Rio Tinto Plc · LSE:RIO
Rio Tinto — Investor Day (November 2016)
80 slides from Rio Tinto's investor day presentation, Nov 24, 2016
Slide 1: Notice to ASX: Rio Tinto investor seminar 2016 – Sydney
Notice to ASX Rio Tinto investor seminar 2016 – Sydney For personal use only 24 November 2016 Rio Tinto is hosting an investor seminar in Sydney today – presented by: Jean-Sébastien Jacques, chief executive Chris Lynch, chief financial officer Chris Salisbury, chief executive, Iron Ore Alf B
Slide 2: Contacts
Contacts For personal use only media.enquiries@riotinto.com www.riotinto.com Follow @RioTinto on Twitter Media Relations, EMEA/Americas Media Relations, Australia/Asia Illtud Harri Ben Mitchell T +44 20 7781 1152 T +61 3 9283 3620 M +44 7920 503 600 M +61 419 850 212 David Outhwaite Bruce Tobin T +4
Slide 3: Capital Markets Day, Sydney
For personal use only Capital Markets Day 24 November 2016 Sydney
Slide 4: Cautionary statements
Cautionary statements For personal use only 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
Slide 5: Supporting statements
Supporting statements For personal use only Mineral Resources and Ore Reserves The Pilbara Mineral Resource and Ore Reserve estimates which appear on slide 31 are reported on a 100% basis. These Mineral Resource and Ore Reserve estimates, together with the ownership percentages for each joint ventur
Slide 6: Capital Markets Day: J-S Jacques, Chief executive
For personal use only Capital Markets Day J-S Jacques Chief executive
Slide 7: Consistent delivery of value
Consistent delivery of value For personal use only Long-term strategy Cash focus Capital discipline and shareholder returns Team and performance culture ©2016, Rio Tinto, All Rights Reserved 5
Slide 8: We are well positioned to deliver sustainable returns
We are well positioned to deliver sustainable returns For personal use only Productivity Maturing Industry themes Resilience Growth and margins China Operating and Three major funded Market-leading products Tier 1 assets commercial capability capital projects Our opportunities Culture of cost reduct
Slide 9: Strategy will deliver value through the cycle
Strategy will deliver value through the cycle For personal use only Superior cash generation World-class assets Operating excellence Capabilities Portfolio Performance People & Partners Disciplined capital allocation Balance sheet strength Superior shareholder returns Compelling growth ©2016, Rio Ti
Slide 10: World-class assets at the core of our business
World-class assets at the core of our business For personal use only Iron Ore Bauxite Aluminium Copper Main Oyu Tolgoi, Pilbara Bauxite Canadian smelters businesses Escondida Low-cost, world-class assets Large, low-cost bauxite Large, long-life, low-cost Competitive Integrated infrastructure assets
Slide 11: Industry-leading growth of >2% …
Industry-leading growth of >2% … 1 For personal use only Silvergrass – delivering high-value iron ore with system benefits for the Pilbara Blend 20Mt/a capacity, H2 2017 Amrun – high-quality greenfield bauxite project 22.8 Mt/a2 capacity, H1 2019 Oyu Tolgoi underground – large, high-grade, brownfiel
Slide 12: …with optionality of a broader portfolio
…with optionality of a broader portfolio For personal use only Shaping our current portfolio Expanding our future portfolio 1 $5.3 billion of disposals since 2013 Incubator for new minerals and projects 2016 disposals include: Leading exploration and project capability – Bengalla Exploring for 8 com
Slide 13: Safety comes first
Safety comes first For personal use only A history of continual improvement in safety Fatality at Paraburdoo in June AIFR per 200,000 hours worked Continued focus on personal and process safety 1.4 across all operations 1.2 Group-wide implementation of new Critical Risk Management (CRM) Programme 1.
Slide 14: We will deliver $5 billion of free cash flow in productivity improvements
We will deliver $5 billion of free cash flow in productivity improvements over five years For personal use only Value Chain Exploration Major projects Mining Asset Processing Infrastructure Marketing management Broadening our cost saving programme to include productivity Opportunity to Opportunity t
Slide 15: Protecting our licence to operate
Protecting our licence to operate For personal use only Closure and rehabilitation Exploration Holden Copper Mine, US Operations ©2016, Rio Tinto, All Rights Reserved 13
Slide 16: Developing our people and capabilities
Developing our people and capabilities For personal use only Building capabilities Technical excellence Commercial excellence ©2016, Rio Tinto, All Rights Reserved 14
Slide 17: Focusing on value over volume
Focusing on value over volume For personal use only Revenue Price impact of incremental tonnes Protecting quality Capex Maximising free Sustaining cash flow through the cycle Replacement Operating cost Growth Unit cost Impact on cost base ©2016, Rio Tinto, All Rights Reserved 15
Slide 18: Consistent delivery of value
Consistent delivery of value For personal use only Long-term strategy Cash focus Capital discipline and shareholder returns Team and performance culture ©2016, Rio Tinto, All Rights Reserved 16
Slide 19: Capital Markets Day: Chris Lynch, Chief financial officer
For personal use only Capital Markets Day Chris Lynch Chief financial officer
Slide 20: Generating significant returns for shareholders
Generating significant returns for shareholders For personal use only Consistently high margins despite lower revenues Disciplined allocation of cash EBITDA margin and gross revenue 2013 – H1 2016 Cash flows 2013 – H1 2016 ($ billion) 2.2 4.4 15.1 6.8 $ bn 3.5 30 6.3 43% 41% 38% 38% 26 36% 33% 30% 1
Slide 21: Our capital allocation framework
Our capital allocation framework For personal use only Essential 1 sustaining capex Ordinary 2 dividends Further cash Compelling returns to growth shareholders Iterative 3 cycle of Debt management ~$10 billion 2017 operating cash flow at Q3 average prices1 1 Based on Q3 2016 average prices ©2016, Ri
Slide 22: Disciplined capital allocation to the most compelling projects
Disciplined capital allocation to the most compelling projects For personal use only Capital expenditure profile Only major miner investing through the downturn $ billion1 Capital allocation discipline requires ~5.5 ~5.5 project IRR >15% ~5 Growth capital is focused around three key approved <3.5 pr
Slide 23: Best in sector balance sheet is a competitive advantage
Best in sector balance sheet is a competitive advantage For personal use only Net debt and gearing ratio1 at 30 June 2016 Stable foundation during market volatility $ billion 26.1 Enables counter-cyclical investment in compelling 23.6 35% growth 36% 12.9 30% 11.7 Supports shareholder returns through
Slide 24: Near-term maturities greatly reduced
Near-term maturities greatly reduced For personal use only 1 Proforma 31 October 2016 debt maturity profile $6.0 billion of debt purchased or repaid with cash in $m H1 2016 3,000 $4.1 billion of Oyu Tolgoi Project Finance 2,000 fully consolidated in H1 2016 1,000 0 Additional $3 billion bond purchas
Slide 25: Delivering superior shareholder returns
Delivering superior shareholder returns For personal use only Remains the Board’s intention for 2016 full year Balanced capital allocation dividend of not less than 110 US cents per share Maintain an appropriate balance between: Balance between interim and final to be weighted – Investment in compel
Slide 26: Delivering optimal value: Iron Ore
For personal use only Delivering optimal value Chris Salisbury, chief executive, Iron Ore 24 November 2016
Slide 27: Delivering optimal value from one of the world's best businesses
Delivering optimal value from one of the world’s best businesses For personal use only Strong foundation Mine to market productivity Value over volume – Exclusive use of assets, fully integrated system, – Resource development sequencing to optimise – Maximise cash flow from existing asset base consi
Slide 28: Safety effort targeting fatality elimination and injury prevention
Safety effort targeting fatality elimination and injury prevention For personal use only Iron Ore All Injury Frequency Rate Tragic loss of life at Paraburdoo – June 2016 Per 200,000 hours worked 1.4 Focus on fatality elimination and injury prevention 1.2 Critical Risk Management focus – critical con
Slide 29: Major trends influencing the iron ore market
Major trends influencing the iron ore market For personal use only Steel production resilient…… …..with continued high cost iron ore supply exits Steel production has been resilient in 2016 Exits of higher cost producers Replacement cycle a more significant driver of steel consumption Lower concentr
Slide 30: Supply continues to moderate
Supply continues to moderate….. For personal use only Iron ore supply exits Continue to anticipate further additions of low-cost Million tonnes supply out to end of decade but this is moderating 180 Expect exits to keep pace with entries over time 160 to bring market into equilibrium 140 – Unsustain
Slide 31: ...but we remain well-placed with five highly-valued products
...but we remain well-placed with five highly-valued products…. For personal use only Product Strengths Shipments by product and market 2016 YTD* Pilbara Blend – The most traded iron ore product globally 4% Fines – Base load sinter blend in Asian markets 5% 47% Pilbara Blend – Avoids the costs of si
Slide 32: …including the industry benchmark Pilbara Blend
…including the industry benchmark Pilbara Blend For personal use only Blending reduces product variability Product quality variance from mean Customers value the consistency and liquidity of the Pilbara Blend Fe Alumina Silica Phosphorus – Easier to manage blast furnace mix – Technical expertise pro
Slide 33: We have substantial resources sustaining future production
We have substantial resources sustaining future production… For personal use only Pilbara resources, reserves1 and production Large Mineral Resources support system optionality Million tonnes (LHS, dry; RHS, wet) and sustain premium Pilbara Blend 25,000 Ore Reserves maintained in line with depletion
Slide 34: …and a fully integrated asset network
…..and a fully integrated asset network For personal use only 12,000 Workforce 15 Mines 1,700km Rail 4 Port terminals 3 Power stations 370 Haul trucks 51 Production drills 190 Locomotives ©2016, Rio Tinto, All Rights Reserved 32
Slide 35: Maximising cash flow and sustaining our competitive advantage
Maximising cash flow and sustaining our competitive advantage For personal use only EBITDA margin RTIO Pilbara vs Peers Pre-tax operating cash cost improvements US$ per tonne (15/16 FY) Reduction vs. 2012 US$m 30 $1.2bn 25 -25% 138 371 20 15 359 10 5 323 0 Rio Tinto Peer 1 Peer 2 Peer 3 2013 2014 20
Slide 36: Replicating best practice drives greater value
Replicating best practice drives greater value…… For personal use only Haul Truck Effective Utilisation Plant Effective Utilisation Time %, indexed, Sept YTD, site comparison Time %, indexed, Sep YTD, site comparison 23% 1.23 17% 1.17 1.14 1.00 1.00 IO Manned Ave. IO Autonomous Ave. IO Best Autonomo
Slide 37: …as does productivity and technology
…as does productivity and technology For personal use only Train dumping cycle time Train loading cycle time Indexed to 2015 monthly average Indexed to 2015 average High -6% Low 1.00 Avg 1.00 0.96 -46% variability 0.94 2015 2016 Sep YTD 2015 2016 Sep YTD AutoHaul® Frequency Current rail system AutoH
Slide 38: Installed infrastructure offers high-value optionality
Installed infrastructure offers high-value optionality For personal use only Optimising system capacity Mt/a Production optionality Mine capacity can be delivered through productivity Mines Silvergrass and low capital brownfields pathway and productivity Rail capacity can be delivered through produc
Slide 39: Sustaining best value production
Sustaining best value production For personal use only Low-cost brownfield mine expansions have dominated Pilbara mine capital intensity US$/t installed 120 Bubble size indicates capacity Brownfield mine expansions have dominated Hope Downs 4 production Nammuldi 90 Below Water – Initial brownfield e
Slide 40: Silvergrass on track to deliver world-class investment returns
Silvergrass on track to deliver world-class investment returns For personal use only Full Silvergrass mine development approved in July 2016 ~20Mt/a at US$29/t Mine sustains Operating costs IRR >100%1 capital intensity (CI) Pilbara Blend quality significantly reduced 1IRR calculated using consensus
Slide 41: High-quality, low-cost options available to offset depletion
High-quality, low-cost options available to offset depletion For personal use only Pilbara mine development options Multiple options leveraging existing infrastructure US$/t Installed capital intensity – West Angelas Deposit F and Yandi Oxbow Capital 120 Bubble size indicates capacity Intensity <$10
Slide 42: Sustaining best value production: capital expenditure
Sustaining best value production For personal use only Capital expenditure US$bn (RT share) Silvergrass - majority of growth spend in 2017 1.5 ~$100m approved replacement mine capital over next three years, e.g. – ~$64m Yandicoogina Oxbow 1.0 ~$1bn unapproved replacement mine capital over next three
Slide 43: A workforce of fully-engaged employees
A workforce of fully-engaged employees For personal use only Safety remains fundamental priority Working to increase engagement – Removing obstacles – Greater inclusion and diversity Transforming business – Seeking new skills and ideas in supply chain logistics, data analytics, automation ©2016, Rio
Slide 44: Highly-valued partners and sustainable local and regional investment
Highly-valued partners and sustainable local and regional investment remain a priority For personal use only Regional and local commitment – Local employment & procurement a priority – Workforce of 12,000 – >1,000 fly-in/fly-out employees from six regional WA towns In the last decade – >$13 billion
Slide 45: Delivering optimal value from one of the world's best businesses
Delivering optimal value from one of the world’s best businesses For personal use only Quality people and partners Exclusively operated integrated asset, significant resource base, highly-valued product suite Strong cash flows through the cycle Focus on raising mine to market productivity Multiple o
Slide 46: Break
For personal use only Break 24 November 2016
Slide 47: Aluminium
For personal use only Aluminium Alf Barrios, chief executive, Aluminium 24 November 2016
Slide 48: Leading performance through the cycle
Leading performance through the cycle For personal use only Portfolio quality – Capitalising on our leading competitive positions Performance – Continuing strong track record of delivery Growth – Moving our bauxite business from option rich to option ready ©2016, Rio Tinto, All Rights Reserved 46
Slide 49: Safety is a fundamental business priority
Safety is a fundamental business priority For personal use only Aluminium all injury frequency rate Per 200,000 hours worked 1.4 1.2 1.0 0.8 0.6 0.4 0.2 - 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD Note: Year-to-date 2016 represents January to September ©2016, Rio Tinto, All Rights Reserved 47
Slide 50: China's bauxite import demand growing rapidly
China’s bauxite import demand growing rapidly For personal use only Rapid growth in bauxite imports in China Rising demand for bauxite in China driven by Million tonnes of bauxite equivalent1 aluminium demand growth (6%) and alumina production growth (19%) over the last ten years China will continue
Slide 51: Aluminium gradually moving back to balance
Aluminium gradually moving back to balance For personal use only Primary aluminium production, consumption Aluminium dealing with excess inventory and capacity and stocks overhang from the global financial crisis Million tonnes Weeks of consumption 70 18 Market rebalancing delayed by sustained Chine
Slide 52: Strategy for outperformance through the cycle
Strategy for outperformance through the cycle For personal use only Bauxite Aluminium Industry-leading bauxite position Low first quartile cost Competitive advantage Size, quality, proximity to markets Low-carbon, low-cost power Strategic focus Market-paced high-margin growth Strong cash flow genera
Slide 53: Consistently increasing shareholder value
Consistently increasing shareholder value For personal use only Increased bauxite Amrun on track for exports by 28% since 2014 first bauxite in H1’19 Alumina transformation Smelting cost to deliver positive FCF and position from Q2 volume increase to low Q1 since 2013 of 0.3Mt in 2016 Kitimat reache
Slide 54: On track to exceed $1.4 billion of cost improvements
On track to exceed $1.4 billion of cost improvements For personal use only On track to exceed 2016 target of $300m Industry-leading upstream margins Cash cost improvements Upstream EBITDA margin versus peers1 US$ million Percentage 1,750 50% 1,500 40% 1,250 300+ 30% 1,000 326 750 232 20% 500 10% 250
Slide 55: Leading bauxite resource and market positions
Leading bauxite resource and market positions For personal use only Unrivalled Tier 1 assets – Largest bauxite position with global footprint Rio Tinto bauxite position versus peers Bauxite resources/reserves (billion tonnes)1,2 – Generating attractive margins 3.5 Resources Reserves 3.0 Logistics ad
Slide 56: Amrun on track for first bauxite in H1
Amrun on track for first bauxite in H1 19 For personal use only Overall project status: 25% complete People and partnering Approved in November 2015 550+ Australian businesses engaged to date Volume 22.8Mt/a1 – Capex $1.9bn – IRR above 20%2 – 398 from Queensland – 58 from Cape York Advancing to sche
Slide 57: 250+ bauxite improvement initiatives underway
250+ bauxite improvement initiatives underway For personal use only Volume / commercial Low cost production creep: 5% production increase in 2017 following 9% in 2016 – East Weipa plant to increase rates by 15% in 2017 – Gove conveyor system to increase rates by 11% in 2017 Cost / productivity Truck
Slide 58: Transforming alumina business
Transforming alumina business For personal use only Business transformation continues Delivering +$150m EBITDA and FCF positive in 2016 1 Unit conversion cost ($/t) Strong delivery in 2016: 2015 164 -23% – 5% volume increase and stable operations 2016 127 – $200m operational cost reduction – buildin
Slide 59: 500+ alumina improvement initiatives underway
500+ alumina improvement initiatives underway For personal use only Volume / commercial Cash improvement of $130m over 2016 and 2017 through supply chain optimisation: – $15m per annum from vessel scheduling – $30m reduction in working capital from restructuring caustic supply Cost / productivity 41
Slide 60: Improving our smelting cost position
Improving our smelting cost position For personal use only Business operating cost curve1 Rio Tinto’s low-cost, low-carbon power US$ per tonne is a sustainable competitive advantage 2,500 Since 2013, cost rank improved to low Q1 cost 2013 position: 2,000 Rio Tinto average position – Cumulative $1bn
Slide 61: 500+ aluminium improvement initiatives underway
500+ aluminium improvement initiatives underway For personal use only Volume / commercial Volume increase of 4% over next few years through low-capex creep Increase in value-added product mix from 54% to 59% in 2017 Cost / productivity Labour productivity improvement of 12% over 2016 and 2017 Cash i
Slide 62: Leading performance through the cycle
Leading performance through the cycle For personal use only Safety is our first priority Strong focus on productivity and cash generation across all assets - Further reduce bauxite costs through productivity and creep - Continue momentum on alumina transformation to further strengthen business - Con
Slide 63: Growth & Innovation
For personal use only Growth & Innovation Steve McIntosh, group executive, Growth & Innovation 24 November 2016
Slide 64: Adding value through the asset lifecycle
Adding value through the asset lifecycle For personal use only Technical excellence, assurance and support Find Evaluate Develop Optimise Close Ore bodies to market ©2016, Rio Tinto, All Rights Reserved 62
Slide 65: Safety is our first priority
Safety is our first priority For personal use only Continual improvement in safety Exploration has achieved a four-fold reduction since AIFR per 200,000 hours worked 2011 (AIFR 0.41) 1.8 Oyu Tolgoi is one of the best performing operations 1.6 (AIFR 0.11) 1.4 Projects safety focus driven through CRM
Slide 66: Find, evaluate and develop assets
Find, evaluate and develop assets For personal use only Find Evaluate Develop Target Project Order of Pre-feasibility A Pre-feasibility B Feasibility Execution Testing of Merit Magnitude EC & IC EC & IC EC & IC Wide exploration remit, successful programme delivers discoveries Evaluation Committee an
Slide 67: Declining industry investment and success
Declining industry investment and success Find For personal use only Significant* mineral discoveries (excluding bulk commodities) Western World: 1975 - 2015 (excluding FSU + Eastern Europe + China 1995 - 2015) $25 Number of discoveries 200 Expenditures (2015 real US$bn) Expenditures (2015 US$b) Exp
Slide 68: Extensive and successful exploration programme
Extensive and successful exploration programme Find For personal use only Exploring across 17 different countries Exploring for 8 different commodities Expenditure by region, 2013 to 2016 forecast Expenditure by commodity, 2016 forecast 100% 15% Nickel & others 3% Iron Ore 5% R&D/Technical 22% 32% 5
Slide 69: Unique capability to make new discoveries
Unique capability to make new discoveries Find For personal use only 1990 1996 2004 2007 2008 2015 Century Diavik Simandou Chapudi Bunder MTW / HV* Lead-Zinc Diamonds Iron Ore Coal Diamonds Coal 1991 1996 2000 2002 2004 2005 2008 2011 2014 Corumba Las Cruces PRC Resolution Constancia La Granja Mutam
Slide 70: Incubating new sources of value for the group
Incubating new sources of value for the group For personal use only Disruptive demand or supply New sources of value Organic opportunities - find, evaluate, develop Identifying commodities “Small bets” of the future Fail fast Exploration Megatrends Projects Fit for purpose Incubator strategy organis
Slide 71: Jadar is a significant lithium-borate resource discovered by Rio Tinto
Jadar is a significant lithium-borate resource discovered by Rio Tinto Evaluate For personal use only Jadarite: Li-Na-borosilicate mineral comprising 47.2% B2O3 and 7.3% Li2O 117Mt inferred resources containing 18Mt B2O3 and 2.1Mt Li2O1 Potential to support a long-life operation in the first quartil
Slide 72: Evaluating our projects
Evaluating our projects Evaluate For personal use only Investment return Capital intensity (IRR>15%) reviews Stakeholders & Rigorous governance Licence to Operate & technical assurance Resource & Technical technical risk innovation ©2016, Rio Tinto, All Rights Reserved 70
Slide 73: Track record for delivering high-quality assets
Track record for delivering high-quality assets Develop For personal use only Central delivery Mobile team since 2015 talent pool Safe, efficient, Technical & on time & commercial excellence operationally ready Standardised LEAN in processes construction ©2016, Rio Tinto, All Rights Reserved 71
Slide 74: Delivering value through technical excellence
Technical Delivering value through technical excellence excellence, assurance & support For personal use only Our core disciplines; – Geoscience & ore body knowledge – Mining – Processing – Infrastructure – Asset Management Strength in mining and processing Replication across large asset base Platfo
Slide 75: Driving productivity across the value chain
Driving productivity across the value chain Optimise For personal use only Effective Utilisation Payload (haul trucks, %) (haul trucks, average target %) H116 Avg H116 Avg +30% +8% Target Target Mean Time Between Failure Processing Utilisation (haul trucks, hrs) (average wet & dry, %) H116 Avg Avera
Slide 76: Closing our assets like we build our assets
Closing our assets like we build our assets Close For personal use only Increasing challenge for the sector Programme to rehabilitate, remediate and manage long-term liabilities Technical innovation; – alternative processes for waste treatment – water quality remediation – geotechnical stabilisation
Slide 77: Conclusions
Conclusions For personal use only Safety is our first priority Adding value through the asset lifecycle Find, evaluate & develop assets Incubating new sources of value for the group Delivering value through technical excellence Driving productivity across the value chain Closing assets like we build
Slide 78: J-S Jacques, Chief executive
For personal use only J-S Jacques Chief executive 24 November 2016
Slide 79: Value proposition
Value proposition For personal use only Capital discipline and Team and performance Long-term strategy Cash focus shareholder returns culture Tier 1 assets Value over volume Strong balance sheet Safety first Delivering >2% CAGR1 CuEq growth $2 billion cost savings over 2016/17 40-60% returns through
Slide 80: For personal use only
For personal use only