Rio Tinto Plc · LSE:RIO
Rio Tinto — Corporate Update (September 2006)
26 slides from Rio Tinto's corporate update, September 2006
Slide 1: Rio Tinto Energy US mine tour - September 2006
Rio Tinto Energy US mine tour - September 2006
Slide 2: Financial Community Visit - Forward-Looking Statements
Financial Community Visit September, 2006 For the purposes of the Forward-Looking Statements Safe Harbor provisions of the US securities laws This presentation contains statements which constitute forward-looking statements within the meaning of the US securities laws. Such statements include, but a
Slide 3: Safety and Agenda
Safety Evacuation Procedures • Alarm • Fire exits • Assembly point 2 Agenda 1 Rio Tinto Energy America Overview 2 Context: North American Energy 3 PRB Coal Market Developments 4 Operations 5 Improvement Initiatives 6 Opportunities for Growth 7 Summary Note: All tons referred to in this presentation
Slide 4: Safety - LTIFR
Agenda 1 Rio Tinto Energy America Overview 4 Safety - LTIFR LTIFR 12-Month Rolling Average 1.40 1.20 1.00 0.80 0.60 0.40 0.20 - 1 2 3 4 5 02 03 04 05 06 -0 -0 -0 -0 -0 n- n- n- n- n- ec ec ec ec ec Ju Ju Ju Ju Ju D D D D D 5 3
Slide 5: Rio Tinto Energy America: Production Has Grown Rapidly
Rio Tinto Energy America 6 Production Has Grown Rapidly 140 120 Mine Year Acquired 2005 Tons 100 Antelope 1993 30.0 Tons (million) 80 Cordero Rojo 1993/1997 37.3 Complex 60 Spring Creek 1993 13.1 40 Decker (50%) 1993 3.5 20 Colowyo 1994 5.9 Jacobs Ranch 1998 37.3 0 1993 1995 1997 1999 2001 2003 2005
Slide 6: GDP and Population Growth Will Continue to Drive Increased Power Demand
Agenda 2 Context: North American Energy 8 GDP and Population Growth Will Continue to Drive Increased Power Demand 5,310 5,310 Electricity Sales Electricity sales – Population 4,600 4,600 growth Billion kWh 1,262 Industrial – GDP growth 3,978 3,978 1,147 Upward 3,420 3,420 pressures 1,060 2,713 2,151
Slide 7: Coal will Remain Central to U.S. Economy
Coal will Remain Central to U.S. Economy Electricity generation, by fuel type Challenges faced by alternatives to coal Billion kWh Renew- Renewables ables / other* Unable to achieve scale Oil Less efficient 6,000 Hydro Oil Expensive, not as clean as other fuels 5,000 Nuclear Hydro Gas Most suitable
Slide 8: Western Growth is Driven by PRB Coal
Western Growth is Driven by PRB Coal 12 Resurgence in Coal Generation 153 plants equivalent to 93GW of capacity announced although not all will proceed* 13 Source: NETL 6/21/2006 7
Slide 9: PRB Coal Market Developments: Market Impact Factors
Agenda 3 PRB Coal Market Developments 14 Market Impact Factors – Global coal demand – Structural issues in the eastern U.S. – Rebuilding utility stockpiles – Natural gas prices – SO2 allowance prices – Railway issues 15 8
Slide 10: PRB and SO2 Allowance Pricing Trends
PRB and SO2 Allowance Pricing Trends $25 $1,800 $1,600 $20 $1,400 $/Ton Allowance $1,200 $15 $1,000 $/Ton $800 $10 $600 $5 $400 $200 $0 $0 Jan-04 Jun-04 Nov-04 Apr-05 Sep-05 Feb-06 Jul-06 PRB 8800/0.80 Prompt Qtr SO2 Allowance 16 Volatility And A Rising Trend Have Distinguished Gas Prices From Coal
Slide 11: Spot PRB Coal Prices Have Exhibited Short-term Price Jumps
Spot PRB Coal Prices Have Exhibited Short-term Price Jumps Dollars per ton $25 $20 $15 PRB $10 $5 $0 Jan-03 Sep-03 Jan-04 Sep-04 Jan-05 Sep-05 Jan-06 May-03 May-04 May-05 May-06 Source:Platts Coal Outlook 18 Along With Other Spot Coal Prices Dollars per ton $70 $60 CAPP $50 NAPP $40 ILB $30 $20 PRB
Slide 12: Railroad Capacity Constraints Proved Significant in 2005 and 2006
Railroad Capacity Constraints Proved Significant in 2005 and 2006 In the PRB, rail capacity met average demand •...as problems throughout the rail only 1 quarter in the last 6 … network hurt coal customers Demand: 65 64 65 2005: ~64-65 62 60 60 train sets/ "We don't know if railroads can day bring u
Slide 13: Railroads Committing Capital to Alleviate Capacity Problems
Railroads Committing Capital to Alleviate Capacity Problems Gillette Donkey Creek Improvements made or in progress: RTEA Mines Caballo – Triple-track expansion: 80+ miles – $400+M spent on improvements to Caballo Rojo Cordero existing lines Coal Creek Jct. • Ballast cleaning: 75 miles To Edgemont •
Slide 14: Other Alternatives Can Decrease Cost And Relieve Congestion
Other Alternatives Can Decrease Cost And Relieve Congestion Northern Ohio docks and terminals – Creating rail/barge/truck combinations to blend western and eastern coal for regional distribution Midwest Energy Resources Company (MERC) – Detroit Edison-led JV – Leverages attractive rail and barge rat
Slide 15: Increasing Number of Scrubber Installations
Increasing Number of Scrubber Installations Cumulative scrubber capacity • CAIR requires Gigawatts of nameplate generating capacity significant reduction in emissions 400 – 2:1 allowances in Current coal-fired capacity 2010 – ~3:1 allowances in 300 2015 • Over 150 GW of 200 scrubber retrofits have A
Slide 16: PRB Already Competes Favorably in Scrubbed Plants
PRB Already Competes Favorably in Scrubbed Plants West of the Mississippi and Along the Ohio 2005 PRB market share* No PRB deliveries Percent Limited competition (<10%) Plants with Heavy competition (10-75%) All plants scrubbed unit(s) PRB dominated (>75%) Extent of PRB competitiveness MN MN 99 NY 1
Slide 17: Low Sulphur Coal is Forecast to Capture Significant Growth
As a Result, Low Sulphur Coal is Forecast to Capture Significant Growth Coal demand by sulfur content Millions of short tons – Low-sulphur demand is 812 expected to increase by 2010 despite the growth in scrubbing 615 561 capacity 426 443 – New scrubbers will 411 reverse the decline of high sulphur
Slide 18: Committed Production and Margins
Sold to Position 100% Committed Production % 80% 60% Committed 40% 20% Committed & indexed 0% 2007 2008 2009 2010 Selling forwards locks in prices over a number of years 32 Margins 40% EBITDA Margin 30% 2003 2004 20% 2005 10% Annualized H106 0% 220 270 320 EBITDA Bubble size represents turnover 33 1
Slide 19: Shipments by Month and Site Unit Cash Costs
Shipments by Month January 2002 through April 2006 12 10 Million Tons 8 6 4 2 0 O -02 O -03 O -04 O -05 Ja A -02 Ju -02 Ja -02 A -03 Ju -03 Ja -03 A -04 Ju -04 Ja -04 A -05 Ju -05 Ja -05 A -06 ct ct ct ct pr pr pr pr pr n n n n n l l l l -0 6 34 Site Unit Cash Costs - Indexed Increasing Cost Pressur
Slide 20: Business Improvement Initiatives
Agenda 5 Improvement Initiatives 36 Business Improvement Initiatives • RTEA Business Improvement initiative underway • Well resourced by internal support teams • Employee involvement • Delivering improvements to the business • RTEA participating in Rio Tinto’s Improving Performance Together program
Slide 21: Business Improvement Initiatives - Tire Life Example
Business Improvement Initiatives Initiatives Description • Increase operating efficiencies to improve throughput, reduce Production costs, and enhance productivity • Create one RTEA maintenance program by improving equipment strategies, planning and scheduling, and work Maintenance execution in orde
Slide 22: Example – Portfolio Optimization Marketing
Example – Portfolio Optimization Jacobs Ranch Mine - Typical blended quality is 8,700 Btu, 1.05 lbs SO2 Market map of SPRB mines UW focus on eastern niche market of 2 -4 lb coal SO 2 content lb/MMBtu 2.05 JRM (2003) • JRM now offers 2 coal grades JRM (2006) JRM 0.95 (2006) – Middle Wyodak is target
Slide 23: Opportunities for Growth: Antelope Expansion
Agenda 6 Opportunities for Growth 42 Antelope Expansion • Production expansion in progress • Air permit obtained in April 2006 • Mine permit obtained June 2006 • Rail loop expansion completed November 2005 • Facilities improvements on schedule • 90% mining equipment already on site Newly Expanded SM
Slide 24: Spring Creek and Jacobs Ranch
Spring Creek • Expansion to 18 million tons of capacity – Install new secondary crushing system – Installation of a Batch Load system – Installation of a in-pit crusher – Facilities upgrades • Doubled stripping capacity by purchasing dragline and shovel 44 Jacobs Ranch • Successful dragline commissi
Slide 25: Colowyo Options and Federal Lease Applications
Colowyo Options Lower Wilson Collom South Taylor Underground Performing feasibility and pre- West Pit feasibility studies on alternative options 46 Federal Lease Applications Maysdorf (Cordero Rojo) Applied for a number of federal coal leases West Jacobs • Spring Creek – 121M inplace tons Ranch • Ma
Slide 26: Summary
Agenda 7 Summary 48 Summary Rio Tinto Energy America is well positioned to benefit from positive market fundamentals: • Low cost operations - exclusively open pit, western coal producer • Low sulphur reserves • Very low legacy liabilities • Growth opportunities • Member of Rio Tinto Group – extensiv