Rio Tinto Plc · LSE:RIO
Rio Tinto — Investor Day (September 2015)
68 slides from Rio Tinto's investor day presentation, Sep 3, 2015
Slide 1: Iron Ore Seminar
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation Iron Ore 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: Mineral Resources and Ore Reserves Competent Persons
JORC Code references are to the “Australasian Code for Reporting of Exploration Results, Minerals 3 Resources and Ore Reserves, 2012 Edition. Mineral Resources and Ore Reserves Details of the Pilbara Mineral Resource and Ore Reserve estimates from 2006 to 2014 which appear on slide 66 of this presen
Slide 4: Production Targets
4 Production Targets Production targets for 2017 for our Pilbara operations and Iron Ore Company of Canada appear in this presentation. For our Pilbara operations, slide 25 states “Pilbara integrated production system is expected to deliver … 350 Mt in 2017”. This production target is underpinned as
Slide 5: Introduction
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation Introduction Andrew Harding, chief executive, Iron Ore
Slide 6: Iron ore demand fundamentals
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation Iron ore demand fundamentals Vivek Tulpule, head of Economics & Markets
Slide 7: Rio Tinto Economics & Markets
7 Rio Tinto Economics & Markets Independent advice Extensive data collection Report to CFO Primary research Independent from Product Groups Internal and external resources Fundamental demand and supply Risk and scenario analysis analysis Rigorous testing of results Proprietary cost curves Understand
Slide 8: China's transition toward high-income status involves a structural transition to slower growth
8 China’s transition toward high-income status involves a structural transition to slower growth China’s ‘New Normal’ Relationship Greater Tapering of between Slowing Higher Value China and Demographic emphasis on Capital Urbanisation Added other Transition services and Intensive Growth Production E
Slide 9: Continued global iron ore demand
9 Continued global iron ore demand Moderate growth in iron ore demand • Global steel demand grows by 2.5% pa, Total iron ore demand (million tonnes) versus GDP growth of 3.0% 3,000 2.0% CAGR • Chinese steel demand is evolving with an 2,500 increasing focus on exports Other Emerging • Increasing impo
Slide 10: Robust growth in rest of world demand
10 Robust growth in rest of world demand Rest of World (ex-China) steel demand • Process of industrialisation and Crude steel production (million tonnes) urbanisation in the rest of world will be 1,750 highly steel intensive Sectors Regions Other manufacturing • Rest of world steel demand to increas
Slide 11: China steel growth will continue
11 China steel growth will continue Maturing domestic steel demand • Crude steel production expected to Crude steel production (million tonnes) reach around 1 billion tonnes by 2030 1,000 • Growth in capital stock is slowing leading to a declining demand for steel to support growth 800 • Replacement
Slide 12: Chinese steel demand based on detailed analysis
12 Chinese steel demand based on detailed analysis Building Infrastructure Highways Urban Residential Rail Rural Residential Subway Non-Residential Public Facilities Machinery Transport & Other Petrochemical Agricultural Autos Construction Shipping Mining Equipment Consumer Durables Power Generation
Slide 13: Case study I: Residential steel demand
13 Case study I: Residential steel demand GDP per capita Population Steel Floor Space Steel Typical ~30 storey high rise Intensity Superstructure 50 kg/sqm 120,000 sqm 6,000 t Basement 175kg/sqm 50,000 sqm 8,750 t Foundation Regulation Building height Seismic rating High strength rebar substitution
Slide 14: Case study II: Residential replacement demand
14 Case study II: Residential replacement demand • By 2030, nearly 25% of the current urban residential building stock will be demolished and rebuilt • The average life of an urban residential building in 1980 was 37 years • In 1980, 65% of urban residential buildings completed were 1 storey and aro
Slide 15: Case study III: Automobile steel demand
15 Case study III: Automobile steel demand • China passenger vehicles rise by 280 China automobile saturation million from 2015 - 2030, a nearly three- fold increase 600 Italy • The typical steel in a passenger vehicle Passenger cars per thousand people Canada Australia is currently ~900kg Germany 5
Slide 16: Obsolete Chinese scrap triples in fifteen years and will displace some iron ore requirements
16 Obsolete Chinese scrap triples in fifteen years and will displace some iron ore requirements Chinese scrap supply Million tonnes 250 Home Scrap produced Offcuts from Prompt at mills manufacturing 200 Obsolete 150 100 Other Autos Power Generation 50 Urban Residential 0 2015 2020 2030 Source: Rio T
Slide 17: China steel demand growth consistent with international experience
17 China steel demand growth consistent with international experience Substantial steel potential for developing Asia China steel intensity to increase at slowing rate Global steel stock per capita (tonne/capita) Global crude steel intensity per capita (Kg/capita) 1,200 South Korea Japan Forecast So
Slide 18: Summary
18 Summary The world will need increasing volumes of iron ore: 2.0% CAGR 2015-2030 Emerging markets, other than China, will play an increasingly significant role in the iron ore market with demand expected to increase by 65% Continued modest Chinese steel production growth to 2030 Growing role for r
Slide 19: Delivering value through the cycle
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation Delivering value through the cycle Andrew Harding, chief executive, Iron Ore
Slide 20: The world's best iron ore business
20 The world’s best iron ore business Underpinned by a comprehensive strategy that drives compelling value: Production at the right cost Value-driven growth Maximising portfolio value Leveraging our portfolio of Safest and lowest cost production Disciplined phasing and low growth options, product st
Slide 21: Personal safety, health and well-being is a fundamental business priority
21 Personal safety, health and well-being is a fundamental business priority Iron Ore all injury frequency rate Per 200,000 hours worked 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 YTD'15 Note: Year to date 2015 is January to end of July. ©2015, Rio Tinto, All
Slide 22: Consistently delivering value
22 Consistently delivering value Staged Pilbara Operating costs infrastructure have been reduced expansion by almost $1 billion completed at compared to 2012 capital intensity of ~$105/t Iron ore More than 400 workforce million tonnes of +15,000 people material moved by delivering 1 autonomous milli
Slide 23: The Pilbara - a fully integrated system
23 The Pilbara - a fully integrated system… Leading edge technology ~30TB analysed by the OC per month ~5TB added by Library of Congress per month 1 Drill & Blast 2 Load & Haul 3 Process 4 Rail 5 Ship > 400 kilometres of > 12,000 kilometres ~1 billion tonnes > 15,000 kilometres > 300 million tonnes
Slide 24: Producing a suite of world-class iron ore products, including Pilbara Blend
24 …producing a suite of world-class iron ore products, including our flagship Pilbara Blend Ore group Banded Iron Formation derived Iron Deposits Channel Iron Deposits Paraburdoo West Hope Brockman 2 Brockman 4 Hope Downs 4 Mt Tom Marandoo Nammuldi Yandicoogina Mesa Mines (inc. Channar Price (Inc.
Slide 25: Growth infrastructure complete, with brownfields continuing to supply near-term volume
25 Growth infrastructure complete, with brownfields continuing to supply near-term volume • 40 Mt of brownfields completed at average capital intensity of $9/t • Debottlenecking and productivity improvements continue • Pilbara integrated production system expected to deliver Nammuldi feed bins − 335
Slide 26: Further high value tonnes from Silvergrass
26 Further high value tonnes from Silvergrass • Nammuldi incremental investment also allows for: − Silvergrass dewatering infrastructure − Nammuldi below water table plant expansion from 21- 42 Mt/a • Full Silvergrass mine development: − Remains subject to approval in 2016 − Additional mining capaci
Slide 27: Unlocking value
27 Unlocking value Releasing Reducing Improving working capital costs productivity >20% reduction in Renegotiation with 12% increase in mine stocks key suppliers labour productivity Inventories at mines reduced by 4.5 Mt to 14.5 Mt, improving working Contract renegotiations delivering Lower he
Slide 28: Sustaining a competitive advantage
28 Sustaining a competitive advantage Pilbara cash unit cost • H1 2015 cash unit cost of US$16.2/t US$ per tonne (13% lower than $18.7/t in H2 2014) -32% 23.9 • Attractive FOB EBITDA margin at 61% in H1 2015 20.2 19.5 • Iron ore has delivered almost $1 billion in cost savings since 2012 16.2 Pilbara
Slide 29: Pilbara – H1 2015 financial summary
29 Pilbara – H1 2015 financial summary Pilbara net earnings reconciliation US$ million 7,004 (353) (620) 4,059 (1,972) (846) 2,158 (1,055) Revenue 1 Freight expense Royalties Operating costs EBITDA Depreciation Tax & other Net earnings & amortisation Pilbara unit cash costs Other 11% Operating costs
Slide 30: Reducing contractor and employee costs has delivered significant benefits in unit costs
30 Reducing contractor and employee costs has delivered significant benefits in unit costs Pilbara cash unit cost US$ per tonne 20.4 17.5 0.5 16.2 (2.9) (1.2) (0.6) H1 2014 FX Impact Restated H1 2014 Employee Costs Contractor Costs Other Costs H1 2015 Pilbara unit cost of $16.2/tonne shipped benefit
Slide 31: Our Operations Centre enables us to optimise for tonnes, quality and value
31 Our Operations Centre enables us to optimise for tonnes, quality and value Capability enables real-time visibility of entire value chain and powerful forward planning Real time analytics Ensuring a consistently reducing system high-quality product variability Debottlenecking and rapid response to
Slide 32: Operational and commercial excellence is embedded across the business
32 Operational and commercial excellence is embedded across the business Iron ore material Heavy Equipment Rehandle reduced Life Extension by 16 Mt in 2014 $200 million in capital deferrals FasTrack 35 HME contracts 35 hrs cycle time target consolidation Cycle time improvement to date ~11.0% & aimin
Slide 33: Autonomous fleet continues to expand bringing significant productivity improvements
33 Autonomous fleet continues to expand bringing significant productivity improvements Autonomous Haul Trucks Performance Effective utilisation indexed to all manned sites 120% 110% 100% 90% Yandicoogina primary haul 80% fleet now entirely autonomous Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 (22 trucks acr
Slide 34: Nearly 400 improvement initiatives underway
34 Nearly 400 improvement initiatives underway Mindful spending and improvement culture “Production at the right cost” – Improving the work place • Operations centre upskilled themselves to enable ‘in-housing’ support of two radio platforms, avoiding a contractor cost of $365,000 • Paraburdoo employ
Slide 35: Iron Ore Company of Canada continues to improve performance
35 Iron Ore Company of Canada continues to improve performance Iron Ore Company of Canada production • Monthly production record in July 2015, Million tonnes with 21.5 Mt/a concentrate run-rate • Nameplate capacity of 23 Mt/a 8.9 4.6 concentrate to be achieved in 20171 • Concentrate unit cash cost:
Slide 36: Making a positive and lasting difference in our local communities
36 Making a positive and lasting difference in our local communities • An unfaltering commitment to the local communities that host our operations • Key initiatives in education, health, environment, culture and regional sustainability • Partnering with State and local/ provincial government to enha
Slide 37: Summary
37 Summary The safety and wellbeing and development of our people is paramount Operational excellence continuing to drive productivity improvements Maintaining a low cost industry position is embedded at all levels Technology and automation continue to increase value Sales and marketing excellence c
Slide 38: Maximising value
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation Maximising value Bold Baatar, managing director, Iron Ore Sales & Marketing and Marine
Slide 39: Our sales and marketing capabilities maximise the value of our products
39 Our sales and marketing capabilities maximise the value of our products Industry • A deep understanding of markets and knowledge the steel industry Product • Aligning our resource base with customer needs alignment over the long term to maximise product value • Continuous development of marketing
Slide 40: Steel production has been resilient in 2015
40 Steel production has been resilient in 2015 Majors accounted for ~47% of 2014 supply Global steel production is broadly flat Percentage of contestable iron ore market Million tonnes annualised 1,700 20% 17% Rio Tinto 1,680 BHP = 47% Vale 1,660 ~1.7 7% 14% 1,640 billion FMG tonnes China 17% Non-tr
Slide 41: We expect ~120 Mt/a of marginal iron ore supply to exit the market in 2015
41 We expect ~120 Mt/a of marginal iron ore supply to exit the market in 2015 China domestic supply down ~45 Mt/a YoY High-cost seaborne supply down ~75 Mt/a YoY Average annualised run rates (Mt/a) Exits annualised by region Inner Liaoning 100 100 Shanxi Mongolia 100 50 50 100 National Total 350 50
Slide 42: Customers value products differently
42 Customers value products differently Technical Geographical • Type of steel product produced • Delivered costs and availability of • Size of blast furnace or sinter plant fuels and fluxes • Quality of metallurgical coal • Seasonal factors • Stockpile and blending capacity • Availability, cost and
Slide 43: Our Pilbara products are aligned to our resource base and customer needs
43 Our Pilbara products are aligned to our resource base and customer needs H1 2015 shipments by product Product Strengths Percentage 100% Pilbara Blend • The most traded iron ore product globally Fines • Base load sinter blend in Asian markets 80% Pilbara Blend • Avoids the costs of sintering which
Slide 44: Pilbara Blend is the industry reference iron ore
44 Pilbara Blend is the industry reference iron ore Major iron ore fines products Major iron ore lump products H1 2015 (million tonnes) H1 2015 (million tonnes) 80 45 PBF 40 PBL 70 35 60 30 50 25 40 20 HIY 30 15 20 10 RVF RVL 10 5 0 0 Rio Tinto Peer 1 Peer 2 Peer 3 Rio Tinto Peer 1 Peer 4 Source: RT
Slide 45: Lump is an important value driver for Rio Tinto
45 Lump is an important value driver for Rio Tinto Lump is a higher value product • Premium lump products remain in US$ per dry metric tonne (CFR) scarce supply 100 • Rio Tinto is the largest supplier of lump with 40 Mt of Pilbara Blend lump 80 and Robe Valley lump shipped in H1 Ave, 73.0 2015 • The
Slide 46: Blending significantly reduces variability
46 Blending significantly reduces variability Mines Port Terminals Products Stockpile stacking and reclaiming Mesa J RVL Mesa A Cape RVF Lambert A HIY Yandicoogina HIY West Angelas Cape PBL Hope Downs 1 Lambert B PBF Nammuldi Marandoo PBL Brockman 4 Parker Point Alumina Silica Phosphorus PBF 66% imp
Slide 47: Consistent supply and quality supports our marketing strategy
47 Consistent supply and quality supports our marketing strategy 2015 Pilbara off-take by pricing mechanism • Portfolio focused on long-term contracts Percentage of total sales with the world’s top 50 steel companies Spot 15% • Of our 2015 volume: Q Actual − ~85% sold under term contracts 4% − ~15%
Slide 48: Australia's delivered cost advantage to China
48 Australia’s delivered cost advantage to China H1 2015 freight component of the Dry bulk shipments Platts 62% Fe price 100% 8% 19% 80% 92% 81% 60% 0% Brazil Australia Source: Platts, BCI FOB Freight • A standard vessel round trip of load port, to China, and back to load port is ~3 x longer for Bra
Slide 49: Delivering value through management of the port to customer supply chain
49 Delivering value through management of the port to customer supply chain Rio Tinto Pilbara – Shipments • Value created through Million tonnes 300 CFR − Price maximisation 250 FOB − Supply chain efficiency 200 162 109 150 − Product placement flexibility 100 82 135 127 • Located in Singapore 50 64
Slide 50: Commercial excellence captures full value
50 Commercial excellence captures full value H1 2015 absolute price comparison: vs BHP2 vs FMG3 vs Vale4 (US $/wmt FOB) (US$/dmt CFR) (US $/wmt CFR) 5.0 5.0 5.0 3.4 2.1 2.0 1.8 62%Fe index1 - - - -5.0 -5.0 -5.0 -7.1 -10.0 -10.0 -10.0 -12.4 -15.0 -15.0 -15.0 -20.0 -20.0 -20.0 BHP RTIO FMG RTIO Vale R
Slide 51: Summary
51 Summary Supplier of choice to the Asian steel industry Full offtake and close management of credit exposures Value-maximising mix, aligned to customer needs and our resource base Optimising our market placement through segmentation Delivering value through alignment between Marine and Iron Ore Hi
Slide 52: Advancing productivity at Rio Tinto
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation Advancing productivity at Rio Tinto Greg Lilleyman, group executive, Technology & Innovation
Slide 53: T&I delivers world-class projects and step change productivity
53 T&I delivers world-class projects and step change productivity World-class projects World-class productivity • Project Shaping: project shaping • Productivity Generation: and strategic production planning productivity, innovation and analytics • Major Project Delivery: delivery of world class pro
Slide 54: Rio Tinto Projects delivers major capital projects
54 Rio Tinto Projects delivers major capital projects Cape Lambert Port Wickham Housing Estate Paraburdoo Kitimat, March 2015 Rail infrastructure Nammuldi Below Water Table Yandicoogina Fume Treatment Centre West Angelas Power Station West Angelas Deposit B Brockman 4 First hot metal – June 2015 Iro
Slide 55: Delivering value through optimising the Pilbara expansions
55 Delivering value through optimising the Pilbara expansions Consistently improving capital efficiency • Original 360 expansion included (US$/t) Capital intensity of 220-360 Mt/a Pilbara expansion1 175 − Silvergrass − Koodaideri 150 19% • Optimised route relies on low-cost brownfield expansions - 4
Slide 56: Sustainable growth delivered for less
56 Sustainable growth delivered for less 2015 capital expenditure guidance US$ billion <7.0 (0.5) 5.5 (0.4) (0.3) Original guidance Cost savings Deferrals FX Current guidance ©2015, Rio Tinto, All Rights Reserved
Slide 57: Current focus is on three key growth projects
57 Current focus is on three key growth projects Iron Ore Aluminium Copper Pilbara mines South of Embley OT Underground Mine Push mine capacity through Feasibility study expected to Over 80% of the value lies in low-cost growth to fill expanded complete towards end of 2015 the underground developmen
Slide 58: Steady progress on AutoHaul implementation
58 Steady progress on AutoHaul® implementation • World’s first fully autonomous long distance heavy haul railway • Improves productivity & safety • Over 250 journeys completed in automated mode • ~90% of locomotive modifications Autohaul® operation complete • Wayside works are complete and being com
Slide 59: Delivering productivity improvements across the Group
59 Delivering productivity improvements across the Group Advanced World-class asset technology Energy productivity management deployment - Increased truck - Optimised asset servicing utilisation by 14% - Transparent energy - Standardised measurement - ADS availability +10% maintenance practice - Pow
Slide 60: Advancing productivity through the Mine of the Future programme
60 Advancing productivity through the Mine of the Future™ programme Technologies developed include: • Autonomous trucks • AutoHaul® • Advanced analytics • Resistate indicator minerals • RTVis™ / Mine Automation RTVis™ Haul Truck Wheel Changer Haul Truck Wheel Changer System • Train load-out control
Slide 61: Big data analytics manages risk and reduces costs
61 Big data analytics manages risk and reduces costs 900 haul trucks Cloud based 4.9 Tb data per day advanced neural networks Target run- Actual Run- Deferred time (hrs) time (hrs) spend Engine 1 RTIO 25,000 27,867 $61,927 Predictive Engine 2 RTIO 25,000 30,022 $108,475 analytics Engine 3 RTIO 25,00
Slide 62: T&I delivers significant value
62 T&I delivers significant value World-class projects World-class productivity • Best-in-class project portfolio • Group-wide deployment of world World-Class Projects World-Class Productivity class technologies and productivity platforms • High-quality investment options • Leading the mining indust
Slide 63: Summary
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation Summary Andrew Harding, chief executive, Iron Ore
Slide 64: Best performing iron ore business
64 Best performing iron ore business Our priority is the safety and wellbeing of our people Tier one assets and tier one people Creating value through technology and innovation Embedding a culture of constant improvement Clear strategy that will deliver value through the cycle ©2015, Rio Tinto, All
Slide 65: Appendix
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation Appendix
Slide 66: Mineral Resources and Ore Reserves
66 Mineral Resources and Ore Reserves Pilbara resources, reserves and production Drilling Million tonnes (LHS, dry; RHS, wet) Metres 25,000 300 700,000 600,000 20,000 500,000 225 400,000 15,000 300,000 150 200,000 10,000 100,000 0 75 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 5,000 Actual Dri
Slide 67: The Pilbara - a fully integrated system
67 The Pilbara - a fully integrated system • +12,500 workforce • 15 mines • 1,700kms rail • 4 port terminals • 3 power stations • 360 trucks • 39 production drills • 190 locomotives ©2015, Rio Tinto, All Rights Reserved
Slide 68: Rio Tinto share of shipments reconciliation
68 Rio Tinto share of shipments reconciliation Calculation of Rio Tinto share of Pilbara shipments kt Rio Tinto Iron Ore Global Sales 122,672 Less: IOC Concentrate (1,530) Less: IOC Pellets (2,806) Rio Tinto Iron Ore Pilbara Sales 118,336 Adjustment to increase Robe River Mines from 53% to 65% basis