Rio Tinto Plc · LSE:RIO
Rio Tinto — Investor Presentation (September 2005)
24 slides from Rio Tinto's investor presentation, September 2005
Slide 1: Rio Tinto Diamonds: Sales and Marketing
Rio Tinto Diamonds Sales and Marketing Nigel Jones Head of Investor Relations Rio Tinto September 2005 Slide No 1
Slide 2: Presentation outline
Presentation outline ♦ Industry context Argyle ♦ Rio Tinto key diamond assets ♦ Rio Tinto Diamonds’ sales and marketing strategy Diavik Slide No 2
Slide 3: Diamonds – a growing part of Rio Tinto
Diamonds – a growing part of Rio Tinto Rio Tinto earnings by commodity (2004) Diamonds earnings Other 1% Diamonds 7% $m Industrial Minerals 9% Copper & Gold 200 34% 150 100 Coal 50 14% 0 96 97 98 99 00 01 02 03 04 05 H1 Aluminium 13% Iron Ore 22% Slide No 3
Slide 4: The diamond pipeline 2004
The diamond pipeline 2004 Rough Cutting Retail Sales & Centres Stocks Value of Retail Wholesale Polished Sales Net Rough Wholesale Mine Value of Stocks From Of For Local Value of Production Diamond Local Diamond Production Diamonds Jewellery Production Jewellery US$12B <US$0.5B US$13B US$16B US$16B
Slide 5: The diamond industry is changing
The diamond industry is changing ♦ Decline in market share of biggest producer ♦ Other significant corporate producers and marketers ♦ Increased competition ♦ Issues affecting consumer confidence ♦ Synthetic and treated diamonds ¾ Issues of disclosure and detection Slide No 5
Slide 6: Key points regarding supply
Key points regarding supply ♦ Past ¾ Supply has increased steadily over the past 25 years ♦ Current ¾ Production and marketing of diamonds is still dominated by De Beers (with 41% and 47 % share respectively) ¾ Alrosa has the largest reserves and the most sustainable production position ♦ Future ¾ P
Slide 7: 2005 world diamond production will be approximately US$13 billion
2005 world diamond production will be approximately US$13 billion Forecast 2005 world diamond supply in value terms (US$b) World supply by country, % World supply by producer, % World supply by marketer, % 100% = ~US$13b 100% = ~US$13b 100% = ~US$13b Aber Other Other Australia Other Namibia 5 Botswa
Slide 8: Supply has steadily increased over the past 25 years
Supply has steadily increased over the past 25 years World supply in volume, M Carats Botuobin- Botuobin- 200 skaya Ekati, CD Russia 180 The Oaks, Diavik Catoca SA CD Angola 160 Damtsha Botswana Venetia 140 South Argyle Africa 120 Australia 100 +37% Jwaneng 80 Botswana +14% 60 40 +133% 20 0 1980 199
Slide 9: Supply by producer and country
Supply by producer and country 2005 and 2015 forecasts Supply by producer (value terms) Supply by country (value terms) % % 100 100 100 100 Other 5 6 Minors 10 10 Australia 4 3 7 4 Rio Tinto 6 5 Namibia 4 BHP Billiton 6 12 16 9 D R Congo Canada 9 11 Angola 9 D R Congo 9 10 12 9 South Africa 20 17 Al
Slide 10: Key points regarding demand
Key points regarding demand ♦ Current ¾ The US is the largest market for diamonds accounting for almost half of global demand, followed by Europe and Japan, which together account for close to 30% ♦ Forecast ¾ In the past, the US has been the main driver of growth while Europe and Japan have seen st
Slide 11: The US accounts for around half of global diamond jewellery demand
The US accounts for around half of global diamond jewellery demand Global demand for diamond jewellery in 2004, % 100% = $65b Other China 14 India 2 3 Middle East 5 48 US Europe 12 16 Japan Slide No 11
Slide 12: USA has been driver of past growth
USA has been driver of past growth World demand for diamond jewellery Real US$b (2004) 80 70 Annual growth Other rates (1980-2004), 60 Asia Arabia % 50 Asia Pacific • US 3.4% Europe • Japan -0.6% 40 Japan • Europe -0.3% 30 • Asia Pacific 3.6% • Other (incl. 0.7% 20 Asia Arabia) US 10 • World 1.4% 0
Slide 13: The US, China and India will lead future growth
The US, China and India will lead future growth Forecast Rationale CONTINUED GROWTH ¾ High correlation with GDP ¾ Small correlation with GDP NO GROWTH ¾ Drop by over 50% since 1990 ¾ Unchanged since 2001 ¾ Small correlation with GDP NO GROWTH ¾ Stagnation since early 1990’s ¾ Rapid growth of middle
Slide 14: Industry forecasts suggest future supply constraints
Industry forecasts suggest future supply constraints Indexed supply and demand forecast (value, indexed in 2005) 1.6 1.4 Demand 1.2 1 Supply 0.8 0.6 0.4 0.2 0 2005 2007 2009 2011 2013 2015 Slide No 14
Slide 15: 1990s price decline turned around since 2001
1990s price decline turned around since 2001 Real rough diamond prices (indexed) Economic Stocks 1960=100 Market Control Inflation Bust growth, Declining Depleted, Boom Yen Demand & Increased 250 Destocking Marketing Spend 200 150 100 50 0 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004
Slide 16: Rio Tinto is monitoring synthetic diamond production
Rio Tinto is monitoring synthetic diamond production HPHT CVD ¾ High pressure high ¾ Chemical vapour ♦ Description temperature process deposition ¾ 10,000 carats per year ¾ No commercial ♦ State of polished production development ¾ Yellow or orange-brown ¾ 10 carat stone in 2005 ¾ Gemesis ¾ Apollo D
Slide 17: Argyle Mine
Argyle Mine ♦ Has been operating for 20 years ♦ Independent marketing from 1996 ♦ Largest producer by volume ♦ Open-pit minelife through to 2008 ♦ A$80M underground feasibility approved ♦ Underground could extend mine life to 2024 at 50% current capacity ♦ Underground decision in Quarter 4, 2005 Sli
Slide 18: Diavik Mine
Diavik Mine ♦ 60% owner and operator GREENLAND ♦ Commenced production 2003 ALASKA ♦ More than 8 million carats annually Whitehorse Yellowknife Lac De Gras ♦ Production currently from A154S CANADA Diavik Diamond Mine and A154N pipes Vancouver Edmonton ♦ Construction of A418 dyke has been approved USA
Slide 19: Rio Tinto Diamonds N.V.
Rio Tinto Diamonds N.V. ♦ Sales agent for Group’s rough diamonds • Capability to handle multiple productions ♦ Located in Antwerp, Belgium • Historic presence • Access to market intelligence, resources, customers ♦ Operating on cost-recovery basis • Profit centres are the mines ♦ Services include so
Slide 20: Rio Tinto Diamonds' approach to the industry
Rio Tinto Diamonds’ approach to the industry Supplier of rough diamonds to wholesale market Ability to market multiple productions Each source of production kept separate Focus on sustainable development and product stewardship Supply customers who can deliver maximum value to Rio Tinto
Slide 21: Distribution channels
Distribution channels Rio Tinto Diamonds: Rough ♦ +/- 26 customers for Diavik, Distribution Channel by Value 17 for Argyle, 5 for Murowa ♦ Mixture of traders and manufacturers Other 30% ♦ Flexible customer base • able to handle wide range and variable volumes ♦ Indians dominant due to India competit
Slide 22: Objectives of Rio Tinto Diamonds' marketing programmes
Objectives of Rio Tinto Diamonds’ marketing programmes ♦ Promote demand for polished produced from Rio Tinto’s rough production ♦ Communicate the core values of Rio Tinto Diamonds ¾ provenance ¾ stewardship ¾ transparency ♦ Focus on natural and coloured diamonds ♦ Provide customer support at all lev
Slide 23: Rio Tinto Diamonds' marketing programmes
Rio Tinto Diamonds’ marketing programmes ♦ Customer Support ¾ Business Excellence Model ¾ Indo Argyle Diamond Council ♦ Trade Support ¾ Trade show presence ¾ Advertising and PR ¾ Champagne diamond certification ♦ Retail promotion ¾ Champagne diamond promotion ¾ Natural Colored Diamond Association ¾
Slide 24: Summary
Summary ♦Rio Tinto’s diamond business has been growing ♦Operating two of top ten mines currently in production ♦Well positioned as long standing supplier in the market ♦The diamond business has good characteristics ♦Supply and demand outlook is positive