Rio Tinto Plc · LSE:RIO
Rio Tinto — Investor Day (November 2012)
69 slides from Rio Tinto's investor day presentation, Nov 29, 2012
Slide 1: ASX cover letter for investor seminar presentation
Rio Tinto Limited 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 ASX Market Announcements Australian Securities Exchange SYDNEY NSW 2000 29 November 2012 Attached is a presentation gi
Slide 2: Investor seminar, Sydney, 29 November 2012
For personal use only Cape Lambert, Western Australia Investor seminar Sydney 29 November 2012
Slide 3: Cautionary statement
©2012, Rio Tinto, All Rights Reserved 2 Cautionary statement For personal use only 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 b
Slide 4: Tom Albanese, Chief executive
3 For personal use only Shanghai, China Tom Albanese Chief executive
Slide 5: Agenda
©2012, Rio Tinto, All Rights Reserved 4 Agenda For personal use only Introduction, outlook and strategy Tom Albanese Capital allocation and performance Guy Elliott Iron Ore Sam Walsh Break Other product groups Tom Albanese Diamonds & Minerals Alan Davies Summary Tom Albanese Q&A
Slide 6: Safety remains our core value
©2012, Rio Tinto, All Rights Reserved 5 Safety remains our core value For personal use only Injury frequency rates 2003 – Oct 2012 Per 200,000 hours worked 2.0 All injury frequency rate 1.8 Lost time injury 1.6 frequency rate 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 Oct- 1
Slide 7: Overview
©2012, Rio Tinto, All Rights Reserved 6 Overview For personal use only • Short term outlook remains uncertain and volatile • Focus on balance sheet discipline and single A credit rating • Strong operational performance under tough conditions • Taking decisive actions to compress costs and optimise r
Slide 8: Short term market volatility but Chinese indicators are more positive
©2012, Rio Tinto, All Rights Reserved 7 Short term market volatility but Chinese For personal use only indicators are more positive US New private housing starts • Continued uncertainty in Europe and (Thousands of Units) United States 1000 900 • Expected fourth quarter pick-up in 800 700 China 600 5
Slide 9: The long term demand outlook remains attractive
©2012, Rio Tinto, All Rights Reserved 8 The long term demand outlook For personal use only remains attractive Global commodity demand trajectories • ~2 billion additional people to Index (2012 = 100) urbanise by 2030 200 • Global steel consumption expected to grow by 2 per cent per annum 180 • China
Slide 10: The industry supply response is increasingly challenged
©2012, Rio Tinto, All Rights Reserved 9 The industry supply response For personal use only is increasingly challenged Disruption rates expected to continue • Cost escalation and rising capital % of planned copper production intensity will increase pressure on 8 7 marginal project returns 6 5 • Scarc
Slide 11: Our fundamental strategy is consistent and unchanged
©2012, Rio Tinto, All Rights Reserved 10 Within this context, our fundamental For personal use only strategy is consistent and unchanged • To maximise total shareholder return Higher Tier 1 10.00 expandability by sustainably finding, developing, 9.00 mining and processing natural Implement Grow and
Slide 12: Constant steps to improve the quality of the portfolio
©2012, Rio Tinto, All Rights Reserved 11 We are taking constant steps to improve the For personal use only quality of the portfolio Higher Leveraged Tier 1 10.00 expandability plays 9.00 8.00 7.00 6.00 Optionality 5.00 4.00 3.00 2.00 1.00 Marginal Cash Lower assets cows expandability 0.00 Higher1.00
Slide 13: A clear and consistent strategy
©2012, Rio Tinto, All Rights Reserved 12 A clear and consistent strategy For personal use only • The long term demand outlook remains attractive • Post GFC effects continue to drive short term market uncertainty and volatility • Increasingly delayed industry supply side response • Rio Tinto’s fundam
Slide 14: Guy Elliott, Chief financial officer
13 For personal use only Cape Lambert, Western Australia Guy Elliott Chief financial officer
Slide 15: Balancing investment with shareholder returns and a prudent balance sheet
©2012, Rio Tinto, All Rights Reserved 14 Balancing value adding investment with returns to shareholders and a prudent balance sheet For personal use only • Prudent balance sheet and single A credit rating in a volatile environment Cash from operations and divestment proceeds • Progressive dividend p
Slide 16: Strategic investment themes and evaluation criteria
©2012, Rio Tinto, All Rights Reserved 15 Distinctive strategic investment themes and standard evaluation criteria drive our investment approach For personal use only Board / Exco Macro-economic Develop investment Jurisdiction themes Sector “sieves” • Market size, demand • Competitive advantage • Per
Slide 17: Our capital allocation process ensures good decisions
©2012, Rio Tinto, All Rights Reserved 16 Our capital allocation process ensures For personal use only we are making good decisions Develop investment themes Investment Committee Set Project Opportunity review Board evaluation criteria development and Final decision ranking Set ranking criteria
Slide 18: Capital expenditure prioritised on the highest quality projects
©2012, Rio Tinto, All Rights Reserved 17 Capital expenditure is being prioritised For personal use only on the highest quality projects • Capex programme managed within Capital expenditure US$bn boundaries of single A credit rating • Average sustaining capex reduction of 16 >$1 billion in 2013 14 •
Slide 19: Strong returns from key approved growth projects
©2012, Rio Tinto, All Rights Reserved 18 Strong returns from key approved For personal use only growth projects Approved Capex capex remaining % EBITDA Project ($bn) ($bn)* complete IRR Margin Pilbara 290 9.7 5.8 40% >15% >40% Pilbara 360 5.5 5.1 <10% >15% >40% Oyu Tolgoi Ph 1 6.2 0.2 97% >15% >40%
Slide 20: Shaping the portfolio in line with our strategy
©2012, Rio Tinto, All Rights Reserved 19 Shaping the portfolio in line with our strategy For personal use only • Capturing value from assets that no longer fit our strategy − >20 divestments worth a total of $12bn completed since 2008 − Various strategic review and divestment processes underway • Fu
Slide 21: Prudent balance sheet management
©2012, Rio Tinto, All Rights Reserved 20 Prudent balance sheet management For personal use only Proforma gross debt maturity profile • Aim to maintain a single A credit at 30 June 20121 rating US$bn • Long term and smooth debt maturity 5.5 profile 5.0 4.5 − Weighted average maturity of over 4.0 nine
Slide 22: Further significant cost reductions planned
©2012, Rio Tinto, All Rights Reserved 21 Further significant cost reductions planned For personal use only Australian capital cost inflation Cash cost reduction target 2000 = 100 US$bn, base year = 2012 3.5 190 180 3.0 170 Typical Mine + Mineral Processing Facility - 2.5 160 Australia (IPA) 150 2.0
Slide 23: A disciplined approach to capital allocation
©2012, Rio Tinto, All Rights Reserved 22 A disciplined approach to capital allocation For personal use only • Prudent balance sheet and single A credit rating in a volatile environment • Clearly defined approach to capital allocation • Investment programme focused on the highest quality opportunitie
Slide 24: Sam Walsh, Chief executive Iron Ore
23 For personal use only Pilbara, Western Australia Sam Walsh Chief executive Iron Ore
Slide 25: Chinese steel demand growth to peak at around 1 billion tonnes
©2012, Rio Tinto, All Rights Reserved 24 Robust Chinese steel demand growth to peak For personal use only at around 1 billion tonnes Chinese peak steel production and iron ore Infrastructure and buildings decline as requirements in 2030 proportion of Chinese steel demand 1200 1600 100% 1400 90% 1000
Slide 26: Significant constraint to development of new iron ore supply
©2012, Rio Tinto, All Rights Reserved 25 There continues to be significant constraint to For personal use only the development of new iron ore supply Announced and completed iron ore production • Announcements from others do not capacity (global) necessarily translate to supply (million tonnes) capa
Slide 27: Chinese domestic iron ore production is highly price sensitive
©2012, Rio Tinto, All Rights Reserved 26 Chinese domestic iron ore production For personal use only is highly price sensitive Implied Chinese domestic production and Chinese domestic private cost curve – 2012 spot prices $/dmt CFR $/dmt CFR Mt/ $/dmt, annualised CFR 260 450 180 240 220 400 160 200 3
Slide 28: Attuned to the needs of customers
©2012, Rio Tinto, All Rights Reserved 27 Commercially and technically attuned For personal use only to the needs of customers 2012 (Jan-Oct) – actual shipments 2012 (Jan-Oct) – percentage by pricing mechanism of products by market 100% Spot 13% 90% 80% Monthly 70% 32% 60% 50% Qtr Actual 22% 40% 30%
Slide 29: Maintaining iron ore sales and marketing sector leadership
©2012, Rio Tinto, All Rights Reserved 28 Maintaining iron ore sales and marketing For personal use only sector leadership Platts IODEX Iron ore fines 62% Fe RTIO PBF spot sales (relative to Platts 62% Fe) ($/dmt CFR) (c/dmtu) 160 20 160 150 150 15 140 140 130 10 130 120 120 110 5 110 100 1000 90 90
Slide 30: IOC pipeline of high grade growth options
©2012, Rio Tinto, All Rights Reserved 29 IOC has a pipeline of high grade growth options For personal use only to meet market demand IOC concentrate capacity • Final commissioning of CEP phase 1 (Mt/a) to 22 Mt/a 50 • On track for phase 2 to 23.3 Mt/a in 2013 23.3 22 • Consistently high quality prod
Slide 31: Tier one assets within a globally significant Pilbara resource base
©2012, Rio Tinto, All Rights Reserved 30 Tier one assets within a globally significant For personal use only Pilbara resource base Pilbara Carajas 50km 50km Caliwingina Mesa A Mesa J Koodaideri Silvergrass Brockman 2 Nammuldi Brockman 4 Western Turner Syncline Marandoo Yandicoogina Mt Tom Price Hope
Slide 32: Resources and reserves growth and drilling ahead of production growth
©2012, Rio Tinto, All Rights Reserved 31 Resources and reserves growth and drilling For personal use only effort ahead of production growth Resource, reserves and production1 Planned resource development drilling (million tonnes) (kilometres) 20,000 20,000 250 900 18,000 18,000 225 800 16,000 16,000
Slide 33: Rerated 237Mt/a nameplate capacity
©2012, Rio Tinto, All Rights Reserved 32 Rerated 237Mt/a nameplate capacity as a For personal use only result of deep system visibility Pilbara production • New nameplate capacity at 237Mt/a (Mt/qtr) − Operations Centre assists deep 70 system visibility, significantly advancing performance 60 − Q3 2
Slide 34: Constant system analysis informs programme of improvement
©2012, Rio Tinto, All Rights Reserved 33 Constant system analysis informs For personal use only a programme of improvement Robe Valley Production • Our last major expansion took the (Tonnes (Mt)) integrated system to 220 Mt/a 40 35.4 35 30 31.2 31.1 • Low capex debottlenecking has also 25.2 Annualis
Slide 35: Mine of the Future turning advantage into business value
©2012, Rio Tinto, All Rights Reserved 34 Our Mine of the Future is turning competitive For personal use only advantage into real business value • Technology and automation will continue to drive business success • Improving sophistication of real time data and progressive cultural change are keys to
Slide 36: Remaining focused on cash costs management
©2012, Rio Tinto, All Rights Reserved 35 Remaining focused on cash costs management For personal use only Pilbara cash operating unit cost* • Inflationary pressures persist (2006 = 100) but signs of easing 200.00 • We continue with a strong 180.00 focus on controlling AUD 160.00 cash operating unit
Slide 37: Leading EBITDA performance in Western Australia iron ore
©2012, Rio Tinto, All Rights Reserved 36 Leading EBITDA performance in the Western For personal use only Australia iron ore industry WA IO – EBITDA per tonne • 2012 EBITDA has been impacted by (US$/t and %) lower sales prices 140 80% • Relative to our competitors our 120 70% performance remains high
Slide 38: Assets well positioned on the industry cost curve
©2012, Rio Tinto, All Rights Reserved 37 Our assets will continue to be well- positioned For personal use only on the contestable market cost curve 2012 Industry cost curve 2020 Industry cost curve ($/wmt CFR North China) ($/wmt CFR North China) $/wmt CFR 250 $/wmt CFR 250 200 FMG Pilbara Vale 200 F
Slide 39: Superior performance in delivering projects
©2012, Rio Tinto, All Rights Reserved 38 We have demonstrated superior performance For personal use only in delivering projects Western Australian construction projects performance (Cost (% of budget)) Over budget 250% RTIO projects Non RTIO behind projects 40 schedule 200% 30 Months over budget 20
Slide 40: US$1 billion saving for expansion programme
©2012, Rio Tinto, All Rights Reserved 39 US$1 billion saving for 360 Mt/a For personal use only expansion programme BS4 (III) Growth BS4 (II) $1bn Koodaideri (I) WTS (I) Nammuldi Silvergrass 2012 2013 2014 2015 Warramboo HD4 Yandicoogina WTS (II) Legend WA -Dep E Marandoo WA- Dep B • Not yet approve
Slide 41: All first ore commitments remain on track
©2012, Rio Tinto, All Rights Reserved 40 All “first ore” commitments remain well on-track For personal use only Rio Tinto Pilbara iron ore shipping capacity (100% basis) (Mt/a) 380 360 First Ore 360 340 First Ore 340 320 Average Annualised 290 First Ore 300 Mtpa 1H 280 4Q 260 240 4Q 220 200 2010 201
Slide 42: Optionality of large mine capital vs low cost incremental gains
©2012, Rio Tinto, All Rights Reserved 41 High value optionality of large mine capital vs. For personal use only low cost incremental system gains All growth mines developed (Average Annualised (Mtpa)) 425 400 375 350 325 300 275 250 225 200 2010 2011 2012 2013 2014 2015 2016 2017 Achievable opportun
Slide 43: Productivity platform to facilitate growth
©2012, Rio Tinto, All Rights Reserved 42 A robust productivity platform will facilitate For personal use only growth up to and beyond nameplate capacities • Major productivity opportunities exist with volume, capital and labour, with low cost gains, eg − Implement control logic adjustments and blend
Slide 44: Summary
©2012, Rio Tinto, All Rights Reserved 43 Summary For personal use only • Ramping supply and customer engagement to meet continuing steel mill customer demand from China and other emerging markets • First- class asset optionality of a resource-rich Pilbara precinct and the ability to balance large ca
Slide 45: Investor seminar - Break
For personal use only Cape Lambert, Western Australia Investor seminar - Break Sydney 29 November 2012
Slide 46: Tom Albanese, Chief executive
45 For personal use only Oyu Tolgoi, Mongolia Tom Albanese Chief executive
Slide 47: Energy: challenging market and cost position
©2012, Rio Tinto, All Rights Reserved 46 Energy: challenging market and cost position For personal use only Capital spend to build new thermal • Earnings impacted by lower prices, a coal capacity high Australian dollar, and high input US$ per tonne of capacity costs • Cost per tonne to build new the
Slide 48: Energy portfolio maintains long term optionality
©2012, Rio Tinto, All Rights Reserved 47 Energy portfolio maintains long term optionality For personal use only Coal • Mozambique: − Significant exploration activity in Moatize Basin − Resource and infrastructure studies progressing with industry & Government Uranium • Promising exploration programm
Slide 49: Rio Tinto Alcan EBITDA improvement by end of 2015
©2012, Rio Tinto, All Rights Reserved 48 Rio Tinto Alcan on track to deliver over $1.6 For personal use only billion of EBITDA improvement by end of 2015 Business improvement by source • $366m sustainable EBITDA % improvements since 2011 Costs 16% Creep • Annual business improvement run- Value Added
Slide 50: Countdown to first commercial production at Oyu Tolgoi
©2012, Rio Tinto, All Rights Reserved 49 Countdown to first commercial production For personal use only at Oyu Tolgoi • Binding power agreement with Inner Event Timeline Mongolia signed − All lines energised and commissioning First ore through SAG mill January 2013 commenced week of November 12th Fi
Slide 51: Alan Davies, Chief executive Diamonds & Minerals
50 For personal use only Alan Davies Chief executive, Diamonds & Minerals
Slide 52: A leader in our markets, placed to capture value
©2012, Rio Tinto, All Rights Reserved 51 A leader in our markets and well placed For personal use only to capture value from the economic cycle • Portfolio of industry leading businesses • Global macro-trends are driving mid- late cycle demand growth • TiO2 poised to become a significant contributor
Slide 53: A portfolio of industry leading assets
©2012, Rio Tinto, All Rights Reserved 52 A portfolio of industry leading assets For personal use only Titanium dioxide Minerals Diamonds Salt Simandou • #1 producer of • #2 producer of • #3 rough • #1 exporter of • Largest TiO2 feedstocks refined borates diamond solar salt untapped iron • Mines in S
Slide 54: Titanium dioxide to follow a similar path to steel
©2012, Rio Tinto, All Rights Reserved 53 Titanium dioxide to follow a similar development For personal use only path to steel Pigment apparent consumption TiO2 demand development Kg of pigment, GDP per capita (2001 – 2011) Million tonnes, pigment (LHS), crude steel (RHS) 18 2000 16 Steel – 1800 2011
Slide 55: Rio Tinto Iron and Titanium options to participate in growth
©2012, Rio Tinto, All Rights Reserved 54 Rio Tinto Iron and Titanium has options For personal use only to participate in market growth TiO2 supply and demand growth • 3 new operations the size of RBM Millions TiO2 units will need to be brought online by 2020 to satisfy demand projections 10 9.5 • Sl
Slide 56: Co-products add significant portfolio value
©2012, Rio Tinto, All Rights Reserved 55 Co-products add significant portfolio value For personal use only RTIT revenue by product line US$, billions, 100% basis • Leveraging technology to create 2.5 valuable products instead of waste • Co-products include high purity 2 iron, steel, metal powders, z
Slide 57: Strong outlook with short term oversupply in high grade feedstock
©2012, Rio Tinto, All Rights Reserved 56 Outlook continues to be strong with some short For personal use only term oversupply in high grade feedstock Price progression estimates from TZMI and brokers • Replacing long-term price contracts US$ nominal 3000 • Exposure to prices potentially up to 300% h
Slide 58: Supplying borates to high growth end users
©2012, Rio Tinto, All Rights Reserved 57 Supplying borates to high growth end users For personal use only Global refined borate demand drivers Industry demand for 5 Mol1 products Cumulative kmt boric oxide B2O3 equivalent 5 Mol industry equivalent industry, B203 kmt CAGR* 1,400,000 1400 5.2% 1,200,0
Slide 59: Strategic optionality built into the borates business
©2012, Rio Tinto, All Rights Reserved 58 Strategic optionality built into the For personal use only borates business Global refined borate share of sales • Tier 1 orebody at Boron, California 2010, % • Consistent quality and reliability Eti, 38.7% SVM, 6.5% • Flexible production responsive to SAM, 6
Slide 60: Expansion into complementary sectors
©2012, Rio Tinto, All Rights Reserved 59 Expansion into complementary sectors For personal use only Jadar Lithium-Borate, Serbia Potash, Saskatchewan • 2 high value product streams from one mine • Developement JV in premier potash basin • Expansion of global borate sales • Synergies with borates bus
Slide 61: Dampier Salt, the world's largest exporter of salt
©2012, Rio Tinto, All Rights Reserved 60 Dampier Salt1 – the world’s largest exporter For personal use only of salt Asian salt demand • Three operations in Western Million tonnes CAGR Australia with a combined capacity in 160 16% excess of 10Mtpa with ability to 10% 120 8% expand to meet demand grow
Slide 62: Diamonds well positioned for profitable growth
©2012, Rio Tinto, All Rights Reserved 61 Diamonds are well positioned for For personal use only profitable growth • Strong industry fundamentals driving price − Lack of significant discoveries and long development lead times − Late cycle demand development being led by China and India • Continuing t
Slide 63: Simandou, a tier one iron ore project
©2012, Rio Tinto, All Rights Reserved 62 Simandou, a tier one iron ore project For personal use only in a world class province Progressive delivery of the Simandou project • Largest known undeveloped iron ore deposit in the world Ile Coastal Plain Mamou Range Eastern Plateau Region Mine Kabak Mamou
Slide 64: A unique approach to development
©2012, Rio Tinto, All Rights Reserved 63 A project of this magnitude requires a unique For personal use only approach to development • Partnership underpins development strategy and risk management approach • Local and sustainable development − Cross-sector partnerships to encourage economic diversi
Slide 65: Phased development and ramp up
©2012, Rio Tinto, All Rights Reserved 64 Phased development and ramp up For personal use only • Simandou infrastructure declared a Project of National Interest for Guinea by Presidential Decree • Scope and location of rail and port approved • Construction of the pioneering marine offload facility un
Slide 66: Diamonds and Minerals poised to become a significant contributor
©2012, Rio Tinto, All Rights Reserved 65 Diamonds and Minerals poised to become For personal use only a significant contributor to the Group • Entering a new phase of demand growth for commodities • Global shift in wealth and demographic profiles driving demand for our products • Assets provide expo
Slide 67: Tom Albanese, Chief executive
66 For personal use only Shanghai, China Tom Albanese Chief executive
Slide 68: Executing our strategy
©2012, Rio Tinto, All Rights Reserved 67 Executing our strategy For personal use only • Long term industry fundamentals remain attractive • Rio Tinto’s strategy remains unchanged – large, long life, low cost assets • Disciplined and rigorous capital allocation and prioritisation • Optimisation of ca
Slide 69: Investor seminar, Sydney, November 2012
For personal use only Cape Lambert, Western Australia Investor seminar Sydney 29 November 2012