Rio Tinto Plc · LSE:RIO
Rio Tinto — Investor Day (December 2014)
53 slides from Rio Tinto's investor day presentation, Dec 4, 2014
Slide 1: Delivering sustainable shareholder returns
4 December 2014 London 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: Safety is fundamental to our business
5 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 6: Succeeding in a challenging market
6 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 7: Transformed Energy business, well positioned to meet growing demand from Asia
7 Transformed Energy 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 Wale
Slide 8: Delivering significant value through technology & innovation
8 Delivering significant value through technology & innovation 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 acro
Slide 9: Pilbara 360: ~40% IRR and five-year payback
9 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 1Esti
Slide 10: Compelling project pipeline beyond iron ore
10 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 11: The Rio Tinto value proposition
11 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 12: Balance sheet strength and flexibility
12 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% $16bn • Ratio expected to remain at the lower end of the range i
Slide 13: Our capital allocation framework maximises shareholder value
13 Our capital allocation framework maximises shareholder value 1. Essential 2. Progressive 3. Iterative cycle of sustaining capex dividends 2015 focus Further cash Compelling returns to growth shareholders Debt reduction ©2014, Rio Tinto, All Rights Reserved
Slide 14: Focus on capital efficiency
14 Focus on capital efficiency Capital discipline… …delivers measured growth Capital expenditure profile (US$ 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 15: The Rio Tinto value proposition
15 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 16: The world's best iron ore business
4 December 2014 London The world’s best iron ore business Andrew Harding, chief executive, Iron ore
Slide 17: Our iron ore business is a compelling value proposition
17 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 18: Pilbara - the world's best iron ore business
18 Pilbara - the world’s best iron ore business Industry-leading returns… EBITDA margin (percentage) • Total supply chain competence to 66% 61% seamlessly deliver a future 1 Mt/day ~55% 53% 41% • Industry-leading EBITDA margins to continue Rio Tinto at 2015 • Technology and innovation leadership Rio
Slide 19: Value maximisation continues through 360 Mt/a completion and moving into production
19 Value maximisation continues through 360 Mt/a completion and moving into production Expecting 220 – 360 Mt/a delivered at an industry leading capital intensity of ~US$110-120/t (100% basis) 360 Mt/a infrastructure programme is ~75% complete and on nominated schedule for H1 2015 Cape Lambert car d
Slide 20: Leveraging innovation and technology to drive productivity and cost leadership
20 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 1.20 AHS ramp • At Hope Downs 4 AHS: up 1.00 − is excee
Slide 21: Focusing on our customers and optimising our resource base
21 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, cons
Slide 22: Capturing full value from our product suite and marketing expertise
22 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 23: Significant shareholder value generated through the cycle
23 Significant shareholder value generated through the cycle World-class, fully integrated system with unencumbered optionality Silvergrass deferred in favour of capital efficient options – maintains 330 Mt in 2015 and 350 Mt in 2017 Pilbara Blend is the reference for 62% Fe indices and able to be s
Slide 24: Creating a leading copper business
4 December 2014 London Creating a leading copper business Jean-Sébastien Jacques, chief executive, Copper
Slide 25: A clear strategy to become a benchmark for profitability in the copper industry
25 A clear strategy to become a benchmark for profitability in the copper industry Create long- term options: Exploit Realise value from next cycle: greenfield projects Deliver value- Improve accretive brownfield earnings quality: projects Maximise value & cash from existing Profitability Profitab
Slide 26: Delivering results: operating & commercial excellence drives earnings quality
26 Delivering results: operating & commercial excellence drives earnings quality Improving EBITDA margin Improving cost competitiveness Now generating free cash flow1 70% 155c/lb 202c/lb 230c/lb 400 60% Rio Tinto Peer high Q1 Q2 Q3 Q4 50% 300 2013 40% 40% 2014 >$1bn Peer weighted 30% average 200 imp
Slide 27: Production and market outlook
27 Production and market outlook Copper production profile – Rio Tinto share 2015 production guidance 2012–2015 production profile (Kt Mined Cu/Koz Au) • Kennecott Utah Copper expected to be 800 669 impacted by management of 600 500-535 geotechnical risks to protect wall stability 380-410 400 294 •
Slide 28: Deliver value-accretive brownfield growth projects to exploit the next copper cycle
28 Deliver value-accretive brownfield growth projects to exploit the next copper cycle 400 Q1 Q2 Q3 Q4 300 Kennecott 200 Oyu Tolgoi 100 0 kt 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 Source: Wood Mackenzie, Rio Tinto Copper. 2018 copper equivalent cost curve (CuEq co
Slide 29: Create future options with world-class greenfield projects in low-risk jurisdictions
29 Create future options with world-class greenfield projects in low-risk jurisdictions Resolution • Inferred Mineral Resource of 1,737Mt @ 1.52% Cu1 • Potential long life (> 40 y) high production operation • Permitting underway • First shaft completed Resolution shaft #10 completed La Granja • Indi
Slide 30: A clear strategy to create long-term value
30 A clear strategy to create long-term value Four key operating assets Strong long-term fundamentals despite short-term volatility Focus on safety Oyu Tolgoi Kennecott Trusted partner Clear strategy to deliver sustainable value: Escondida Grasberg • Maximise value from existing Two greenfield optio
Slide 31: Well positioned for consumer driven growth
4 December 2014 London Well positioned for consumer driven growth Alan Davies, chief executive, Diamonds & Minerals
Slide 32: Delivering on our promises
32 Delivering on our promises Improve Strengthen Deliver Reducing Reducing Increasing free costs capex cash flow US$627 US$541 million $273 million million Cumulative year on year gross operating, exploration & evaluation cost reductions Cumulative year on year capex reductions $921 January 2013 to
Slide 33: Well positioned for consumer-driven growth
33 Well positioned for consumer-driven growth Mid-to-late cycle demand trajectories Driven by consumption Indexed 2014 Chinese urban households* (percentage) 3 220 Affluent 9 14 200 Upper Middle Class 180 54 160 Poor & 83 140 Mass Middle Class 38 120 100 2014 2018 2022 2026 2030 2012 2022E TiO2 feed
Slide 34: Strong market position in attractive industries
34 Strong market position in attractive industries TiO2 feedstock demand and supply Zircon demand and supply ‘000 TiO2 units ‘000 tonnes 10,000 RT share of 1,750 RT share of 2013 sales 2013 sales 9,000 1,500 High-grade 8,000 45% chloride 24% 1,250 7,000 High-grade 31% sulphate 6,000 1,000 ~4% CAGR ~
Slide 35: Maximising value through customer and market orientation
35 Maximising value through customer and market orientation • Global marketer with integrated mine-to- market capabilities • Value-based pricing • Diversified geographic, customer and product mix • Commercial excellence driven by market insight • Creating new markets for our products Fashion jewelle
Slide 36: Demand-led operating philosophy
36 Demand-led operating philosophy Zircon production Indexed 2011 • Aligning production to market demand 100 • 2014 TiO2 feedstock production 20% 80 below 2011 levels 60 − Sorel Furnace 5 remains offline 40 − Furnaces running to optimise peak 20 power periods 0 2011 2012 2013 2014* − Continue to fle
Slide 37: Cost and productivity improvements
37 Cost and productivity improvements Diamonds & Minerals cash operating costs • Improving productivity and reliability: Indexed 2012 − System and process optimisation 100 15% 90 − Consistent and controlled operating 80 70 procedures 60 50 − Working capital optimisation across the 40 supply chain 30
Slide 38: Compelling project pipeline
38 Compelling project pipeline Diamonds, Diavik A21 Titanium, Zulti South A21 will be Diavik’s third dike and open pit An industry leading TiO2 resource with valuable zircon and rutile co-products • Development of the fourth kimberlite pipe at Diavik, • Feasibility study on track for a 2014 completi
Slide 39: Delivering Simandou feasibility study
39 Delivering Simandou feasibility study • World-class, undeveloped high-grade iron ore deposit • Ratified Investment Framework establishes a robust investment regime − Separated the mine and infrastructure − Third party infrastructure consortium to be established • Feasibility study in progress ©20
Slide 40: Extremely well positioned to continue delivering increased free cash flow
40 Extremely well positioned to continue delivering increased free cash flow Mid-to-late cycle commodities driven by rising wealth and consumption Reshaping industries in which we operate Demand-led philosophy supported by a global customer and market oriented business model Cost and productivity im
Slide 41: The world's best aluminium business
4 December 2014 London The world’s best aluminium business Alf Barrios, chief executive, Aluminium
Slide 42: We are transforming our business…
42 We are transforming our business… Reduced costs Restructured portfolio 25% 33% $802m aluminium alumina capacity sold, curtailed Achieved by H1 2014 vs. 2012 or closed since 2009 Increased bauxite exports Improved smelter cost position 80% From 2015 12 to 20 million 40% tonnes* 2011 Capacity in th
Slide 43: …and increasing our margins
43 …and increasing our margins EBITDA margin vs. peers Percentage 25% Rio Tinto 20% 15% 10% 5% 0% FY 2011 Q1'12 Q1'13 Q1'14 -5% Note: Rio Tinto Alcan internal benchmarking for upstream businesses which includes adjustments to externally reported EBITDA for trading, procurement and marine to report p
Slide 44: Well positioned to benefit from improving markets
44 Well positioned to benefit from improving markets Primary aluminium demand Primary aluminium balance and prices Million tonnes Million tonnes US$ per tonne 80 China RoW 3.5 3,000 Forecast 3.0 2,500 2.5 45 60 2.0 2,000 1.5 30 1.0 1,500 40 27 24 0.5 1,000 0.0 -0.5 20 39 500 -1.0 26 27 28 -1.5 0 200
Slide 45: Clear focused strategy - bauxite and first quartile smelters are key pillars
45 Clear focused strategy - bauxite and first quartile smelters are key pillars Bauxite First quartile smelters Competitive Low-cost, renewable advantage Industry-leading bauxite position energy portfolio Strategic focus Market-paced growth Cash generation Alumina supply and security Key enablers Co
Slide 46: Leading bauxite position driving value-accretive growth
46 Leading bauxite position driving value-accretive growth Leading bauxite position Unrivalled Tier 1 assets Global bauxite resources (Billion tonnes)1 • Largest bauxite position with interests in 6 three of the world’s major bauxite mines Atlantic Pacific • Well located to supply increasing demand
Slide 47: South of Embley project is a Tier 1 investment opportunity
47 South of Embley project is a Tier 1 investment opportunity Production: Mining costs: 22.8mtpa First quartile (~12mtpa replaces Expansion: North of Weipa tonnes) Options to 50mtpa Wenlock Ownership: 100% Rio Tinto First Production: Scope: 2018 Mine, port, infrastructure Andoom East Weipa South of
Slide 48: Low-cost smelting business driving cash generation
48 Low-cost smelting business driving cash generation Aluminium cost curves Most modern, low-cost assets in industry Operating cost (US$ per tonne) • 80% in first cost quartile on aluminium 3000 cost curve1 • ~50% of power needs from self- generated, low-cost, long-life hydro assets 2500 • ~80% of p
Slide 49: The world's best aluminium business
49 The world’s best aluminium business Tier 1 assets in bauxite and smelting Well positioned to capitalise on improving market outlook Clear focused strategy for each business Market-paced bauxite growth Driving cash generation from smelting business Balanced alumina position providing competitive s
Slide 50: Building the world's best mining company
50 Building the world’s best mining company The world’s best Iron Ore and Aluminium businesses. A leading Copper business, Relentless focus on cost and transformed Energy business and world-class productivity underpins our robust Diamonds & Minerals portfolio free cash flow generation capacity – sup
Slide 51: Appendices
4 December 2014 London Appendices
Slide 52: 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
Slide 53: Modelling earnings
53 Modelling earnings 2014 first half Impact on 2014 full average price/ 10% change in year underlying Earnings sensitivity rate 2014 average earnings ($m) Copper 312c/lb +/-31c/lb 322 Aluminium $1,753/t +/-$175/t 444 Gold $1,290/oz +/-$129/oz 51 Iron ore (62% Fe FOB) $103/t +/-$10/t 1,215* Coking c