Rio Tinto Plc · LSE:RIO
Rio Tinto — Non-Deal Roadshow (September 2018)
30 slides from Rio Tinto's roadshow presentation, Sep 21, 2018
Slide 1: Iron Ore – Delivering value from flexibility and optionality
Iron Ore – Delivering value from flexibility and optionality Chris Salisbury Iron Ore chief executive
Slide 2: Cautionary statements
2 Cautionary statements 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, including but not limited to
Slide 3: Our value over volume strategy maximises free cash flow
3 Our value over volume strategy maximises free cash flow Foundations Value over Volume Strategy Revenue Exclusive fully Price impact of integrated system incremental tonnes Protecting quality Delivering right tonnes to customers who value them Highly valued product suite and significant resources C
Slide 4: Safety and health come first
4 Safety and health come first Fatality at Rio Tinto Fer et Titane in April 2018 Continuing history of improvement in AIFR Fatal assault on a security contractor at Richards Bay Minerals in Rio Tinto ICMM (23 companies) July 2018 2.78 Fatality at Paraburdoo Iron Ore mine in August 2018 All injury fr
Slide 5: World class assets, fully integrated and agile network
5 World class assets, fully integrated and agile network 16 Mines 1,700 Rail (km) 4 Port terminals 4 Power stations >370 Haul trucks 95 Autonomous haul trucks 55 Production drills 11 Autonomous drills >200 Locomotives > 100 Global customers ©2018, Rio Tinto, All Rights Reserved
Slide 6: Priority remains to optimise infrastructure capacity and build flexibility
Priority remains to optimise infrastructure capacity and 6 build flexibility Current system capacity Future system capacity ~360* ~360 ~330-340 Mt/a Mt/a Mt/a Building rail capacity to provide Rail and mine capacity expected to match nameplate port dynamic flexibility capacity by the end of 2019 Min
Slide 7: Global macro indicators remain supportive
7 Global macro indicators remain supportive Global PMIs have eased but remain in expansion Chinese growth slowing very gradually 10 65 8 YoY ytd % real 60 6 55 PMI Index 4 50 2 45 US Eurozone China Japan 40 0 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Jun-17
Slide 8: Controlled deceleration in Chinese growth
8 Controlled deceleration in Chinese growth Controlled deceleration of infrastructure investment as Housing inventories are very low… expected 30 50 25 40 Months of Supply 20 YoY ytd % 30 15 20 10 5 10 0 0 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Real Estate Investment Manufacturing I
Slide 9: Seaborne supply response remains muted…
Seaborne supply response remains muted… 9 2018 seaborne supply additions offset by disruptions Rise in inventories driven by lower quality iron ore and exits 175 42 41* 150 125 Million tonnes Million tonnes 100 75 -14 50 -27 25 0.2 0 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr
Slide 10: …and Chinese domestic production remains steady
…and Chinese domestic production remains steady 10 Most Chinese domestic capacity is geographically …Chinese domestic production has remained steady… removed from the steel mills… 500 450 400 350 Million tonnes 300 250 Heilongjiang 200 150 Jiling 100 Xinjiang Liaoning 50 Inner Hebei 0 Mongolia 2013
Slide 11: Supply-side reform and tightening environmental policy have driven structural changes
Supply-side reform and tightening environmental policy 11 have driven structural changes Supply-side reforms Environmental policy Higher steel capacity Policies focused on restoring industry Environmental restrictions are utilisation rates profitability and reducing debt the new normal Steel capacit
Slide 12: China's supply-side reform and environmental policies have created a more efficient industry…
China’s supply-side reform and environmental policies 12 have created a more efficient industry… Steel mill rationalisation programme has removed …while steel production has remained elevated... significant capacity... 2.1 1,300 Steel Capacity million tonnes 2.0 Million tonnes per day 1,250 65 1,200
Slide 13: ...causing a structural shift towards productivity
13 ...causing a structural shift towards productivity Improvement in Chinese steel industry profitability... ... and the focus on productivity has caused structural widening in iron ore premiums % relativity to 62% index 250 100% 90% Mill margin $ per tonne 200 150 80% 100 70% 50 60% 0 50% Jan-15 Ju
Slide 14: China's supply-side reforms are here to stay
China’s supply-side reforms are here to stay and will continue 14 to be driven by tightening environmental policy Southern and Coastal regions destination for replacement ... and replacement capacity will be larger and steel capacity – well located for seaborne iron ore … cleaner blast furnaces >300
Slide 15: Scrap usage in China gradually increasing from a low base, but will face headwinds
Scrap usage in China gradually increasing from a low 15 base, but will face headwinds China’s scrap supply growing slowly from a Headwinds limiting scrap consumption: low base Scrap to iron ore price ratio has risen to historic highs Million tonnes Scrap quality is low 2013 2014 2015 2016 Pig Iron P
Slide 16: Our Iron Ore business consistently generates superior margins
Our Iron Ore business consistently generates superior 16 margins Rio Tinto Iron Ore EBITDA performance EBITDA Margin v Peers 80% 80 180 70% EBITDA margin %1 Price $ per tonne 2 60 60% 120 40 50% 60 40% 20 30% 0 0 20% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 201
Slide 17: Multiple low cost, value accretive capital options
17 Multiple low cost, value accretive capital options Pilbara development options $ per tonne installed capital intensity 120 Sustaining capex of ~$1 billion per year for the next Bubble size indicates capacity three years 90 Pilbara replacement mines capital 2018 – 2020 of ~$2.7 billion includes We
Slide 18: Extensive pipeline of options
18 Extensive pipeline of options Exploration & Concept & Order Evaluation Pre-feasibility of Magnitude & Feasibility Development / >700km of drilling across Ramp Up Pilbara projects planned in Western Turner Completed 2018 to support operations, Koodaideri stage 2 Syncline stage 2 studies and strate
Slide 19: Sustainable long term, low cost position underpinned by our world class assets
Sustainable long term, low cost position underpinned 19 by our world class assets Pilbara cash unit cost 25 20 20.2 19.5 Headwinds in 2018: 15 Cyclical maintenance $ per tonne 14.9 13.7 13.4 13.4 Haul distance costs, partly offset by 10 Bulk materials new tactics 5 Labour costs 0 2013 2014 2015 2016
Slide 20: Productivity options to continue to deliver cash benefits
20 Productivity options to continue to deliver cash benefits Partnering Best Practice Data & Technology Automation with Suppliers Effective equipment Mine planning optimisation Payload optimisation utilisation and maintenance optimisation Explosives charging improvements Autonomous trucks (including
Slide 21: Building future system flexibility with AutoHaul
21 Building future system flexibility with AutoHaul® Improved productivity, efficiency and safety Greater flexibility in scheduling Removal of driver changeover times ~3x stoppages for each round trip Improved cycle time performance Removing the need to transport drivers 1.5 million kilometres each
Slide 22: AutoHaul to complete in 2018
22 AutoHaul® to complete in 2018 World’s first fully autonomous heavy haul mainline run completed in September 2017 Regulator approval received in May ~65% First autonomous haul 3.3million ~6% complete in July production kilometres kilometres Speed improvement currently completed in completed in aut
Slide 23: Supported by our people and partners
23 Supported by our people and partners Valued customer relationships 11,500 employees driving built on technical knowledge sustainable productivity and and product quality cost improvements Local procurement Over 1,000 WA suppliers provided with business Rio Tinto paid $1.3 billion Strong community
Slide 24: Iron Ore continues to deliver optimal value
24 Iron Ore continues to deliver optimal value Strong foundations Further opportunities for value creation Exclusive fully integrated system Value over volume strategy Maximising Highly valued product suite cash flow and significant resources through the Mine to market productivity improvements cycl
Slide 25: Appendix
Appendix
Slide 26: Iron Ore H1 2018 highlights
26 Iron Ore H1 2018 highlights H1 2018 H1 2017 Change Pilbara shipments (100%) Mt 168.8 154.3 +9% Free cash flow reflected the lower capital spend, partly attributable to the completion of Pilbara production (100%) Mt 168.7 157.0 +7% Silvergrass at the end of 2017 Underlying EBITDA 5,656 5,607 +1% U
Slide 27: Iron Ore: increased sales and cost savings partly offset by lower prices
Iron Ore: increased sales and cost savings partly offset 27 by lower prices Underlying EBITDA H1 2017 vs H1 2018 $ million 6,000 5,607 132 41 5,656 4,963 520 (542) (27) (41) (34) 4,000 2,000 0 H1 2017 Price Exchange rates Energy Inflation Flexed Volumes & Mix Cash costs Other H1 2018 underlying H1 2
Slide 28: Iron and steelmaking process flow
28 Iron and steelmaking process flow Step 1: Sinter and Coke Making Step 2 : Iron Making Step 3 : Steel Making, Refining and Casting Ore Fines and Concentrate Coking Coal Coke, Sinter Alloys Inputs Inputs Inputs Inputs Pilbara Blend Fines Lump, Pellets Scrap metal Pilbara Blend Lump Fluxes Robe Vall
Slide 29: Best in class quality delivered through system blending
29 Best in class quality delivered through system blending Mesa J Port Terminals Products Future system capacity Mesa A RVL Cape RVF Yandicoogina Lambert HIY A Silvergrass West Angelas HIY Hope Downs 1 Cape PBL Lambert PBF Fe Alumina Nammuldi B Marandoo Brockman 4 PBL Parker PBF Mt Tom Price Point P
Slide 30: … we produce five products in the Pilbara to meet their needs
… we produce five products in the Pilbara to meet their 30 needs Pilbara Pilbara Yandicoogina Robe Robe Blend Fines Blend Lump Fines Valley Fines Valley Lump H1 2018 shipments by product (100% basis) 47% 26% 17% 7% 3% Pilbara Blend Fines Pilbara Blend Lump Yandicoogina Fines Robe Valley Fines Robe V