Rio Tinto Plc · LSE:RIO
Rio Tinto — Investor Day (November 2016)
78 slides from Rio Tinto's investor day presentation, Nov 24, 2016
Slide 1: Capital Markets Day
Capital Markets Day 24 November 2016 Sydney
Slide 2: Cautionary statements
Cautionary statements 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-lookin
Slide 3: Supporting statements
Supporting statements 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 venture were set out in the
Slide 4: Capital Markets Day: J-S Jacques
Capital Markets Day J-S Jacques Chief executive
Slide 5: Consistent delivery of value
Consistent delivery of value Long-term strategy Cash focus Capital discipline and shareholder returns Team and performance culture ©2016, Rio Tinto, All Rights Reserved 5
Slide 6: We are well positioned to deliver sustainable returns
We are well positioned to deliver sustainable returns 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 reduction Exploration and Co
Slide 7: Strategy will deliver value through the cycle
Strategy will deliver value through the cycle 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 Tinto, All Rights Reserv
Slide 8: World-class assets at the core of our business
World-class assets at the core of our business 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 First quartile smelter
Slide 9: Industry-leading growth of >2%
Industry-leading growth of >2% … 1 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, brownfield copper development ~
Slide 10: …with optionality of a broader portfolio
…with optionality of a broader portfolio 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 commodities across 17 cou
Slide 11: Safety comes first
Safety comes first 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 1.0 – What can kill me a
Slide 12: We will deliver $5 billion of free cash flow in productivity improvements
We will deliver $5 billion of free cash flow in productivity improvements over five years Value Chain Exploration Major projects Mining Asset Processing Infrastructure Marketing management Broadening our cost saving programme to include productivity Opportunity to Opportunity to Opportunity to impro
Slide 13: Protecting our licence to operate
Protecting our licence to operate Closure and rehabilitation Exploration Holden Copper Mine, US Operations ©2016, Rio Tinto, All Rights Reserved 13
Slide 14: Developing our people and capabilities
Developing our people and capabilities Building capabilities Technical excellence Commercial excellence ©2016, Rio Tinto, All Rights Reserved 14
Slide 15: Focusing on value over volume
Focusing on value over volume Revenue Price impact of incremental tonnes Protecting quality Capex Maximising free Sustaining cash flow through the cycle Replacement Operating cost Growth Unit cost Impact on cost base ©2016, Rio Tinto, All Rights Reserved 15
Slide 16: Consistent delivery of value
Consistent delivery of value Long-term strategy Cash focus Capital discipline and shareholder returns Team and performance culture ©2016, Rio Tinto, All Rights Reserved 16
Slide 17: Capital Markets Day: Chris Lynch
Capital Markets Day Chris Lynch Chief financial officer
Slide 18: Generating significant returns for shareholders
Generating significant returns for shareholders Consistently high margins despite lower revenues Disciplined allocation of cash EBITDA margin and gross revenue 2013 – H1 2016 Cash flows 2013 – H1 2016 ($ billion) 2.2 4.4 15.1 6.8 $ bn 3.5 30 6.3 43% 41% 38% 38% 26 36% 33% 30% 18.6 22 31.7 18 8.5 14
Slide 19: Our capital allocation framework
Our capital allocation framework 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, Rio Tinto, All Rights Re
Slide 20: Disciplined capital allocation to the most compelling projects
Disciplined capital allocation to the most compelling projects 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 projects: – Amrun bauxit
Slide 21: Best in sector balance sheet is a competitive advantage
Best in sector balance sheet is a competitive advantage 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 the cycle 23% Rio Tin
Slide 22: Near-term maturities greatly reduced
Near-term maturities greatly reduced 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 purchase completed in 2016 20
Slide 23: Delivering superior shareholder returns
Delivering superior shareholder returns 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 compelling growth projects t
Slide 24: Delivering optimal value
Delivering optimal value Chris Salisbury, chief executive, Iron Ore 24 November 2016
Slide 25: Delivering optimal value from one of the world's best businesses
Delivering optimal value from one of the world’s best businesses 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 consistent returns through
Slide 26: Safety effort targeting fatality elimination and injury prevention
Safety effort targeting fatality elimination and injury prevention 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 controls 12 month rolling
Slide 27: Major trends influencing the iron ore market
Major trends influencing the iron ore market 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 concentrate availability Scrap
Slide 28: Supply continues to moderate
Supply continues to moderate….. 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 – Unsustainable cost reductions u
Slide 29: ...but we remain well-placed with five highly-valued products
...but we remain well-placed with five highly-valued products…. 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 sintering 17% Lump HIY –
Slide 30: …including the industry benchmark Pilbara Blend
…including the industry benchmark Pilbara Blend 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 provided to maximise valu
Slide 31: We have substantial resources sustaining future production
We have substantial resources sustaining future production… 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 300 20,000 Maintainin
Slide 32: …and a fully integrated asset network
…..and a fully integrated asset network 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 33: Maximising cash flow and sustaining our competitive advantage
Maximising cash flow and sustaining our competitive advantage EBITDA margin RTIO Pilbara vs Peers Pre-tax operating cash cost improvements US$ per tonne (15/16 FY) Reduction vs. 2012 US$m 30 $1.2bn 25 -25% 138 371 20 15 359 10 5 323 0 Rio Tinto Peer 1 Peer 2 Peer 3 2013 2014 2015 H1 2016 1H 2016 cas
Slide 34: Replicating best practice drives greater value
Replicating best practice drives greater value…… Haul Truck Effective Utilisation Plant Effective Utilisation Time %, indexed, Sept YTD, site comparison Time %, indexed, Sep YTD, site comparison 23% 1.23 17% 1.17 1.14 1.00 1.00 IO Manned Ave. IO Autonomous Ave. IO Best Autonomous IO Ave. IO Best Per
Slide 35: …as does productivity and technology
…as does productivity and technology Train dumping cycle time Train loading cycle time Indexed to 2015 monthly average Indexed to 2015 average High -6% Low 1.00 Avg 1.00 0.96 -46% variability 0.94 2015 2016 Sep YTD 2015 2016 Sep YTD AutoHaul® Frequency Current rail system AutoHaul® Improves safety c
Slide 36: Installed infrastructure offers high-value optionality
Installed infrastructure offers high-value optionality Optimising system capacity Mt/a Production optionality Mine capacity can be delivered through productivity Mines Silvergrass and low capital brownfields pathway and productivity Rail capacity can be delivered through productivity, low capital in
Slide 37: Sustaining best value production
Sustaining best value production Low-cost brownfield mine expansions have dominated Pilbara mine capital intensity US$/t installed 120 Bubble size indicates capacity Brownfield mine expansions have dominated Hope Downs 4 production Nammuldi 90 Below Water – Initial brownfield expansions at $9/t Tabl
Slide 38: Silvergrass on track to deliver world-class investment returns
Silvergrass on track to deliver world-class investment returns Full Silvergrass mine development approved in July 2016 ~20Mt/a at US$29/t Mine sustains Operating costs IRR >100%1 capital intensity (CI) Pilbara Blend quality significantly reduced 1IRR calculated using consensus iron ore prices at May
Slide 39: High-quality, low-cost options available to offset depletion
High-quality, low-cost options available to offset depletion Pilbara mine development options Multiple options leveraging existing infrastructure US$/t Installed capital intensity – West Angelas Deposit F and Yandi Oxbow Capital 120 Bubble size indicates capacity Intensity <$10/t; IRR >100%1 Brownfi
Slide 40: Sustaining best value production
Sustaining best value production Capital expenditure US$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 years 0.5 ~$2.2bn sus
Slide 41: A workforce of fully-engaged employees
A workforce of fully-engaged employees 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 Tinto, All Rights Res
Slide 42: Highly-valued partners and sustainable local and regional investment
Highly-valued partners and sustainable local and regional investment remain a priority 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 State royalties – ~$70
Slide 43: Delivering optimal value from one of the world's best businesses
Delivering optimal value from one of the world’s best businesses 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 options to optimise sys
Slide 44: Break
Break 24 November 2016 Al
Slide 45: Aluminium
Aluminium Alf Barrios, chief executive, Aluminium 24 November 2016
Slide 46: Leading performance through the cycle
Leading performance through the cycle 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 47: Safety is a fundamental business priority
Safety is a fundamental business priority 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 48: China's bauxite import demand growing rapidly
China’s bauxite import demand growing rapidly 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 to add refining capac
Slide 49: Aluminium gradually moving back to balance
Aluminium gradually moving back to balance 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 Chinese 16 capacity growth
Slide 50: Strategy for outperformance through the cycle
Strategy for outperformance through the cycle 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 generation Competitive alumi
Slide 51: Consistently increasing shareholder value
Consistently increasing shareholder value 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 reached design Cash costs re
Slide 52: On track to exceed $1.4 billion of cost improvements
On track to exceed $1.4 billion of cost improvements 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% 250 574 0% - Q2 Q4 Q2 Q4
Slide 53: Leading bauxite resource and market positions
Leading bauxite resource and market positions 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 advantage 2.5 2.0 – Prox
Slide 54: Amrun on track for first bauxite in H1 2019
Amrun on track for first bauxite in H1 19 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 schedule (engineering and
Slide 55: 250+ bauxite improvement initiatives underway
250+ bauxite improvement initiatives underway 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 utilisation increase
Slide 56: Transforming alumina business
Transforming alumina business 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 – building Sustaining capital (
Slide 57: 500+ alumina improvement initiatives underway
500+ alumina improvement initiatives underway Volume / commercial Cash improvement of $130m over 2016 and 2017 through supply chain optimisation: – $15m per annum from vessel scheduling – $30m reduction in working capital from restructuring caustic supply Cost / productivity 41% reduction in contrac
Slide 58: Improving our smelting cost position
Improving our smelting cost position Business operating cost curve1 Rio Tinto’s low-cost, low-carbon power US$ 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 from cost reduction pr
Slide 59: 500+ aluminium improvement initiatives underway
500+ aluminium improvement initiatives underway 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 improvement of $40m thr
Slide 60: Leading performance through the cycle
Leading performance through the cycle 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 - Continue driving smelting
Slide 61: Growth & Innovation
Growth & Innovation Steve McIntosh, group executive, Growth & Innovation 24 November 2016
Slide 62: Adding value through the asset lifecycle
Adding value through the asset lifecycle Technical excellence, assurance and support Find Evaluate Develop Optimise Close Ore bodies to market ©2016, Rio Tinto, All Rights Reserved 62
Slide 63: Safety is our first priority
Safety is our first priority 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 1.2 implementation at
Slide 64: Find, evaluate and develop assets
Find, evaluate and develop assets 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 and Investment Committee
Slide 65: Declining industry investment and success
Declining industry investment and success Find 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) Expenditures $20 Number o
Slide 66: Extensive and successful exploration programme
Extensive and successful exploration programme Find 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% Diamonds 80% 40% 5%
Slide 67: Unique capability to make new discoveries
Unique capability to make new discoveries Find 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 Mutamba Amargosa Yandi Brai
Slide 68: Incubating new sources of value for the group
Incubating new sources of value for the group 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 organisation M&A Rio Tinto ca
Slide 69: Jadar is a significant lithium-borate resource discovered by Rio Tinto
Jadar is a significant lithium-borate resource discovered by Rio Tinto Evaluate 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 quartile of the operating cos
Slide 70: Evaluating our projects
Evaluating our projects Evaluate 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 71: Track record for delivering high-quality assets
Track record for delivering high-quality assets Develop 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 72: Delivering value through technical excellence
Technical Delivering value through technical excellence excellence, assurance & support Our core disciplines; – Geoscience & ore body knowledge – Mining – Processing – Infrastructure – Asset Management Strength in mining and processing Replication across large asset base Platforms to deliver automat
Slide 73: Driving productivity across the value chain
Driving productivity across the value chain Optimise 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 Average +50% +30% Target Be
Slide 74: Closing our assets like we build our assets
Closing our assets like we build our assets Close 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 Embedded learnings Ho
Slide 75: Conclusions
Conclusions 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 our assets ©2016, Rio
Slide 76: J-S Jacques
J-S Jacques Chief executive 24 November 2016
Slide 77: Value proposition
Value proposition 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 the cycle Assets at t
Slide 78: Al
Al