IEA Rio Tinto’s diversified energy portfolio is unique Pro-forma earnings in current market conditions US Domestic H
Slide 10: An improving portfolio of quality assets
An improving portfolio of quality assets Blair Athol Hail Creek ERA Rossing Hunter Valley Kennecott Energy RTCA Hail Creek Mt Thorley/Warkworth North Jacob’s Ranch One “KEC” New projects Port rationing Operational improvement Largest exporter of thermal coal from Australia Well established mines HVO
Slide 11: Largest exporter of thermal coal from Australia
Largest exporter of thermal coal from Australia Recently developed Bengalla ~6mt Bengalla Hunter Valley Operations Brisbane Mt Thorley/Warkworth Operations Sydney Newcastle Sydney The largest exporter of thermal coal from Australia Mackay Hail Creek Blair Athol Kestrel Gladstone Tarong Brisbane Bris
Slide 12: Significant player in Asian seaborne market
Significant player in Asian seaborne market China China Other Taiwan Indonesia South Korea Rio Tinto Other Japan Australia Exports Imports Source: Rio Tinto China is still in the early stages of power demand growth Power/capita Share of power demand Kwh/capita Percent 100% 100% Residential 15 8,530
Slide 13: China coal resources and seaborne market volatility
China is well endowed with coal resources but most are not export quality JIXI BASIN ZHUNGEER HUOLINHE BASIN BASIN 40° FUXIN BASIN SHENFU- SHENFU- DONGSHENG BASIN LIUPANSHUI BASIN The seaborne coal market has become more volatile US$/tonne 70 globalCoal NEWC index 60 50 Japanese reference price 40 3
Slide 14: Coal & Allied has a flexible contract position
Coal & Allied has a flexible contract position 100% 80% 60% 40% 20% 0% Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Priced (1) Priced (2) Not priced Not allocated Many high quality growth options Maximise potential of existing operations Bengalla Hunter Valley Operations Brisbane Mt Thorley/Warkw
Slide 15: Many high quality growth options: Mt Pleasant
Many high quality growth options Mt Pleasant High quality, low strip ratio Adjacent to Bengalla EIS 10mt for 21 years Mt Pleasant Bengalla Brisbane Sydney Newcastle Sydney Many high quality growth options Mackay Clermont Blair Athol Gladstone Brisbane Brisbane Clermont Sydney Replacement for Blair A
Slide 16: Growth options; Kennecott in Powder River Basin
Many high quality growth options Lake Elphinstone Mackay WinchesterMackay South Valeria Gladstone Brisbane Brisbane Longer term options Newcastle Sydney Lake Elphinstone Winchester South Sydney Valeria Kennecott is largest producer in the Powder River Basin US coal supply regions Northern Power Rive
Slide 17: Coal to become more competitive in the US market
Coal to become more competitive in the US market • US energy demand growth to track GDP • Coal and gas to gain market share over hydro/nuclear/other • Higher and more volatile gas prices favour coal • Large reserves, low costs favour PRB over Eastern coals Coal to become more competitive in the US m
Slide 18: Gas prices have increased and become more volatile
Coal to become more competitive in the US market • US energy demand growth to track GDP • Coal and gas to gain market share over hydro/nuclear/other • Higher and more volatile gas prices favour coal • Large reserves, low costs favour PRB over Eastern coals Gas prices have increased and become more v
Slide 19: Central Appalachian coal prices have increased
Coal to become more competitive in the US market • US energy demand growth to track GDP • Coal and gas to gain market share over hydro/nuclear/other • Higher and more volatile gas prices favour coal • Large reserves, low costs favour PRB over other domestic coals Prices for Central Appalachian coals
Slide 20: US market less volatile; uranium prices strengthened
The US market is less volatile than the Asian market KEC’s contract position % 100 90 80 70 60 50 40 30 20 10 0 2005 2006 2007 2008 2009 Committed priced Committed indexed Uncommitted Uranium prices have strengthened recently Nukem spot US$/lb 20 Monthly average uranium prices 18 16 14 12 10 8 6 96
Slide 21: Strong N$ affects Rossing economics
The strong N$ affects the economics of Rossing Nukem spot Nukem spot US$/lb Spot uranium prices N$/lb 21 130 19 120 17 110 N$ (rhs) 100 15 90 13 US$ (lhs) 80 11 70 9 60 2002 2003 2004 Quality assets bring options to expand Million tonnes Managed hard coking coal production 14 12 10 +2.5mt 8 6 Hail C
Slide 22: Management of climate change issues
The management of climate change issues is important • Presents the Group with risks and opportunities • Group wide targets to reduce: – Energy consumption per unit of prodution by 5% – Greenhouse gas emissions per unit of production by 4% • Undertake R&D on carbon emission technologies • Contribute
Slide 23: Rio Tinto Diamonds
Energy Preston Chiaro 2004 Rio Tinto Diamonds Keith Johnson 2004
Slide 24: The diamond market compared with other minerals
The diamond market is not fundamentally different from the markets for other minerals …… • Demand for diamonds tracks GDP closely • There are no significant producer inventories • Prices not inconsistent with producer cost structure ….. but it does have some important characteristics • Diamonds are
Slide 25: Diamond margin curve and price performance
The diamond industry margin curve is steeper than most cost as a % of revenue 100 Aluminium 80 60 Copper 40 Diamonds 20 0 1st quartile 2nd quartile 3rd quartile 90th decile Margin “curves” for copper and aluminium are based on the ratio of costs to revenues using typical long run assumptions. The di
Slide 26: Diamonds are luxury goods
Diamonds are luxury goods • Demand not as discretionary as for other luxury goods • Marketing important to stimulate demand • Rio Tinto successful in growing the market for Argyle product The diamond market is strong Diavik rough Diavik polished
Slide 27: Rio Tinto Diamonds has a clear strategy
Rio Tinto Diamonds has a clear strategy • Supplier of rough diamonds to wholesale market • Each source of production kept separate • Focus on Sustainable Development and product stewardship • Supply customers who can add the most value • Work with customers to maximise their value creation potential
Slide 28: Diavik is an asset of the highest quality
Diavik is an asset of the highest quality Diavik is an asset of the highest quality
Slide 29: Diavik financial results in first twelve months
Diavik is an asset of the highest quality Diavik has delivered strong financial results in its first twelve months* $m 300 EBITDA margin of 80% 58 250 200 66 150 293 74 100 H1 2004 54 50 H2 2003 41 0 Revenue Costs Depreciation Taxation Net earnings * This chart shows the aggregated financial results
Slide 30: Options for the development of Diavik
Diavik is achieving its potential Diavik production (000 carats) 2500 2000 1500 1000 500 0 Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 100% Diavik production Options for the development of Diavik A21 A418 A154N A154S 2015 –Diavik original plan
Slide 31: Sequencing of Diavik future developments
Sequencing of Diavik future developments Production by source (% of carats) 100% Underground studies 75% A418 dike 50% 25% 0% 2003 2004 2005 2006 2007 2008 2009 A154 open pit A418 open pit A154S underground (North and South pipes) The slide shows the current plan for developments at Diavik. These ar
Slide 32: Argyle – close to the end of the open pit
Argyle – a high quality asset but close to the end of the open pit Argyle Underground
Slide 33: Argyle Underground
Argyle Underground Argyle Underground
Slide 34: Argyle Underground
Argyle Underground Argyle Underground
Slide 35: Good track record of finding diamonds
Argyle Underground Rio Tinto has a good track record of finding diamonds, and a good portfolio of opportunities Diavik Melville India Diamonds Botswana Murowa Argyle
Slide 36: Murowa project; diamonds now a major product
Murowa project – small but with expansion potential (78 per cent Rio Tinto) MOZAMBIQUE • Reserve of 18.7 million tonnes ZAMBIA • Initial capital of $10 million Harare • Plant capacity of 200 000 ZIMBABWE tonnes per year • Diamond quality similar to BOTSWANA Murowa Diavik • Expansion opportunities SO
Slide 37: Operations Review
Rio Tinto Diamonds Keith Johnson 2004 Guy Elliott Operations Review
Slide 38: Iron ore - investing for volume lift from late 2005
Iron ore - investing for a dramatic lift in volumes from late 2005 Iron Ore Group net earnings $m 600 400 200 0 00 01 02 03 • Markets remain strong • Pilbara investment programme on track • Pilbara Iron starting to deliver gains • IOC labour negotiations complete New contracts underpin $1.3 billion
Slide 39: Expansion programme on track
Expansion programme on track programme on track Expansion HIsmelt starts up in early 2005
Slide 40: Copper - momentum from strong markets and new projects
Copper - momentum from strong markets and new projects Copper Group net earnings $m 400 300 200 100 0 00 01 02 03 • Grasberg production recovery on track • Strong outlook for Escondida • KUC outlook A stronger portfolio of high quality assets Escondida Somincor Freeport JV Zinkgruvan Utah Copper Alu
Slide 41: Kennecott outlook; Industrial Minerals
Kennecott outlook • Improvement in by-product grades • Major smelter maintenance over next two years • State taxes and fuel costs Industrial Minerals – starting to benefit from end market improvement Industrial Minerals Group $m net earnings 400 300 200 100 0 00 01 02 03 • Some pick up in end use ma
Slide 42: Madagascar TiO2 deposit; Argentina potash project
Madagascar is the best undeveloped TiO2 feedstock deposit Mineralised area Resource: 53 million tonnes of TiO2 units Deposit characteristics: • high TiO2 content ilmenite ore (63%) • no overburden • free of slimes • low impurities Product: Ilmenite ore suitable for conversion to slag, synthetic ruti
Slide 43: Aluminium – lift in alumina volumes
Aluminium – a significant lift in alumina volumes with CAR complete Aluminium Group $m net earnings 400 300 200 100 0 00 01 02 03 • CAR commissioning proceeding well • NeWeipa on track • Solid operational performance at all plants • Studying CAR 2 2004 volumes affected by Grasberg Index (1990 = 100)
Slide 44: Near term volume growth from existing operations and projects
Strong near term volume growth from existing operations… Index (1990 = 100)* 260 Grasberg recovery 240 KUC by-products 220 Argyle Monty 200 th ro w Diavik io ng 180 od uct ua l pr 160 ann nd pou 140 c om 6% 120 100 ~ ~ 90 91 92 93 94 95 96 97 98 99 00 01 02 03 Proforma Underlying production growth i
Slide 45: Track record of project generation; cash generation
Consistent track record of project generation $ bn 2.5 2 2003 1.5 1 2002 1998 0.5 Actual capital 1999 2000 2001 expenditure Plan capital expenditure 0 99 00 01 02 03 04 05 06 07 Strong cash generation underpinning reinvestment and capital returns Operations Cash inflow of $23bn* $9bn Capital spend N
Slide 46: Investor Seminar 2004 - Key Business Processes
Investor Seminar 2004 Leigh Clifford Key Business Processes
Slide 47: Key business processes
The way Rio Tinto is run – key business processes Investment Project Construction & Opportunity Development Commissioning Generation & Evaluation Development Asset Logistics Marketing Management Operation Processing Mining Operations Operations Procurement Global information technology Trends of the
Slide 48: Business improvement
Guy Elliott Business improvement The way Rio Tinto is run – key business processes Investment Project Construction & Opportunity Development Commissioning Generation & Evaluation Development Asset Logistics Marketing Management Operation Processing Mining Operations Operations Procurement Global inf
Slide 49: Information technology and procurement
Information technology in Rio Tinto is evolving towards a more global model Standardisation of global infrastructure and collaborative toolsets 9 IT infrastructure consolidation (service centres and shared services) 9 Standardisation of business processes and data Information integration Rio Tinto P
Slide 50: What Rio Tinto Procurement delivers; ocean freight
What Rio Tinto Procurement delivers • Specialist skills and technology • Partner of the business units • Minimisation of transaction costs • Maximisation of value to the business Ocean freight is important to Rio Tinto Total cost of ownership to end user It represents a high proportion of delivere
Slide 51: Freight management and Rio Tinto Shipping
Successful freight management is dependent on… Freight control drives margin improvement Close co-operation with Customer Sharper values the sales freight rates relationship more highly Scope and scale Increasing More Leverage Business opportunities Purchasing leverage and synergy Rio Tinto Sh
Slide 52: Summary
Summary • Value creation through collaboration and new capabilities • Rigorous evaluation of all expenditure • Progressive change model • Future opportunities Leigh Clifford
Slide 53: Value created during the study phase
The way Rio Tinto is run – key business processes Investment Project Construction & Opportunity Development Commissioning Generation & Evaluation Development Asset Logistics Marketing Management Operation Processing Mining Operations Operations Procurement Global information technology Significant v
Slide 54: Identifying opportunities
…the scope for affecting project value reduces as a study progresses Ability to add value Conceptual Pre- or order-of- Feasibility Implementation feasibility magnitude Start Completion Time We look hard to identify opportunities….. Industry alliances Asset expansions Robe CAR2 Hail Creek Asset exten
Slide 55: We look hard to identify opportunities
We look hard to identify opportunities….. Industry alliances Asset expansions Robe CAR2 Hail Creek Asset extensions Pilbara iron ore Argyle Diavik Clermont / Blair Athol Exploration M&A Resolution ? Eagle Dashkasan Technical innovation Simandou HIsmelt Cortez Hills UGS Potasio Rio Colorado We look h
Slide 56: Assets under construction are the tip of the iceberg
We look hard to identify opportunities….. Industry alliances Asset expansions Robe CAR2 Hail Creek Asset extensions Pilbara iron ore Argyle Diavik Clermont / Blair Athol Exploration M&A Resolution ? Eagle Dashkasan Technical innovation Simandou HIsmelt Cortez Hills UGS Potasio Rio Colorado Assets un
Slide 57: All projects must satisfy rigorous analysis; country risk
…. But all projects must satisfy rigorous analysis • Value creation measured by NPV • Investment committee / board approval • Analysis and management of risk Rio Tinto can manage country risk KPC (1992) Lihir (1997) Kelian (1992) RPM Murowa (2004) Escondida (1990) Rossing (1976) Grasberg (1995) Pala
Slide 58: Country risk and process risk – HIsmelt
Rio Tinto can manage country risk Sari Gunay Simandou PRC QMM Rio Tinto can manage process risk – HIsmelt ® • 1982 - successful testing in a 60t OBM converter • 1990 – small scale plant in Germany • 1993 – 100ktpa pilot plant in Western Australia • 2005 - first metal from 800kt per year Kwinana plan
Slide 59: The Resolution Copper Project
The Resolution Copper Project Resolution Project Phoenix Arizona Superior What is happening at Resolution? Investment Committee (Steering Committee) President (reports to CEO Cu) (Strategy, direction) VP Operations VP HSE Land and water availability Location for tailings disposal Building stakeholde
Slide 60: Why does it take so long?
Why does it take so long? Land etc ~ 2 years Feasibility/Pre-feasibility Shaft construction Assessment of rock stresses/pressures Minimisation of surface impact of mining Environmental impact assessment Permitting Resolution of land, water, waste disposal……. Construction Largely a linear process, li
Slide 61: Extract from 2004 Half Year Report: IFRS
EXTRACT FROM RIO TINTO’S 2004 HALF YEAR REPORT International financial reporting standards The Group will be preparing its financial on the balance sheet under UK GAAP. subsidiaries, joint ventures and associated statements for the 2005 half year and Under IAS 39, ‘Financial Instruments: companies,