Rio Tinto Plc · LSE:RIO
Rio Tinto — Investor Day (November 2014)
62 slides from Rio Tinto's investor day presentation, Nov 28, 2014
Slide 1: Delivering sustainable shareholder returns
28 November 2014 Sydney Delivering sustainable shareholder returns 2014 Investor Seminar
Slide 2: Cautionary statement
2 Cautionary statement This presentation has been prepared by Rio Tinto plc and Rio Tinto Limited (“Rio Tinto”). By accessing/attending this presentation you acknowledge that you have read and understood the following statement. Forward-looking statements This document contains certain forward-looki
Slide 3: Delivering on our promises
3 Delivering on our promises Improve Strengthen Deliver Reducing Decreasing Growing costs capex production to $5.4bn <$8.5bn +6% 1 Operating, exploration & evaluation cost reductions targeted by 31 December Full year 2014E spend down 2015 (2015E vs 2012) 34% vs 2013 Copper equivalent growth 20
Slide 4: Our commitment to shareholders
4 Our commitment to shareholders To deliver industry-leading, sustainable shareholder returns through the cycle from our: Tier 1 assets Disciplined allocation of capital Operating and commercial excellence Culture of safety and integrity Cape Lambert, Pilbara ©2014, Rio Tinto, All Rights Reserved
Slide 5: Succeeding in a challenging market
5 Succeeding in a challenging market Long-life, low-cost and Commercial excellence expandable assets Strong customer relationships, high Strong cash flow generation throughout quality benchmark products, technical the cycle from our key commodities marketing and value-in-use pricing Operating excell
Slide 6: Foundations of sustainable value creation
6 Foundations of sustainable value creation Accountability • Relentless pursuit of shareholder value • Disciplined decision-making Respect • For the environment and communities • For health, safety and wellbeing Integrity • Transparency in all that we do • Fairness, honesty and openness Teamwork • L
Slide 7: The Rio Tinto value proposition
7 The Rio Tinto value proposition World-class portfolio Free Quality cash flow growth generation Sustainable shareholder returns Operating Capital and allocation commercial discipline excellence Balance sheet strength ©2014, Rio Tinto, All Rights Reserved
Slide 8: A clear strategic framework
8 A clear strategic framework Portfolio choices framed by three key principles: Sustainable Industry Best-in-class competitive attractiveness returns advantage Industry structure Resource quality Free cash flow Market size and generation Asset quality growth potential Return on capital Market
Slide 9: A world-class portfolio…
9 A world-class portfolio… Iron Ore Aluminium Copper Key Bauxite Kennecott, Oyu Tolgoi businesses Pilbara First quartile smelters Escondida, Grasberg Industry Robust long-term attractiveness Strong demand Constrained supply demand Lowest cost major producer Large, low-cost Tier 1 assets Competitive
Slide 10: …of sector-leading assets
10 …of sector-leading assets Diamonds Energy & Minerals Key Iron & Titanium, Diamonds Hunter Valley Coal businesses Minerals Industry Geologically Mid- to late- Cyclical low but positive longer attractiveness scarce cycle demand term fundamentals Market Competitive Commercial leadership World-class
Slide 11: Pilbara 360: ~40% IRR and five-year payback
11 Pilbara 360: ~40% IRR and five-year payback1 Our sustainable cost advantage… …generates robust long-term returns Rio Tinto Pilbara unit cost (US$/wmt CFR North China)2 Rio Tinto Pilbara EBITDA margin avg. 2015-193 -26% 47 62% 56% 35 47% 2012 2020 Consensus Consensus Consensus – $15/t + $15/t 1Est
Slide 12: Building a world-class aluminium business
12 Building a world-class aluminium business Leading bauxite portfolio… Global bauxite resources (Billion tonnes)1 • Leading bauxite portfolio with >50% FOB bauxite margins2 and substantial growth 6 Atlantic Pacific options 5 4 • ~80% of our smelters are in the first cost 3 quartile3 2 1 • 50% of sm
Slide 13: Creating a leading copper business
13 Creating a leading copper business Our position in six major copper resources… • Driving earnings through: Billion tonnes1 (100% basis) Average copper grade − Cost reductions 25 − Productivity improvements 1.5% 10 • Future growth through: 0.8% 5 0.6% 0.5% 0.7% 0.5% − Committed projects: Grasberg
Slide 14: The Rio Tinto value proposition
14 The Rio Tinto value proposition World-class portfolio Free Quality cash flow growth generation Sustainable shareholder returns Operating Capital and allocation commercial discipline excellence Balance sheet strength ©2014, Rio Tinto, All Rights Reserved
Slide 15: Compelling project pipeline beyond iron ore
15 Compelling project pipeline beyond iron ore Titanium Diamonds Bauxite Energy Copper Near-term Zulti Diavik South of Mount Oyu Tolgoi pipeline South A21 Embley Pleasant Phase 2 Project status Feasibility Feasibility Feasibility Approved PFS study study study Expected cash cost position Q1 n/a Q1 Q
Slide 16: The Rio Tinto value proposition
16 The Rio Tinto value proposition World-class portfolio Free Quality cash flow growth generation Sustainable shareholder returns Operating Capital and allocation commercial discipline excellence Balance sheet strength ©2014, Rio Tinto, All Rights Reserved
Slide 17: Safety is fundamental to our business
17 Safety is fundamental to our business Injury frequency rates Per 200,000 hours worked 2.0 Mine 1.8 rescue 1.6 award 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 '14 YTD All injury frequency rate Lost time injury frequency rate Kestrel mine rescue team training ©2014
Slide 18: Operating excellence delivers significant value
18 Operating excellence delivers significant value Project shaping and Productivity Innovation-driven delivery gains change Processing Pilbara 360 Brockman 4 Excellence Centre South of Embley Weipa capacity Autonomous stretch equipment Mount Pleasant Fleet rationalisation in Mine automation
Slide 19: Maximising value from mine to market
19 Maximising value from mine to market Resource to Product & market Supply chain Contracting and market alignment development optimisation pricing Demand driven Value-based Market research Logistics solutions resource pricing optimisation Customer insights Working capital Credit and price Technical
Slide 20: The Rio Tinto value proposition
20 The Rio Tinto value proposition World-class portfolio Free Quality cash flow growth generation Sustainable shareholder returns Operating Capital and allocation commercial discipline excellence Balance sheet strength ©2014, Rio Tinto, All Rights Reserved
Slide 21: Balance sheet strength and flexibility
21 Balance sheet strength and flexibility Net debt target achieved • Maintaining a strong balance sheet amid challenging market conditions $22bn • Targeting 20-30 per cent gearing ratio through the cycle1 “Mid-teens” $18bn target 28% $16bn • Ratio expected to remain at the lower end of the range i
Slide 22: The Rio Tinto value proposition
22 The Rio Tinto value proposition World-class portfolio Free Quality cash flow growth generation Sustainable shareholder returns Operating Capital and allocation commercial discipline excellence Balance sheet strength ©2014, Rio Tinto, All Rights Reserved
Slide 23: Our capital allocation framework maximises shareholder value
23 Our capital allocation framework maximises shareholder value 1. Essential 2. Progressive 3. Iterative cycle of sustaining capex dividends 2015 focus Further cash Compelling returns to growth shareholders Debt reduction ©2014, Rio Tinto, All Rights Reserved
Slide 24: Effective capital management drives sustainable shareholder returns
24 Effective capital management drives sustainable shareholder returns Existing assets Projects • Key metrics: • Disciplined capital allocation framework ‒ ROCE • Robust investment ‒ EBITDA margin approval process ‒ Free cash flow • Competition for capital TSR Capital management External opportuniti
Slide 25: Focus on capital efficiency
25 Focus on capital efficiency Capital discipline… …delivers measured growth Capital expenditure profile (US$ billion) 2013-19 production growth1 (projected CAGR percentage) 20 10 14 17.6 8 5.2% = Rio Tinto 15 Group copper 12.9 equivalent 6 growth 10 <8.5 ~8 ~8 ~8 4 5 2 0 0 2012A 2013A 2014F 2015F 2
Slide 26: The Rio Tinto value proposition
26 The Rio Tinto value proposition World-class portfolio Free Quality cash flow growth generation Sustainable shareholder returns Operating Capital and allocation commercial discipline excellence Balance sheet strength ©2014, Rio Tinto, All Rights Reserved
Slide 27: Continual cost improvement
27 Continual cost improvement Pre-tax operating cash cost improvements Reduction vs. 2012 (US$ million) 5,408 750 250 4,408 1,200 3,208 929 1,302 977 H1 2013 H2 2013 H1 2014 Operating Exploration & Total H2 2014 target 2015 target Total costs evaluation (operating and subtotal savings E&E) ©
Slide 28: Enhanced free cash flow generation
28 Enhanced free cash flow generation Q1 cost dominated portfolio The foundation of our commitment to: maintain progressive dividend, and World-class 5.2%1 production growth materially increase portfolio shareholder returns Free Quality cash flow growth generation Sustainable shareholder returns
Slide 29: The world's best iron ore business
28 November 2014 Sydney The world’s best iron ore business Andrew Harding, chief executive, Iron ore
Slide 30: Our iron ore business is a compelling value proposition
30 Our iron ore business is a compelling value proposition World-class assets, Premium product suite, seamless supply chain, strong customer unencumbered relationships, technical optionality marketing expertise Industry-leading margins, supported by automation, innovation and technology Rio Tinto is
Slide 31: Pilbara - the world's best iron ore business
31 Pilbara - the world’s best iron ore business Industry-leading returns… • Industry-leading EBITDA margins to EBITDA margin (percentage) continue 66% 61% • Total supply chain competence to 53% ~55% 41% seamlessly deliver a future 1 Mt/day • Sufficient resources to sustain industry reference Pilbara
Slide 32: Pilbara - a fully integrated system with unencumbered optionality
32 Pilbara - a fully integrated system with unencumbered optionality ~100 customers • Unique optionality with fully owned and operated, integrated system Marine Exploration • Real time visibility across all assets and enhancing the value delivered to our customers • Relentless focus on productivity
Slide 33: Iron Ore Company of Canada - delivering a differentiated and high quality product
33 Iron Ore Company of Canada - delivering a differentiated and high quality product Robust EBITDA margins… • Robust EBITDA margins EBITDA margin (percentage) ~41% • Fully integrated operations ~37% ~34% ~28% • High quality 65%+ Fe products with low contaminants 2012 2013 H1 2014 2015 • High-quality
Slide 34: Focusing on our customers and optimising our resource base
34 Focusing on our customers and optimising our resource base Product aligned to our reserves • Expansion focused on our industry Percentage of Rio Tinto 2013 Ore Reserves reference Pilbara Blend products HIY 8% • Pilbara Blend offers customers long term Robe Pilbara Blend Valley 69% reliable, consi
Slide 35: Capturing full value from our product suite and marketing expertise
35 Capturing full value from our product suite and marketing expertise • Higher average FOB price than other Pilbara producers in H1 2014 • Pilbara Blend Fines spot sales consistently achieve a premium over the Platts 62% Fe index Comparative average price performance H1 2014 PBF spot premiums relat
Slide 36: Pilbara growth - delivering exceptional returns on investment
36 Pilbara growth - delivering exceptional returns on investment Pilbara cash unit cost / EBITDA margin • Our low-cost advantage has been US$ per tonne Percentage sustained over many years: 30 80% − H1 2014 cash unit cost of US$20.4/t 25 70% (11% lower than H1 2013) 24.1 60% 22.9 22.9 − Maintain con
Slide 37: Leveraging innovation and technology to drive productivity and cost leadership
37 Leveraging innovation and technology to drive productivity and cost leadership Hope downs 4 - AHS haul truck productivity Autonomous trucks Tonnes / hour indexed relative to best manned site • Improved safety, cycle time and utilisation 1.40 AHS ramp • At Hope Downs 4: 1.20 1.00 up − AHS is excee
Slide 38: Value maximisation continues through 360 Mt/a completion
38 Value maximisation continues through 360 Mt/a completion and moving into production 360 Mt/a infrastructure programme is ~75% complete and on nominated schedule for H1 2015 ~40 Mt/a of low-cost, brownfields growth approved and in implementation at a capital intensity of ~$9/t Cape Lambert car dum
Slide 39: Significant shareholder value generated through the cycle
39 Significant shareholder value generated through the cycle World-class, fully integrated system with unencumbered optionality Pilbara Blend is the reference for 62% Fe indices and able to be sustained Marketing expertise captures full value from our products and resources Silvergrass deferred in f
Slide 40: Pilbara longevity through leading resources and reserves
Pilbara longevity through leading resources and reserves Pilbara resources, reserves and production • Million tonnes (Dry) Exploration Targets – Annual Estimates 2007-2013 • Billion tonnes (Dry) 20,000 300 18,000 250 50 16,000 40 14,000 200 30 12,000 20 10,000 150 10 8,000 0 100 6,000 2007 2008 2009
Slide 41: Exploration Targets Compliance Statements
Exploration Targets Iron ore mineralisation within the Pilbara occurs as bedded iron deposits, detrital iron deposits (DID) and channel iron deposits. The bedded iron deposits are hosted within the Brockman Iron formation and the Marra Mamba Iron Formation. Rio Tinto commenced mining of the high gra
Slide 42: Rio Tinto Pilbara Lease Holdings and Geology
Rio Tinto Pilbara Lease Holdings and Geology ©2014, Rio Tinto, All Rights Reserved
Slide 43: Break
28 November 2014 Sydney Break Presentation will recommence in 20 minutes
Slide 44: Sector-leading Energy business
28 November 2014 Sydney Sector-leading Energy business Harry Kenyon-Slaney, chief executive, Energy
Slide 45: Asian energy demand growth remains positive
45 Asian energy demand growth remains positive Population, GDP and electricity1 • Challenging current conditions but US$ ‘000 GDP / capita supply response 50 40 USA • Emerging Asian economies driving steady increase in energy production 30 EU Japan India 20 (2030) (2030) • Coal provides low-cost, se
Slide 46: Delivering cost transformation and productivity
46 Delivering cost transformation and productivity Unit cost decline at Rio Tinto Coal Australia • Substantial unit cost reductions Indexed against 2012 • Monitoring for wear of parts has 100 reduced maintenance costs 90 • Lower costs from emerging market 80 suppliers 72 70 • Fewer trucks due to imp
Slide 47: Focus on margin and beating the index
47 Focus on margin and beating the index Premium to market benchmarks1 Leverage marketing capability Percentage (3 year average) • Established relationships Uranium 35 • Reliability, meeting customer needs • Optimising price, process yield and margin Thermal Coal 10 • Value-in-use product and servic
Slide 48: Large, high-quality Hunter Valley resource
48 Large, high-quality Hunter Valley resource RTCA has a large footprint Shallow, stable geology RTCA RTCA Glencore Auckland HVO, MTW Bulga Mt Pleasant project Bengalla 500m Hunter Valley Operations (HVO) Open Cut Pit Favourable geology Auckland (HVO) project Jerry’s Plains Subgroup 5000m Foybrook F
Slide 49: Significant increase in reserves vs 2013
49 Significant increase in reserves vs 2013 1, 2 Hunter Valley coal resource upgrade • Ore Reserves increase by 546 Mt to 1,877 Mt Million tonnes • Mineral Resources exclusive of Ore Reserves increase by 369 Mt to 2,718 Mt 2,718 • Extensive drilling program provides high 2,349 confidence level 1,877
Slide 50: Unlocking value through synergies
50 Unlocking value through synergies Hunter Blend synergies • Applying a Pilbara-type network approach and Working operating our assets as one system together as one system • Optimising current operations and increasing production volume at low cost • Developing blended coal products to suit current
Slide 51: Low capital intensity expansion options
51 Low capital intensity expansion options Rio Tinto Coal Australia expansion options Cost reduction Production growth vs 2012 vs 2012 • Tier 1, Mount Pleasant project in advanced stages of study Transformation -31% (delivered) 14% • Low capital intensity expansion options: 1 Hunter Blend ─ Hunter B
Slide 52: Transformed business, well positioned to meet growing demand from Asia
52 Transformed business, well positioned to meet growing demand from Asia Markets at cyclical low but Asian electricity demand growth underpins recovery Operations and marketing excellence delivering on volume, cost and price to maintain positive margins Mount Thorley Warkworth, New South Wales High
Slide 53: Creating value from operating excellence
28 November 2014 Sydney Creating value from operating excellence Greg Lilleyman, group executive, Technology & Innovation
Slide 54: Our Technology & Innovation group has a long history of value creation…
54 Our Technology & Innovation group has a long history of value creation… 2008 2009/10 2010 2010/11 2012 2012 2014 Atlas Copco Pilbara Drillers Aid Autonomous Cab-less Advanced Launch of Alliance Automated truck Trial (RTVis™) Drilling System Drill Survey Processing trials trial Excellence Centre 2
Slide 55: …and these innovations and productivity improvements continue to be rolled out
55 …and these innovations and productivity improvements continue to be rolled out across the Group Key innovation Where deployed Value delivered Future applications Productivity • Improved asset reliability • Continue to roll out across • Group wide programmes • Reduced operating risk the Group • Im
Slide 56: Operating excellence delivers significant value
56 Operating excellence delivers significant value Project shaping and Productivity Innovation-driven delivery gains change Processing Pilbara 360 Brockman 4 Excellence Centre South of Embley Weipa capacity Autonomous stretch equipment Mount Pleasant Fleet rationalisation in Mine automation
Slide 57: Extending our superior Pilbara project execution performance across the Group
57 Extending our superior Pilbara project execution performance across the Group Pilbara construction project performance* Percentage of budget Project schedule (months) 30 Behind schedule 20 10 WA Non Rio average schedule overrun WA Non Rio average budget overrun 0 -10 -20 Ahead of -30 schedule RTI
Slide 58: Productivity case study - Brockman 4
58 Productivity case study - Brockman 4 Value chain analysis & prioritisation Drill Load Crush Stack Train Planning & blast & haul & screen & reclaim load-out Value levers identified Cumulative benefit since 2011 • Increase mine productivity (payload, truck • 7Mt of additional saleable iron ore & sh
Slide 59: Delivering significant value to the Group
59 Delivering significant value to the Group Delivering high-quality investment options from reduced spend Embedding the Pilbara’s sector-leading project capability across the Group Relentless pursuit of productivity gains Rolling out proven technology & productivity platforms across the Group Conti
Slide 60: The Rio Tinto value proposition
60 The Rio Tinto value proposition World-class portfolio Free Quality cash flow growth generation Sustainable shareholder returns Operating Capital and allocation commercial discipline excellence Balance sheet strength ©2014, Rio Tinto, All Rights Reserved
Slide 61: Appendix
28 November 2014 Sydney Appendix
Slide 62: Consensus price deck
Consensus price deck 2014 2015 2016 2017 2018 2019 Aluminium (LME + Regional 2,286 2,451 2,518 2,499 2,515 2,608 premium) (US$/t) Coking coal (Prime hard coking 116 131 142 148 158 174 coal FOB) (US$/t) Copper (LME grade) 313 308 314 336 346 347 (US¢/lb) Iron ore (62% Fe fines FOB 91 76 73 74 79 82