Rio Tinto Plc · LSE:RIO
Rio Tinto — Investor Presentation (October 2016)
60 slides from Rio Tinto's investor presentation, October 2016
Slide 1: Financial Community visit to Oyu Tolgoi
October 2016 Financial Community Visit to Oyu Tolgoi Financial Community visit to Oyu Tolgoi Steve McIntosh – Group executive, Growth & Innovation
Slide 2: Cautionary statements
Cautionary statements 2 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-look
Slide 3: Oyu Tolgoi - the leading Tier 1 copper project
Oyu Tolgoi - the leading Tier 1 copper project 3 • Underground development – unlocks the value of Oyu Tolgoi • The highest quality, major copper project in development • ~3x higher production using existing infrastructure • Experienced project management team • Highly capable and motivated workforce
Slide 4: Hugo North Lift 1 is the highest quality, largest copper development project
Hugo North Lift 1 is the highest quality, largest 4 copper development project 600 1 Oyu Tolgoi HNL1 underground and open pit • Largest development measured by copper production • 524ktpa ave copper from underground 2025-30 (560ktpa ave including open pit)1 • 499Mt reserve @ 1.66% copper + 0.35g/t g
Slide 5: In-depth knowledge of asset
In-depth knowledge of asset 5 • Rio Tinto managed since 2010 • Well-established investment framework • Project underpinned by Project Finance • Infrastructure complete: • Plant achieving design capacity • ~15km of underground development • ~2.7km of sunk shafts • Refurbished temporary underground cr
Slide 6: Unlocking value through underground project
Unlocking value through underground project 6 • Underground project represents 80% of Hugo North the value Lift 1 Oyut Open • $5.3bn capex approved in May 2016 Pit • Average copper grade of 1.66% and gold grade of 0.35g/t1 Oyut Open pit, Hugo North Lift 1 • Continued exploration and evaluation of fu
Slide 7: Presentation team
Presentation team 7 Steve McIntosh Group executive, Growth & Innovation Armando Torres Oyu Tolgoi MD Marco Pires Steve Jones Chief Development Officer Oyu Tolgoi Acting CEO Oyu Tolgoi Underground Munkhsukh Sukhbaatar Rio Tinto Country Director for Mongolia ©2016, Rio Tinto, All Rights Reserved
Slide 8: Mongolia Overview
October 2016 Financial Community Visit to Oyu Tolgoi Mongolia Overview Munkhsukh Sukhbaatar – Rio Tinto Country Director for Mongolia
Slide 9: Mongolia today
Mongolia today 9 GDP Growth Unique demographic and location advantages 20% • Rich in natural resources including copper, coal, gold, 16% iron ore, uranium and rare earths– with only 30% of 12% the country explored • Strategic location next to China, world’s largest mineral 8% 4% consumer • Educated,
Slide 10: Political landscape in Mongolia
Political landscape in Mongolia 10 Mongolian election results • Multi-party electoral system of representative government 80 MPP DP /Coalition Others • Mongolian People’s party (MPP) and 70 Democratic party (DP) are the two main 60 political parties 50 • No significant ideological differences 40 30
Slide 11: Taxation system
Taxation system 11 Key taxes that apply to mining in Mongolia Investment Agreement provides tax stability for OT Stabilised Paid in Income Tax taxes 2015 (10%-25%) • Corporate income tax 25% Export VAT Duties (10%) • VAT 10% (none) Import Withholding • Withholding tax* 20% • Customs duty 5% Duties T
Slide 12: Investment Agreement basis and obligations
Investment Agreement basis and obligations 12 Terms of investment Employment • Initial term of 30 years, may be • >90% Mongolian employees extended for 20 years • 5 year training & strategy plan • Mining license for 30 years with two • Scholarships for local students extensions for 20 years each tim
Slide 13: Updated Underground Development Plan signed in May 2015
Updated Underground Development Plan 13 signed in May 2015 • Resolved initial development cost audit Concluded outstanding shareholder matters • Tax settlement of $30 million; maintains tax stability principles of Investment Agreement • Clarified sales royalty calculation • Eliminated 2% net smelter
Slide 14: Other related infrastructure
Other related infrastructure 14 Power Logistics Smelter Undertakings To prepare a research Long-term requirement for in Investment OT to build a road from report on economic all power to be sourced Agreement operation to the border viability of copper domestically (IA) smelter Currently importing fr
Slide 15: Licence to operate
Licence to operate 15 Stakeholders Key issues National government • Tax • National sourcing and employment South Gobi province • Infrastructure development • Local sourcing and employment (population 61k) Neighboring soums • Environment • Impacted community resettlement (Khanbogd 5k, Manlai 2.4k, Ba
Slide 16: OT has spent $5.7 billion in Mongolia since 2010
OT has spent $5.7 billion in Mongolia since 16 2010 Total in-country spend 2010-2016 • Paid $1.6bn between 2010 and H1 2016 to GoM, contributing 5.7% of country’s annual budget on average 28% • Over $293m in taxes, fees and other payments to Mongolia in $5.7bn 2015; ~$123m in H1 2016 alone • >90% Mo
Slide 17: Oyu Tolgoi
October 2016 Financial Community Visit to Oyu Tolgoi Oyu Tolgoi Armando Torres – Managing Director Oyu Tolgoi
Slide 18: Safety comes first
Safety comes first 18 Continual improvement in safety • One of best safety performances at Rio AIFR per 200,000 hours worked Tinto 0.5 • 44% drop in vehicle and driving incidences 0.4 • 85% reduction in hand and finger injuries • 92% reduction in contractor injuries 0.3 Ongoing focus: • Embedding an
Slide 19: Oyu Tolgoi in Mongolia
Oyu Tolgoi in Mongolia 19 • 550km south of Ulaanbaatar • 80km north of the Mongolia- China border • FIFO and drive- in drive-out operation • Connected to the grid • Water from deep saline aquifer • Ore is trucked to bonded warehouse in China before distribution ©2016, Rio Tinto, All Rights Reserved
Slide 20: Delivering operational improvements
Delivering operational improvements 20 kt Copper production and grade % Cu Ore treated (kt) 250 0.8 0.7 200 0.6 40,000 70% 150 0.5 0.4 100 0.3 50 0.2 0.1 0 0 30,000 2013 2014 2015 YTD September 2016 Production of Copper in Concentrates 20,000 Sales of copper in concentrates Copper grade %Cu 10,000 k
Slide 21: Operating excellence: $1.5bn of free cash flow over three years
Operating excellence: $1.5bn of free cash flow 21 over three years Open Pit free cash flow positive1 despite declining copper prices $/tonne • Intense focus on cash $m Quarterly Copper Price Free Cash Flow - $m Exc OTUP 500 8,000 400 7,000 300 6,000 5,000 • Operating cost improvement 200 4,000 initi
Slide 22: Creating commercial value
Creating commercial value 22 Broad customer base – more than 20 smelters in Oyu Tolgoi is well positioned for growth in the China and trial shipments to Japan - solid Chinese and Asian markets Refined Consumption by Region foundation for underground volumes 30 25 20 15 Mt 10 5 0 2000 2005 2010 2015
Slide 23: Best in class for water efficiency
Best in class for water efficiency 23 Several important species in South Gobi Water is a premium resource in South Gobi • Offset management plan in place • Oyu Tolgoi is leading the industry with water recycling rates at 85% • Continuous rehabilitation • 1,392 ha of technical • Long-term access to i
Slide 24: Our best asset
Our best asset 24 • Highly engaged workforce • Strong technical foundation • Positive environment for continuous improvement • Development of leadership capability well underway • Labour productivity improved by 18% in last 2 years • Outstanding safety performance ©2016, Rio Tinto, All Rights Reserv
Slide 25: High value Tier 1 project defined to date…
High value Tier 1 project defined to date… 25 Oyut Open Pit Reserves 986Mt @ 0.43% Copper, 0.27 g/t Gold1 Hugo North Lift 1 Reserves 499Mt @ 1.66% Copper; 0.35 g/t Gold2 Reserves 1The Reserves for Oyut Pit consist of 35Mt at 0.42% Copper and 0.21g/t Gold of Proven Reserves for Oyut Strategic Stockpi
Slide 26: ….and a potential multi-decade future
….and a potential multi-decade future 26 Heruga Hugo South Inferred Resources: 1817Mt Inferred Resources: 839Mt @ 0.39% Copper, 0.36 g/t Gold1 @ 0.77% Copper, 0.07 g/t Gold1 Oyut Open Pit Measured & Indicated Resources: 210Mt @ 0.35% Copper, 0.43 g/t Gold Inferred Resources: 546Mt @ 0.32% Copper, 0.
Slide 27: Oyu Tolgoi – Open Pit Operations and Processing Plant
October 2016 Financial Community Visit to Oyu Tolgoi Oyu Tolgoi – Open Pit Operations and Processing Plant Steve Jones – Acting CEO, Oyu Tolgoi
Slide 28: Production achievements
Production achievements 28 • Mine total material moved has increased from 92Mtpa in 2014 to a YTD rate of 114Mtpa • 930E haul truck utilisation best in Rio Tinto • No additional trucks (original plan was an increase from 28 to 40 trucks) • Mill throughput has increased from ~28Mtpa in 2014 to a YTD
Slide 29: Open Pit assets – superior operational performance
Open Pit assets – superior operational 29 performance Rio Tinto H1 2016 haul truck effective utilisation +30% Oyu Tolgoi Open Pit Lowest utilisation Highest utilisation ©2016, Rio Tinto, All Rights Reserved
Slide 30: Oyu Tolgoi second quartile in H1 2016
Oyu Tolgoi second quartile in H1 2016 30 2016 Copper Equivalent Cost Curve Copper equivalent unit cost including sustaining capex, deferred strip and royalties (c/lb) 400 Q1 Q2 Q3 Q4 300 200 Oyu Tolgoi H1 2016 100 0 kt 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Copper production, k
Slide 31: Managing the ore grade challenges ahead
Managing the ore grade challenges ahead 31 • Phase 1 ore finished and Phase 2/3 ore nearly finished • Lower grade Phase 6 and stockpile ore from mid 2016 to mid 2018 • Waste movement from Phase 4/5 critical to uncover medium grade ore (in 2017) then higher grade ore (from mid 2018) 2016-18 Ore (Phas
Slide 32: Continued focus on reducing cash costs
Continued focus on reducing cash costs 32 Business improvement value delivered • Business improvement programs US$ million have been in place since 2014 delivering value across productivity, Sustaining Capital (10%) Productivity operating costs, sustaining capex and working capital. NWC reductions (
Slide 33: Significant reduction in Open Pit and concentrator costs since commissioning
Significant reduction in Open Pit and 33 concentrator costs since commissioning Open Pit Concentrator Total material moved Mt Milled ore Mt +36% +21% 53.8 53.3 19.2 50.1 18.0 47.4 16.5 45.3 15.9 39.2 14.5 13.3 Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- 13 14 14 15 15 16 13 14 14 15
Slide 34: Oyu Tolgoi – Underground Project
October 2016 Financial Community Visit to Oyu Tolgoi Oyu Tolgoi – Underground Project Marco Pires – Chief Development Officer OT Underground
Slide 35: Unlocking value through underground project
Unlocking value through underground project 35 • First drawbell production expected in Hugo North 2020 with full ramp up by 2027 Lift 1 Oyut Open • Average of 560ktpa1 of copper from the Pit open pit and underground 2025-2030 • First quartile low cost operation Open pit, Hugo North Lift 1 OT undergr
Slide 36: OT underground is a tier 1 asset
OT underground is a tier 1 asset 36 2025 Copper Equivalent Cost Curve Copper equivalent unit cost including sustaining capex, deferred strip and royalties (c/lb) 400 Q1 Q2 Q3 Q4 300 Oyu Tolgoi 200 with underground1 100 0 kt 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Copper producti
Slide 37: Panel block cave development
Panel block cave development 37 • Highly productive mass mining method with low operating costs. Substantial upfront investment and lower operating costs make block caving suitable for larger deposits. • Resource recovery is effective as the low operating costs support economic extraction of a lower
Slide 38: Robust mine design
Robust mine design 38 • Footprint size 2,000m x 280m and Plan View 1300m below surface • 203km tunnel, 137,000m3 mass excavation N • 5 shafts (3 air intake & 2 exhaust) • Advance undercut, wide “W” profile with anti-socket drive, 567,000m2 • 2,231 drawpoints (El Teniente layout) 28m x 15m spacing, c
Slide 39: Nameplate production expected by 2027
Nameplate production expected by 2027 39 Development Sustaining Capex Capex Activity 16 17 18 19 20 21 22 23 24 25 26 27 Readiness Notice to Proceed Lateral Development Undercut Access Complete Shaft #1 Shaft #2 Shaft #3 Shaft #4 Shaft #5 UG Crusher #1 UG Crusher #2 Conveyor to Surface Concentrator
Slide 40: Key underground components
Key underground components 40 Not on critical path Shaft 1 Shaft 2 Shaft 5 Shaft 3 Shaft 4 Shafts early production & ventilation ventilation ventilation development & ventilation ventilation Depth (m) 1,385 1,284 1,195 1,148 1,149 Diameter(m) 6.7 10 6.7 10 11 Completion 2008 Expected 2016 Expected 2
Slide 41: Processing plant upgrade
Processing plant upgrade 41 Concentrate from Hugo North Lift 1 ore: • Higher copper grade • Higher recovery • Chalcopyrite/bornite Plant upgrade: • Addition of 5th ball mill • Additional flotation line • Additional concentrate filtering and bagging capacity • Plant capacity of 40mtpa • Capex = ~$145
Slide 42: Approved underground capital expenditure
Approved underground capital expenditure 42 Approved underground capital spend profile, US$bn 1.3 1.2 1.2 1.0 0.8 Development 0.5 capital 0.5 0.3 0.4 0.3 0.4 0.4 $5.3bn Sustaining capital to full production $2.8bn 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 $5.3bn underground develop
Slide 43: Underground project contracts awarded to date
Underground project contracts awarded to date 43 Key Contracts Awarded Key contracts split Supplier Description Contractor Group EPCM Onshore National Jacobs EPCM Offshore Internat. Jacobs Thiess Boxcut & Decline National Khishig National (C2S) Arvin JV 40% International Explosives Supply & National
Slide 44: Strong project momentum
Strong project momentum 44 Currently • Workforce ~1700 • Major contracts fully mobilised • Lateral development occurring as planned • Box cut well advanced • Steady progress on sinking Shaft 2&5 Expected by 2017 • Workforce of ~2400 Decline box cut Left: belt conveyor ramp Right: service ramp • Dual
Slide 45: Block caving excellence
October 2016 Financial Community Visit to Oyu Tolgoi Block caving excellence Steve McIntosh – Group executive, Growth & Innovation
Slide 46: Favourable conditions for block cave mining
Favourable conditions for block cave mining 46 Caveability of Hugo North is supported by: • Weak, highly-fractured rock mass • High stress conditions • Orebody location between 700m and 1,400m below surface • A large ore body footprint, which is highly favourable for caving Experience to date: 2.5
Slide 47: Caving lessons from other developments
Caving lessons from other developments 47 Examples of lessons learned OT Hugo North Lift 1 approach Project 1 • Impact of draw control on extraction DESIGN level stability & reserve recovery • OT undercut shortened to <350m • Length of undercut face (>500m) • Wide W undercut • Concrete roadways Proj
Slide 48: Project risks and mitigation
Project risks and mitigation 48 Execution Risk Risk Mitigation Initiatives Project management • Clear functional accountability between owners and EPCM teams • Delivery of project on time and budget • Clear handover points agreed • Project execution and operations under same leadership • End to end
Slide 49: Production profile to end of lateral development phase in 2032
Production profile to end of lateral development phase in 49 2032 Ore processed - kt Copper and gold production (annual average)1 Significant uplift in copper production 50,000 600 40,000 500 30,000 400 300 20,000 200 10,000 100 - 0 Open Pit Ore ktonnes Underground Ore ktonnes 2016-22 2023-30 Copper
Slide 50: Future optionality at Oyu Tolgoi
Future optionality at Oyu Tolgoi 50 • First priority is to deliver Hugo North Lift 1 project • Maximise the value of the existing operations, mines, plant and other infrastructure • Scale of orebody supports multiple options Reserves Resources and pathways. Studies ongoing Oyu Tolgoi - Processing Pl
Slide 51: Oyu Tolgoi - the leading Tier 1 copper project
Oyu Tolgoi - the leading Tier 1 copper project 51 • Underground development – unlocks the value of Oyu Tolgoi • The highest quality, major copper project in development • ~3x higher production using existing infrastructure • Experienced project management team • Highly capable and motivated workforc
Slide 52: Appendices
October 2016 Financial Community Visit to Oyu Tolgoi Appendices
Slide 53: History of Oyu Tolgoi
History of Oyu Tolgoi 53 1997 1999 2006 2009 2010 2012 2012 Ivanhoe Rio Tinto’s Rio Tinto’s Rio Tinto Integrated BHP Mines initial signs becomes First ore Development commences acquires investment Investment majority from Open Plan signed surveying 100% of OT in Ivanhoe Agreement shareholder Pit wit
Slide 54: Ownership of the Project
Ownership of the Project 54 Minority Rio Tinto Shareholders 49% 51% Government of Turquoise Hill Mongolia 66% 34% Oyu Tolgoi LLC Oyu Tolgoi Mine ©2016, Rio Tinto, All Rights Reserved
Slide 55: Oyu Tolgoi Ore Reserves
Oyu Tolgoi Ore Reserves 55 Proved Ore reserves at end of Probable ore reserves at Total Ore Reserves 2015 end of 2015 COPPER Mt % copper Mt % copper Oyut open pit 353 0.54 598 0.39 951 0.45 Oyut stockpiles 35 0.42 35 0.42 Oyu Tolgoi UG Hugo Dummett North 464 1.66 464 1.66 Hugo Dummett North 35 1.59
Slide 56: Oyu Tolgoi Mineral Resources - copper
Oyu Tolgoi Mineral Resources - copper 56 Measured Indicated Resources at Inferred Resources at end Resources at end of end of 2015 of 2015 2015 COPPER Mt % Cu Mt % Cu Mt % Cu Heruga ETG 1,700 0.39 Heruga OT 117 0.41 Hugo Dummett North 41 1.56 365 1.15 807 0.77 Hugo Dummett North 89 1.57 173 0.99 Ext
Slide 57: Oyu Tolgoi Mineral Resources - gold
Oyu Tolgoi Mineral Resources - gold 57 Measured Resources at Indicated Resources Inferred Resources at end end of 2015 at end of 2015 of 2015 GOLD Mt g/t Mt g/t Mt g/t Heruga ETG 1,700 0.37 Heruga OT 117 0.29 Hugo Dummett North 41 0.41 365 0.30 807 0.27 Hugo Dummett North 89 0.53 173 0.35 Extension
Slide 58: Project financing
Project financing 58 Funds Flow Step 1 as at 30 June 2016 At draw down Project Finance Funds draw down (Tranche 1) Project finance deployed to capex 30 June 2016 Rio Tinto balance sheet impact • Gross Debt $4.2bn1 • Cash decrease $5.3bn • Cash $4.2bn • PPE increase $5.3bn • Net Debt • Net Debt $5.3b
Slide 59: Project financing
Project financing 59 1 $50m of B-loan/MIGA loan is at 15 year tenor ©2016, Rio Tinto, All Rights Reserved
Slide 60: Leadership team
Leadership team 60 Steven Jones Acting CEO • 30+ years project delivery • 20 years experience with Rio Tinto • Previous UG at Leinster; • Worked across various commodities, • All commodities (Cu, U, Au, Coal, Iron Ore, including Copper, Aluminium, Iron Ore and Phosphate etc.) T&I in Australia, Canad