Rio Tinto Plc · LSE:RIO
Rio Tinto — Debt Investor Presentation (March 2015)
38 slides from Rio Tinto's debt investor presentation, March 2015
Slide 1: US Fixed income investors update
March 2015 US Fixed income investors update
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. In this presentation all figures are US dollars unless stated otherwise
Slide 3: Safety is fundamental to our business
3 Safety is fundamental to our business Injury frequency rates 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 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 '14 All injury frequency rate Lost time injury frequency rate Vehicle safety check in the Pilbara, Australia ©2015, Rio Tint
Slide 4: Highlights
March 2015 Highlights Financial performance 2015 objectives Appendix Highlights
Slide 5: Delivering our transformation programme
5 Delivering our transformation programme Improve Strengthen Deliver Reduced costs Decreased capex Reduced net debt by by $4.8bn $9.4bn $9.6bn Operating, exploration and evaluation cost reductions achieved Since net debt peaked by 31 December 2014 vs 2012 Full year 2014 spend vs 2012 at 30 Jun
Slide 6: Financial performance
March 2015 Highlights Financial performance 2015 objectives Appendix Financial performance
Slide 7: Management actions significantly offset price impact
7 Management actions significantly offset price impact Underlying earnings 2013 vs 2014 US$ million (post tax) 12,000 Total cost reductions of $1,175m post-tax 10,217 10,000 188 9,305 958 217 1,431 8,000 691 6,511 6,000 (251) (4,146) 4,000 2,000 0 2013 Price Exchange Energy & Flexed 2013 Volumes Cas
Slide 8: Continual cost improvement
8 Continual cost improvement Pre-tax operating cash cost improvements Reduction vs. 2012 (US$ billion) 5.58 0.75 1.53 4.83 0.40 0.93 3.30 3.61 Iron ore 0.71 1.30 Aluminium 0.81 Copper 0.92 D&M and other 0.37 Energy 0.80 0.98 TOTAL 3.61 H1 2013 H2 2013 2013 total H1 2014 H2 2014 2014 total Two-year t
Slide 9: Strong operating cash flows
9 Strong operating cash flows Net cash generated from operating activities • $0.8 billion reduction in cash flows, US$ billion as $4 billion price impact largely offset by: 15.1 14.3 − operating cash cost reductions − exploration and evaluation savings − 6% volume growth1 − $1.5 billion of working c
Slide 10: $1.5 billion of cash released from working capital
10 $1.5 billion of cash released from working capital Working capital cash release US$ billion • $1.5 billion cash unlocked now available for more productive uses • Significant release of working capital achieved through: 1.1 1.5 − Optimising inventory levels − Tighter management of receivables • Co
Slide 11: Focus on capital efficiency
11 Focus on capital efficiency Capital discipline… • Capital allocation discipline requires Capital expenditure profile (US$ billion)1 project IRR >15% 17.6 • All projects ranked against each other and buy-backs 13.0 • Two major projects expected to complete in first half of 2015: 8.2 − Kitimat mode
Slide 12: Balance sheet strength and flexibility
12 Balance sheet strength and flexibility Net debt and gearing ratio1 • Maintain strong balance sheet amid US$ billion challenging market 22.1 • Targeting 20-30% gearing ratio through the cycle 18.1 • Ratio expected to remain at lower 28.3% 14.5 end of the range in near term Share 12.5 25.2% buy-bac
Slide 13: Material increase in cash returns to shareholders
13 Material increase in cash returns to shareholders Total cash returns to shareholders Dividends declared US$ billion US cents per share 5.9 +64% +12% 215 +15% 192 3.6 +15% 167 145 2013 2014 2011 2012 2013 2014 Dividends1 Share buy-back 1 Dividend numbers are based on total dividends declared for e
Slide 14: Long-term and smooth bond maturity profile
14 Long-term and smooth bond maturity profile Bond maturity profile (Pro forma 31/12/141) US$ billion 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 Rio Tinto Bonds - $22.5bn
Slide 15: Credit rating
15 Credit rating1 Moody’s2 Standard & Poor’s3 Long-term A3 A- Short-term P-2 A-2 Outlook Stable Stable 1. A rating is not a recommendation to buy, sell or hold securities, and may be subject to revision, suspension or withdrawal at any time by the assigning rating agencies 2. Moody’s Investors Servi
Slide 16: Our capital allocation framework maximises shareholder value
16 Our capital allocation framework maximises shareholder value 1. Essential 2. Progressive 3. Iterative cycle of sustaining capex dividends Further cash returns to Compelling shareholders growth Debt management ©2015, Rio Tinto, All Rights Reserved
Slide 17: 2015 Objectives
March 2015 Highlights Financial performance 2015 objectives Appendix 2015 Objectives
Slide 18: Our commitment to shareholders
18 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 ©2015, Rio Tinto, All Rights Reserved
Slide 19: Building the world's best mining company
19 Building the world’s best mining company World-class portfolio Free Quality cash flow growth generation Sustainable shareholder returns Operating Capital and allocation commercial discipline excellence Balance sheet strength ©2015, Rio Tinto, All Rights Reserved
Slide 20: Appendix
March 2015 Highlights Financial performance 2015 objectives Appendix Appendix
Slide 21: Succeeding in a challenging market
21 Succeeding in a challenging market Long-life, low-cost Commercial excellence and expandable assets Strong customer relationships, Strong cash flow generation high quality benchmark products, throughout the cycle from our technical marketing and key commodities value-in-use pricing Operating excel
Slide 22: Managing a world-class portfolio…
22 Managing a world-class portfolio… Iron Ore Aluminium Copper Cash generated: Cash generated: Cash generated: $10.3 billion $2.6 billion $1.7 billion 2014 achievements Sector-leading primary Completed 290Mt/a metal 2014 EBITDA Maintained EBITDA ramp-up margin of 25% margins at 42% Maintain industry
Slide 23: … of sector-leading assets
23 … of sector-leading assets Diamonds & Minerals Energy1 Cash generated: Cash generated: $1.2 billion $0.4 billion 2014 achievements Commissioned MDDK plant Disposals of Rio Tinto Coal Simandou Investment Framework Mozambique and Clermont Maximise cash flow generation Further cost reductions and pr
Slide 24: Pilbara – continual cost improvement
24 Pilbara – continual cost improvement Pilbara cash unit cost / EBITDA margin • Our low-cost advantage has been US$ per tonne Percentage sustained over many years: 30 80% − 2014 cash unit cost of $19.5/t 70% 25 − H2 2014 cash unit cost of $18.7/t 23.9 60% (8% lower than $20.4/t in H1 2014 ) 20 21.8
Slide 25: Pilbara - Maintaining consistent share of sales and value to shareholders
25 Pilbara - Maintaining consistent share of sales and value to shareholders Rio Tinto sales as share of seaborne supply • Rio Tinto’s share of seaborne sales Percentage (Pilbara 2005 – 2014) over the past decade consistently 50% around 20% 40% 30% • Our growth plans and performance 20% have been we
Slide 26: Global iron ore demand improves to 2030
26 Global iron ore demand improves to 2030 Finished steel demand • China’s GDP growth around 7%, Million tonnes per annum with the transition away from 2,500 investment- driven growth underway 2,000 • Chinese steel demand growth will 1,500 Other developing be driven by manufacturing and 1,000 500 Ch
Slide 27: Marginal iron ore production continues to exit
27 Marginal iron ore production continues to exit • ~125 Mt of supply exits in 2014 − ~85 Mt of Chinese exits, North-East China • China’s largest iron ore predominately high-cost private supply region • Large proportion of high mines located in the North-East cost private miners • Exposed to Seaborn
Slide 28: Capturing full value from our product suite and marketing expertise
28 Capturing full value from our product suite and marketing expertise • Higher average FOB price than other Pilbara producers in H2 2014 • Pilbara Blend Fines spot sales consistently achieve a premium over the Platts 62% Fe index Comparative average price performance H2 2014 PBF spot premiums relat
Slide 29: Iron Ore: increased volumes and cost reductions partially offset lower prices
29 Iron Ore: increased volumes and cost reductions partially offset lower prices Underlying earnings 2013 vs 2014 US$ million (post tax) 10,000 9,858 356 8,107 259 9 8,000 1,286 186 6,197 6,000 (3,798) (49) 4,000 2013 Price Exchange Energy & Flexed 2013 Volumes Cash cost Exploration & Tax & other 20
Slide 30: The world's best aluminium business
30 The world’s best aluminium business Clear focused strategy: Bauxite and first quartile smelters are key pillars Bauxite Alumina Aluminium Industry-leading bauxite Sector-leading primary metal Provides competitive security position 2014 EBITDA margin of 25% of supply for our smelters Third party s
Slide 31: Aluminium: exchange rates, strong price premiums and cost improvements more than doubled earnings
31 Aluminium:(1) exchange rates, strong price premiums and cost improvements more than doubled earnings Underlying earnings 2013 vs 2014 US$ million (post tax) 1,500 3 1,248 168 247 1,103 17 (43) 1,000 377 (78) 557 500 - 2013 Price Exchange Energy & Flexed 2013 Volumes Cash cost Exploration & Tax &
Slide 32: Copper: a clear strategy to create long-term value
32 Copper: a clear strategy to create long-term value Four key operating assets $923 million of cash cost improvements since 2012 42% EBITDA margin preserved in 2014 despite 7% lower average LME price Oyu Tolgoi Kennecott Significant progress in simplifying the portfolio since 2012 Clear strategy to
Slide 33: Copper: cost savings and improved volumes more than offset lower prices
33 Copper: cost savings and improved volumes more than offset lower prices Underlying earnings 2013 vs 2014 US$ million (post tax) 1,200 121 294 1,000 912 821 120 800 149 (224) 30 572 600 (131) (244) (24) 400 200 0 2013 Divested Absence of Price Exchange Energy & Flexed 2013 Volumes Cash cost Explor
Slide 34: Diamonds & Minerals: delivering free cash flow
34 Diamonds & Minerals: delivering free cash flow Improve Strengthen Deliver Reduced costs Reducing capex Increasing free cash flow $40 $674 million million $677 million Operating cost reductions achieved by Cumulative year on year capex 31 December 2014 vs 20121 reductions since 20123 $1,325 millio
Slide 35: Diamonds & Minerals: 15% higher underlying earnings from cost reductions and increased volumes
35 Diamonds & Minerals: 15% higher underlying earnings from cost reductions and increased volumes Underlying earnings 2013 vs 2014 US$ million (post tax) 500 21 401 91 37 36 400 350 327 (20) 300 (53) (61) 200 100 0 2013 Price Exchange Energy & Flexed 2013 Volumes Cash cost Exploration & Tax & other
Slide 36: Energy: large, high-quality Hunter Valley resource
36 Energy: large, high-quality Hunter Valley resource RTCA has a large footprint • Significant progress in reshaping the portfolio in 2014 Mt Pleasant project Bengalla − Sale of Clermont for US$1 billion Hunter Valley − Sale of Rio Tinto Coal Mozambique Operations (HVO) • Rio Tinto Coal Australia ge
Slide 37: Energy: cash cost reductions and lower E&E spend offset by weaker prices
37 Energy: cash cost reductions and lower E&E spend offset by weaker prices Underlying earnings 2013 vs 2014 US$ million (post tax) 100 33 - (100) 33 (200) 62 114 (210) 107 (300) (400) (47) (334) (434) (78) (500) 2013 Price Exchange Energy & Flexed 2013 Volumes Cash cost Exploration & Tax & other 20
Slide 38: Modelling earnings
38 Modelling earnings 2014 ($m) impact on 2014 average price/ underlying earnings of 10% Earnings sensitivity rate price/rate change Copper 310c/lb 340 Aluminium $1,867/t 462 Gold $1,266/oz 46 Iron ore (62% Fe FOB) $88/t 1,303 Coking coal (benchmark) $126/t 110 Thermal coal (average spot) $74/t 117