Rio Tinto Plc · LSE:RIO
Rio Tinto — Investor Day (November 2010)
75 slides from Rio Tinto's investor day presentation, Nov 29, 2010
Slide 1: ASX cover letter for investor seminar presentation
120 Collins Street Melbourne 3000 Australia Postal Address: GPO Box 384D Melbourne 3001 Australia T +61 (0) 3 9283 3333 F +61 (0) 3 9283 3707 For personal use only Company Announcements Office Australian Stock Exchange Limited SYDNEY NSW 2000 29 November 2010 Dear Sir, Attached is the annual investo
Slide 2: 2010 Investor Seminar
For personal use only 2010 Investor Seminar 29 November 2010
Slide 3: Cautionary statement
For personal use only Cautionary statement This presentation has been prepared by Rio Tinto plc and Rio Tinto Limited (“Rio Tinto”) and consisting of the slides for a presentation concerning Rio Tinto. By reviewing/attending this presentation you agree to be bound by the following conditions. Forwar
Slide 4: Introduction, outlook and strategy
Introduction, outlook For personal use only and strategy Tom Albanese Chief executive officer
Slide 5: Seminar outline
For personal use only Seminar outline Introduction, outlook and strategy Tom Albanese Iron ore Sam Walsh Copper Andrew Harding BREAK Other product groups Tom Albanese Funding the growth plan Guy Elliott Summary Tom Albanese Questions and answers 29 November 2010 2010 Investor Seminar 4
Slide 6: Continued improvement in safety
For personal use only Continued improvement in safety Decline in injury frequency rates 2002–2010 (October) Per 200,000 hours worked 29 November 2010 2010 Investor Seminar 5
Slide 7: Introduction
For personal use only Introduction • Favourable pricing environment and strong operating performance • Focus has shifted from balance sheet to growth projects • Investment in organic growth has been gathering momentum. – $8.6 billion of project approvals to date in 2010 – Capital expenditure set to
Slide 8: Persistent economic imbalances may lead to medium term volatility
Persistent economic imbalances may lead For personal use only to medium term volatility GDP growth forecasts 2009 2010 2011 US -2.6 2.6 2.3 Eurozone -4.1 1.7 1.5 Japan -5.2 2.8 1.5 China 9.1 10.5 9.6 India 5.7 9.7 8.4 Other 2.5 6.3 5.2 Emerging Asia Brazil -0.2 7.5 4.1 Middle East 2.0 4.1 5.1 World
Slide 9: We are poised to capture growth associated with higher standards of living
We are poised to capture growth associated with For personal use only higher standards of living The inflection point is yet to be reached for many of our products Percentage of saturation level* Nickel Titanium Dioxide Crude steel Aluminium Copper Diamonds Borates 2,000 10,000 18,000 26,000 34,000
Slide 10: We are well prepared for the key challenges facing the mining sector
We are well prepared for the key challenges For personal use only facing the mining sector • Increasing dependence for commodity supply growth on: – Constrained skill sets – More risky geographies – Technological advances – Managing greater and more complex environmental and social concerns – Invest
Slide 11: Our strategy is consistent and unchanged
For personal use only Our strategy is consistent and unchanged • Our core objective is to maximise total shareholder return by sustainably finding, developing, mining and processing natural resources • Invest in and operate large, long term, cost competitive mines and assets • Driven not by choice o
Slide 12: Iron ore
For personal use only Iron ore Sam Walsh CEO, Iron Ore
Slide 13: Our business continues to grow rapidly in response to demand
Our business continues to grow rapidly For personal use only in response to demand Rio Tinto Pilbara iron ore production (100% basis) (Million tonnes/year) Hope Downs Nammuldi Eastern Range 1966 West Angelas Tom Price Marandoo Brockman Yandicoogina 1990 Channar Channar Paraburdoo North Ltd 2007 Actu
Slide 14: Significant increase in operational activities supports growth
Significant increase in operational activities For personal use only supports growth Heavy mining equipment Ore cars (Units) (Units) +98% Rail productivity (Tonnes*kilometres/ore car, 2005 = 100) 29 November 2010 2010 Investor Seminar 13
Slide 15: Operations Centre: underpinning our Mine of the Future programme
Operations Centre: underpinning our For personal use only Mine of the Future™ programme Mine of the Future™ Operations Centre projects in testing Autonomous haulage Autonomous drilling “Smart” explosives truck Autonomous trains High Precision GPS Machine supervision and control 29 November 2010 2010
Slide 16: Operations Centre: innovation driving even greater productivity gains
Operations Centre: innovation driving even For personal use only greater productivity gains… Higher reliability due to better planning and … drives productivity of critical assets and coordinated response at the system level… improves maintenance efficiency Execution variability* – mines / rail inte
Slide 17: Focussed cost management is a key factor to strong financial performance
Focussed cost management is a key factor For personal use only to strong financial performance Flexed Pilbara cash operating unit cost (AUD)* (2006 = 100) *Flexed inflation. Line shows flexed USD unit cost 29 November 2010 2010 Investor Seminar 16
Slide 18: Many large Chinese provinces are just beginning to climb the steel intensity curve
Many large Chinese provinces are just beginning For personal use only to climb the steel intensity curve Chinese regional steel intensity Steel use per capita 2009 (kg) Beijing 18m Shanghai Shandong 19m 95m Henan 100m Guangdong 96m Sichuan 89m Guizhou 41m Bubble size reflects population of each of t
Slide 19: Environment continues to be difficult to ensure new supply is on time
Environment continues to be difficult to ensure For personal use only new supply is on time and on budget WorleyParsons report Announced and completed production capacity (global) • Surveyed 14 iron ore projects in (million tonnes Australia, focussing on new/emerging companies • Pre-investment studi
Slide 20: Sizeable mineral assets underpin multi-decade Pilbara mine planning
Sizeable mineral assets underpin multi-decade For personal use only Pilbara mine planning Source: Please refer to previously announced ore reserves and mineral resources in the Rio Tinto 2009 annual report. The mineral inventory and exploration potential is based on Rio Tinto’s exploration and produ
Slide 21: An extensive mining precinct to deliver Mt/a and beyond
An extensive mining precinct to deliver For personal use only 333 Mt/a and beyond Recently completed: • Mesa A • Brockman 4 • Western Turner Syncline Recently approved: • Hope Downs 4 Currently under review: • Brockman 4 Phase II • Western Turner Syncline II • Nammuldi Expansions 29 November 2010 20
Slide 22: Surge in rail capacity to support increasing volume
Surge in rail capacity to support For personal use only increasing volume 29 November 2010 2010 Investor Seminar 21
Slide 23: Achieving the pathway with options for further growth
Achieving the pathway to 333 Mt/a For personal use only with options for further growth Pilbara port capacity (100%) Options to achieve 433 Mt/a Car Dumpers (x2) 333 1.8 km 283 Existing CLA Port 2.5km 220 225 230 Tug harbour 1st 53 Mt/a 2nd 50 Mt/a 1.8 km Each berth 400 metres Potential Note: Schema
Slide 24: Delivering Australia's largest fully integrated mining project
Delivering Australia’s largest fully integrated For personal use only mining project Expansion Description Total capex Capex/t (Mt) 100% basis (US$/t) (US$m) Dampier systems efficiencies 5 Port improvement works. 91 18 Dampier incremental 5 • Increase shiploading capacity and 230 46 associated rail
Slide 25: Expansions will build on our very solid track record
For personal use only Expansions will build on our very solid track record Expansion projects (>A$300m) – construction performance Over budget Behind schedule Under budget Ahead of schedule 29 November 2010 2010 Investor Seminar 24
Slide 26: IOC: a further growth story
For personal use only IOC: a further growth story IOC concentrate production • Reactivated expansion plans (million tonnes, 100% basis) – Approved US$401m investment (Rio Tinto share US$235m) for Further expansion first stage of three-stage plan options 50+ – Increasing concentrate capacity by 4 Mt/
Slide 27: Simandou: a world-class project in a world-class precinct
Simandou: a world-class project For personal use only in a world-class precinct • Rio Tinto-led JV to develop and operate Simandou signed with Chalco in July 2010 • Production planned to commence in five years • Current spend is about US$20m per month • Well-established project team in Guinea, Europ
Slide 28: Summary
For personal use only Summary • Sizeable Tier 1 assets and world-class infrastructure underpin current and future options – Pilbara, IOC, Simandou and Orissa • Proven track record to deliver projects • Global operations above or near system capacity • Demonstrated ability for strong cost control • O
Slide 29: Copper
For personal use only Copper Andrew Harding CEO, Copper Bingham Canyon
Slide 30: Strong copper consumption driven by growth in developing countries
Strong copper consumption driven by growth For personal use only in developing countries Copper consumption per capita by Predicted refined copper consumption population distribution (mt) GDP per capita ($ thousands) Note: Expenditure profiles are based on Rio Tinto estimates of global income and co
Slide 31: Our view on substitution
For personal use only Our view on substitution Copper substitution • Substitution rates likely to continue (kt Cu) • Wire and cable sector will continue to show robust growth • New sources of demand will also emerge • New sources of demand will include: – Renewable energy – Water treatment – Antimic
Slide 32: Multiple factors constraining supply
For personal use only Multiple factors constraining supply Disruption rates will continue Sovereign risk will increase Annual disruption Location of copper supply1 (% of planned production) (%) Greater depths Decreasing grades Indicative depth of discoveries2 Average head grade treated (%Cu) Notes:
Slide 33: The market is forecast to remain tight through to 2020
The market is forecast to remain tight For personal use only through to 2020 With new supply particularly dependent on greenfield projects Mined copper (Mt) Demand CAGR scenarios for mined production Majority greenfield Existing and committed Highly probable Probable Possible Source: Rio Tinto, Broo
Slide 34: Our key operating assets are world class
For personal use only Our key operating assets are world class Kennecott Utah Copper Escondida Grasberg #10 World’s tenth largest #1 World’s largest copper #2 World’s second largest copper producer mine copper mine** #1 First quartile net unit #2 Second quartile net unit #1 First quartile net unit c
Slide 35: Production challenges during 2011 and 2012
However, we will face some production challenges For personal use only during 2011 and 2012 2011 production will be impacted by a dip to average copper grades, while gold and molybdenum grades remain strong 2008 = 100% Forecast 2008 2009 2010 2011 2012 2013 2014 2015 Copper Gold Molybdenum 2012 prod
Slide 36: Rio Tinto Copper is investing in our existing operating assets
Rio Tinto Copper is investing in our existing For personal use only operating assets > $2 billion to be invested in brownfield development in the next three years • Cornerstone mine extension Kennecott • Molybdenum Autoclave Process (MAP) • Underground expansion study Grasberg • Grasberg Block Cave
Slide 37: Oyu Tolgoi will be a flagship asset for decades to come
Oyu Tolgoi will be a flagship asset For personal use only for decades to come • Oyu Tolgoi will be a top five copper producer Large upon full production • It will also be a significant gold producer • 3.3 billion tonnes of resources and a 930 million Long life tonne reserve • Potential for a 50 year
Slide 38: On track for first ore production from Oyu Tolgoi in 2012
On track for first ore production from For personal use only Oyu Tolgoi in 2012 Current work programme 2011 work programme • Construction of concentrator and • Advance construction of concentrator related infrastructure and related infrastructure • Operational readiness planning and • Open Pit pre-s
Slide 39: Pipeline of world class, longer term opportunities
Our pipeline also includes a suite of world class, For personal use only longer term opportunities Resolution Copper La Granja Pebble #3 World’s third largest #9 World’s ninth largest #1 World’s largest undeveloped copper undeveloped copper undeveloped copper resource resource resource • High grade
Slide 40: High grade nickel development with exploration upside
High grade nickel development with For personal use only exploration upside Eagle First quartile net unit cash costs Significant exploration potential • Construction approved and commenced • Highly prospective region • Will produce concentrates containing an • Rio Tinto has a significant area of lan
Slide 41: A strategic commitment to the development of key technologies
A strategic commitment to the development For personal use only of key technologies Advanced mineral recovery Sorting platform Advanced flotation Selective leaching Technology platform for Advanced flotation Linking orebody knowledge sorting bulk commodities modelling and control with selective leac
Slide 42: Undisputed suite of world class assets
For personal use only Undisputed suite of world class assets • Industry leading cost position • Significant gold producer • Substantial brownfield investment • Oyu Tolgoi on track to deliver first production in 2012 • Strong pipeline of value-generating greenfield projects • Strategic focus on devel
Slide 43: 2010 Investor Seminar
For personal use only 2010 Investor Seminar 29 November 2010
Slide 44: Other product groups
For personal use only Other product groups Tom Albanese Chief executive officer
Slide 45: Rio Tinto Alcan is a fully integrated producer
For personal use only Rio Tinto Alcan is a fully integrated producer • Global presence & scale – Best bauxite reserves and resources Bauxite External – No. 2 for alumina production 34.5Mt (2010) sales – No. 2 for aluminium production • Long in bauxite and alumina – Provides growth opportunities Alum
Slide 46: Long term demand for aluminium is expected to be robust
Long term demand for aluminium is expected For personal use only to be robust Capacity utilisation rates: China and Global primary aluminium market: World (excluding China) long term outlook (%) Production and consumption (ktpa) 100% Actual Forecast 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% Jan-02 Jul
Slide 47: Longer term fundamentals in India continue to evolve favourably
Longer term fundamentals in India continue For personal use only to evolve favourably Indian market balance (Kt) 4000 3500 3000 2500 2000 1500 1000 500 0 -500 -1000 2010 2011 2012 2013 2014 2015 Market Balance Primary Demand Primary Production Source: Rio Tinto 29 November 2010 2010 Investor Seminar
Slide 48: Continuing the transformation journey
For personal use only Continuing the transformation journey • Target significant EBITDA margin improvements to align with other Rio Tinto product groups – Continue delivering on cost improvements – Invest in high-return capacity creep • Invest in large-scale, long-life projects with priority on cost
Slide 49: Moving down the cost curve
We are moving down the cost curve driven For personal use only by cost reductions and portfolio discipline Aluminium hot metal operating cost (US$/t) Cost pressures at top of cost curve: • RMB appreciation • Higher energy costs • Rising alumina costs • Carbon pricing Source: CRU 29 November 2010 201
Slide 50: Growth focus remains on tier-one projects
Growth focus remains on tier-one projects – For personal use only low-cost, long-life, large-scale assets AP5X Kitimat ISAL Yarwun II • 60ktpa Phase 1 • Increase annual • US$487 million • More than double plant expandable to production to modernisation alumina production 450ktpy approximately to 3.4
Slide 51: Rio Tinto Coal Australia is ideally positioned
Rio Tinto Coal Australia is ideally positioned to For personal use only take advantage of strong industry prospects RTCA production Nearer term growth options Million tonnes; 100% basis • Hunter Valley Operations and Mt Thorley-Warkworth latent capacity release Growth per annum • New mine at Mt Plea
Slide 52: The uranium market looks to be in balance to 2020
For personal use only The uranium market looks to be in balance to 2020 World Nuclear Association Supply-Demand outlook U3O8 (M lbs) WNA high demand WNA reference demand 29 November 2010 2010 Investor Seminar 51
Slide 53: Borates – leveraging supply tightness and market position
Borates – leveraging supply tightness For personal use only and market position • Two producers supply ~67% of market; Global share of sales by volume (2009) RTM supplies 40% of refined borates • Demand growth driven by urbanisation, energy efficiency and global food supply • Tightening supply despi
Slide 54: Titanium dioxide – unparalleled supply position
For personal use only Titanium dioxide – unparalleled supply position • Market concentrated, especially for higher Global share of sales by value (2009) grade feedstock • Demand driven by infrastructure/construction growth in developing countries especially China • Trend towards higher grade feedsto
Slide 55: Diamonds – strong potential in medium horizon
For personal use only Diamonds – strong potential in medium horizon • Market concentrated, with top 4 players Global share of sales by value (2009) supplying nearly 80% of global sales • Resources and scarce, best assets tightly held or in difficult operating regions • 50% drop in prices in H1 2009
Slide 56: Funding the growth plan
For personal use only Funding the growth plan Guy Elliott Chief financial officer
Slide 57: Rapid transformation of the balance sheet
For personal use only Rapid transformation of the balance sheet Gross debt maturity profile • Rapid turnaround since June2009 ($bn) • Moody’s upgrade to “A3/P2”, Stable outlook • Further step towards goal of Single A from all agencies • S&P remains at BBB+, positive outlook 29 November 2010 2010 Inv
Slide 58: We have improved our liquidity profile
For personal use only We have improved our liquidity profile Gross debt maturity profile • Successful tender of $1.9 billion of ($bn) 2013 bonds • Refinanced with $2.0 billion new bond issue. Coupons on 5, 10 and 30 year tranches at all time low for industry1 Amount ($m) Coupon (%) Due 500 1.875 Nov
Slide 59: A prudent balance sheet through the commodities cycle
A prudent balance sheet through the For personal use only commodities cycle • Single A rating target provides flexibility in a volatile world Cash from operations • Rating target rather than gearing target • Maintain a prudent balance sheet through the cycle Prudent balance sheet management Single A
Slide 60: Our established strategy prioritises value adding growth
Our established strategy prioritises For personal use only value adding growth • Stable investment conditions a pre-requisite Cash from operations • Emphasis on the quality of the opportunity • Brownfield expansions present the lowest risk • A strong portfolio of greenfield Investment Prudent in val
Slide 61: Investment in long life assets provides opportunity to grow value
Investment in long life assets provides the For personal use only opportunity to grow value considerably • Strong history of acquiring and developing assets with options to grow • Exploration, orebody knowledge and technology key to growing businesses • Low cost operations remain cash Kennecott Utah
Slide 62: Discovering, developing and harvesting tier one assets
Our strategy is focussed on discovering, For personal use only developing and harvesting tier one assets Limited • Improve, Optionality/expandability/ Identify divest expansion or close options life extension • Grow and protect Implement operating • Focus of new investment enhancements Abundant Tota
Slide 63: Significant investment in value adding growth
Quality of available options will lead to significant For personal use only investment in value adding growth Capital expenditure forecast • 2010 capex expected to be close to ($bn) $4 billion • Capex to increase to around $11 billion in 2011 • Sustaining capital requirements to increase in line wit
Slide 64: Our portfolio has a long history of diversified returns
Our portfolio has a long history For personal use only of diversified returns Rio Tinto EBITDA by product Percentage of EBITDA 29 November 2010 2010 Investor Seminar 63
Slide 65: Volume growth will be across the portfolio
For personal use only Volume growth will be across the portfolio Indexed production profile • Iron ore business set to grow by (Rio Tinto share) over 50% over the next 5 years • Alumina expansion at Yarwun 2 will commence production in 2012 • Copper near term grade shortfall offset by Oyu Tolgoi fro
Slide 66: Successful participation in joint ventures has delivered many benefits
Successful participation in joint ventures has For personal use only delivered many benefits to Rio Tinto Cash flows from operations Reasons for entering into JVs (2009) • Access to resources • Access to technologies • Realise synergies • Manage political risk • Access to markets • Manage key projec
Slide 67: Our operating heartland is in the OECD
For personal use only Our operating heartland is in the OECD 2009 assets by region 1999 assets by region North America 38% 47% Europe 12% 4% Indonesia 1% Africa 6% S America 4% 5% Australia 3% 42% 5% 33% 29 November 2010 2010 Investor Seminar 66
Slide 68: Headwinds from currency movements and input cost inflation
Headwinds from currency movements For personal use only and input cost inflation Total cash cost variance • Controllable costs expected to be (% 2008 base) flat in 2010 compared with 2009 • Grade decline will impact unit costs, notably copper • Weaker US$ will add pressure although mitigated by impa
Slide 69: Our established strategy to optimise shareholder value
Our established strategy to optimise For personal use only shareholder value • Investment in value adding growth is the first priority Cash from operations • Single A credit rating to provide flexibility throughout the cycle • Progressive dividend policy provides stable and growing income stream ove
Slide 70: Summary
For personal use only Summary Tom Albanese Chief executive officer Hail Creek
Slide 71: Many countries set to follow China
For personal use only Many countries set to follow China … the ‘50 plus’ group Developing countries with populations • Each economy in the 50-plus group >50 million (excluding China) has substantial growth potential • But each faces substantial GDP per capita ($ PPP) Population 2010 (m) challenges t
Slide 72: How the world might look by 2040
For personal use only How the world might look by 2040 A momentous swing in economic power GDP per capita US$ Bubble size reflects GDP in 2010 and 2040 Source: Rio Tinto, Access Economics 29 November 2010 2010 Investor Seminar 71
Slide 73: There are major barriers to a supply response
For personal use only There are major barriers to a supply response • Location and quality of many new resources are challenging • Resource nationalism is on the rise • Industry may lack the skills to respond to demand • New technologies • Leadership in sustainable development enhances license to op
Slide 74: Executing our strategy
For personal use only Executing our strategy • The best assets in each of our sectors with the best growth options • Strong balanced portfolio – Diverse commodities – OECD heartland – Experienced operator in developing countries • Leadership in sustainable development • Operational excellence • At t
Slide 75: 2010 Investor Seminar
For personal use only 2010 Investor Seminar 29 November 2010