Rio Tinto Plc · LSE:RIO
Rio Tinto — Investor Day (September 2015)
69 slides from Rio Tinto's investor day presentation, Sep 3, 2015
Slide 1: Notice to ASX: Rio Tinto investor presentation – Sydney
Notice to ASX Rio Tinto investor presentation – Sydney For personal use only 3 September 2015 Rio Tinto is hosting a presentation from the Iron Ore and Technology & Innovation groups in Sydney today. The attached presentation will be given by: Andrew Harding, Chief Executive, Iron Ore Greg Lille
Slide 2: Iron Ore Seminar
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation For personal use only Iron Ore Seminar
Slide 3: Cautionary statement
2 Cautionary statement 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 4: Mineral Resources and Ore Reserves
JORC Code references are to the “Australasian Code for Reporting of Exploration Results, Minerals 3 Resources and Ore Reserves, 2012 Edition. Mineral Resources and Ore Reserves Details of the Pilbara Mineral Resource and Ore Reserve estimates from 2006 to 2014 which appear on slide For personal use
Slide 5: Production Targets
4 Production Targets Production targets for 2017 for our Pilbara operations and Iron Ore Company of Canada appear in this presentation. For personal use only For our Pilbara operations, slide 25 states “Pilbara integrated production system is expected to deliver … 350 Mt in 2017”. This production ta
Slide 6: Introduction
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation For personal use only Introduction Andrew Harding, chief executive, Iron Ore
Slide 7: Iron ore demand fundamentals
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation For personal use only Iron ore demand fundamentals Vivek Tulpule, head of Economics & Markets
Slide 8: Rio Tinto Economics & Markets
7 Rio Tinto Economics & Markets For personal use only Independent advice Extensive data collection Report to CFO Primary research Independent from Product Groups Internal and external resources Fundamental demand and supply Risk and scenario analysis analysis Rigorous testing of results Proprietary
Slide 9: China's transition toward high-income status
8 China’s transition toward high-income status involves a structural transition to slower growth For personal use only China’s ‘New Normal’ Relationship Greater Tapering of between Slowing Higher Value China and Demographic emphasis on Capital Urbanisation Added other Transition services and Intensi
Slide 10: Continued global iron ore demand
9 Continued global iron ore demand For personal use only Moderate growth in iron ore demand • Global steel demand grows by 2.5% pa, Total iron ore demand (million tonnes) versus GDP growth of 3.0% 3,000 2.0% CAGR • Chinese steel demand is evolving with an 2,500 increasing focus on exports Other Emer
Slide 11: Robust growth in rest of world demand
10 Robust growth in rest of world demand For personal use only Rest of World (ex-China) steel demand • Process of industrialisation and Crude steel production (million tonnes) urbanisation in the rest of world will be 1,750 highly steel intensive Sectors Regions Other manufacturing • Rest of world s
Slide 12: China steel growth will continue
11 China steel growth will continue For personal use only Maturing domestic steel demand • Crude steel production expected to Crude steel production (million tonnes) reach around 1 billion tonnes by 2030 1,000 • Growth in capital stock is slowing leading to a declining demand for steel to support gr
Slide 13: Chinese steel demand based on detailed analysis
12 Chinese steel demand based on detailed analysis For personal use only Building Infrastructure Highways Urban Residential Rail Rural Residential Subway Non-Residential Public Facilities Machinery Transport & Other Petrochemical Agricultural Autos Construction Shipping Mining Equipment Consumer Dur
Slide 14: Case study I: Residential steel demand
13 Case study I: Residential steel demand GDP per capita Population For personal use only Steel Floor Space Steel Typical ~30 storey high rise Intensity Superstructure 50 kg/sqm 120,000 sqm 6,000 t Basement 175kg/sqm 50,000 sqm 8,750 t Foundation Regulation Building height Seismic rating High streng
Slide 15: Case study II: Residential replacement demand
14 Case study II: Residential replacement demand For personal use only • By 2030, nearly 25% of the current urban residential building stock will be demolished and rebuilt • The average life of an urban residential building in 1980 was 37 years • In 1980, 65% of urban residential buildings completed
Slide 16: Case study III: Automobile steel demand
15 Case study III: Automobile steel demand For personal use only • China passenger vehicles rise by 280 China automobile saturation million from 2015 - 2030, a nearly three- fold increase 600 Italy • The typical steel in a passenger vehicle Passenger cars per thousand people Canada Australia is curr
Slide 17: Obsolete Chinese scrap triples in fifteen years
16 Obsolete Chinese scrap triples in fifteen years and will displace some iron ore requirements For personal use only Chinese scrap supply Million tonnes 250 Home Scrap produced Offcuts from Prompt at mills manufacturing 200 Obsolete 150 100 Other Autos Power Generation 50 Urban Residential 0 2015 2
Slide 18: China steel demand growth consistent with international experience
17 China steel demand growth consistent with international experience For personal use only Substantial steel potential for developing Asia China steel intensity to increase at slowing rate Global steel stock per capita (tonne/capita) Global crude steel intensity per capita (Kg/capita) 1,200 South K
Slide 19: Summary
18 Summary For personal use only The world will need increasing volumes of iron ore: 2.0% CAGR 2015-2030 Emerging markets, other than China, will play an increasingly significant role in the iron ore market with demand expected to increase by 65% Continued modest Chinese steel production growth to 2
Slide 20: Delivering value through the cycle
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation For personal use only Delivering value through the cycle Andrew Harding, chief executive, Iron Ore
Slide 21: The world's best iron ore business
20 The world’s best iron ore business For personal use only Underpinned by a comprehensive strategy that drives compelling value: Production at the right cost Value-driven growth Maximising portfolio value Leveraging our portfolio of Safest and lowest cost production Disciplined phasing and low grow
Slide 22: Personal safety, health and well-being is a fundamental business priority
21 Personal safety, health and well-being is a fundamental business priority For personal use only Iron Ore all injury frequency rate 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 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 YTD'15 Note: Year to date 2015 is January to end of July.
Slide 23: Consistently delivering value
22 Consistently delivering value For personal use only Staged Pilbara Operating costs infrastructure have been reduced expansion by almost $1 billion completed at compared to 2012 capital intensity of ~$105/t Iron ore More than 400 workforce million tonnes of +15,000 people material moved by deliver
Slide 24: The Pilbara - a fully integrated system
23 The Pilbara - a fully integrated system… Leading edge technology For personal use only ~30TB analysed by the OC per month ~5TB added by Library of Congress per month 1 Drill & Blast 2 Load & Haul 3 Process 4 Rail 5 Ship > 400 kilometres of > 12,000 kilometres ~1 billion tonnes > 15,000 kilometres
Slide 25: Suite of world-class iron ore products, including Pilbara Blend
24 …producing a suite of world-class iron ore products, including our flagship Pilbara Blend For personal use only Ore group Banded Iron Formation derived Iron Deposits Channel Iron Deposits Paraburdoo West Hope Brockman 2 Brockman 4 Hope Downs 4 Mt Tom Marandoo Nammuldi Yandicoogina Mesa Mines (inc
Slide 26: Growth infrastructure complete, brownfields supply near-term volume
25 Growth infrastructure complete, with brownfields continuing to supply near-term volume For personal use only • 40 Mt of brownfields completed at average capital intensity of $9/t • Debottlenecking and productivity improvements continue • Pilbara integrated production system expected to deliver Na
Slide 27: Further high value tonnes from Silvergrass
26 Further high value tonnes from Silvergrass For personal use only • Nammuldi incremental investment also allows for: − Silvergrass dewatering infrastructure − Nammuldi below water table plant expansion from 21- 42 Mt/a • Full Silvergrass mine development: − Remains subject to approval in 2016 − Ad
Slide 28: Unlocking value
27 Unlocking value For personal use only Releasing Reducing Improving working capital costs productivity >20% reduction in Renegotiation with 12% increase in mine stocks key suppliers labour productivity Inventories at mines reduced by 4.5 Mt to 14.5 Mt, improving working Contract renegotiatio
Slide 29: Sustaining a competitive advantage
28 Sustaining a competitive advantage For personal use only Pilbara cash unit cost • H1 2015 cash unit cost of US$16.2/t US$ per tonne (13% lower than $18.7/t in H2 2014) -32% 23.9 • Attractive FOB EBITDA margin at 61% in H1 2015 20.2 19.5 • Iron ore has delivered almost $1 billion in cost savings s
Slide 30: Pilbara – H1 2015 financial summary
29 Pilbara – H1 2015 financial summary For personal use only Pilbara net earnings reconciliation US$ million 7,004 (353) (620) 4,059 (1,972) (846) 2,158 (1,055) Revenue 1 Freight expense Royalties Operating costs EBITDA Depreciation Tax & other Net earnings & amortisation Pilbara unit cash costs Oth
Slide 31: Reducing contractor and employee costs has delivered significant benefits
30 Reducing contractor and employee costs has delivered significant benefits in unit costs For personal use only Pilbara cash unit cost US$ per tonne 20.4 17.5 0.5 16.2 (2.9) (1.2) (0.6) H1 2014 FX Impact Restated H1 2014 Employee Costs Contractor Costs Other Costs H1 2015 Pilbara unit cost of $16.2
Slide 32: Our Operations Centre enables us to optimise tonnes, quality and value
31 Our Operations Centre enables us to optimise for tonnes, quality and value For personal use only Capability enables real-time visibility of entire value chain and powerful forward planning Real time analytics Ensuring a consistently reducing system high-quality product variability Debottlenecking
Slide 33: Operational and commercial excellence is embedded across the business
32 Operational and commercial excellence is embedded across the business For personal use only Iron ore material Heavy Equipment Rehandle reduced Life Extension by 16 Mt in 2014 $200 million in capital deferrals FasTrack 35 HME contracts 35 hrs cycle time target consolidation Cycle time improvement
Slide 34: Autonomous fleet continues to expand
33 Autonomous fleet continues to expand bringing significant productivity improvements For personal use only Autonomous Haul Trucks Performance Effective utilisation indexed to all manned sites 120% 110% 100% 90% Yandicoogina primary haul 80% fleet now entirely autonomous Jul-14 Oct-14 Jan-15 Apr-15
Slide 35: Improvement initiatives underway
34 Nearly 400 improvement initiatives underway For personal use only Mindful spending and improvement culture “Production at the right cost” – Improving the work place • Operations centre upskilled themselves to enable ‘in-housing’ support of two radio platforms, avoiding a contractor cost of $365,0
Slide 36: Iron Ore Company of Canada continues to improve performance
35 Iron Ore Company of Canada continues to improve performance For personal use only Iron Ore Company of Canada production • Monthly production record in July 2015, Million tonnes with 21.5 Mt/a concentrate run-rate • Nameplate capacity of 23 Mt/a 8.9 4.6 concentrate to be achieved in 20171 • Concen
Slide 37: Making a positive and lasting difference in our local communities
36 Making a positive and lasting difference in our local communities For personal use only • An unfaltering commitment to the local communities that host our operations • Key initiatives in education, health, environment, culture and regional sustainability • Partnering with State and local/ provinc
Slide 38: Summary
37 Summary For personal use only The safety and wellbeing and development of our people is paramount Operational excellence continuing to drive productivity improvements Maintaining a low cost industry position is embedded at all levels Technology and automation continue to increase value Sales and
Slide 39: Maximising value
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation For personal use only Maximising value Bold Baatar, managing director, Iron Ore Sales & Marketing and Marine
Slide 40: Our sales and marketing capabilities maximise the value of our products
39 Our sales and marketing capabilities maximise the value of our products For personal use only Industry • A deep understanding of markets and knowledge the steel industry Product • Aligning our resource base with customer needs alignment over the long term to maximise product value • Continuous de
Slide 41: Steel production has been resilient in 2015
40 Steel production has been resilient in 2015 For personal use only Majors accounted for ~47% of 2014 supply Global steel production is broadly flat Percentage of contestable iron ore market Million tonnes annualised 1,700 20% 17% Rio Tinto 1,680 BHP = 47% Vale 1,660 ~1.7 7% 14% 1,640 billion FMG t
Slide 42: ~120 Mt/a of marginal iron ore supply to exit the market in 2015
41 We expect ~120 Mt/a of marginal iron ore supply to exit the market in 2015 For personal use only China domestic supply down ~45 Mt/a YoY High-cost seaborne supply down ~75 Mt/a YoY Average annualised run rates (Mt/a) Exits annualised by region Inner Liaoning 100 100 Shanxi Mongolia 100 50 50 100
Slide 43: Customers value products differently
42 Customers value products differently For personal use only Technical Geographical • Type of steel product produced • Delivered costs and availability of • Size of blast furnace or sinter plant fuels and fluxes • Quality of metallurgical coal • Seasonal factors • Stockpile and blending capacity •
Slide 44: Pilbara products aligned to resource base and customer needs
43 Our Pilbara products are aligned to our resource base and customer needs For personal use only H1 2015 shipments by product Product Strengths Percentage 100% Pilbara Blend • The most traded iron ore product globally Fines • Base load sinter blend in Asian markets 80% Pilbara Blend • Avoids the co
Slide 45: Pilbara Blend is the industry reference iron ore
44 Pilbara Blend is the industry reference iron ore For personal use only Major iron ore fines products Major iron ore lump products H1 2015 (million tonnes) H1 2015 (million tonnes) 80 45 PBF 40 PBL 70 35 60 30 50 25 40 20 HIY 30 15 20 10 RVF RVL 10 5 0 0 Rio Tinto Peer 1 Peer 2 Peer 3 Rio Tinto Pe
Slide 46: Lump is an important value driver for Rio Tinto
45 Lump is an important value driver for Rio Tinto For personal use only Lump is a higher value product • Premium lump products remain in US$ per dry metric tonne (CFR) scarce supply 100 • Rio Tinto is the largest supplier of lump with 40 Mt of Pilbara Blend lump 80 and Robe Valley lump shipped in H
Slide 47: Blending significantly reduces variability
46 Blending significantly reduces variability Mines Port Terminals Products Stockpile stacking and reclaiming For personal use only Mesa J RVL Mesa A Cape RVF Lambert A HIY Yandicoogina HIY West Angelas Cape PBL Hope Downs 1 Lambert B PBF Nammuldi Marandoo PBL Brockman 4 Parker Point Alumina Silica
Slide 48: Consistent supply and quality supports our marketing strategy
47 Consistent supply and quality supports our marketing strategy For personal use only 2015 Pilbara off-take by pricing mechanism • Portfolio focused on long-term contracts Percentage of total sales with the world’s top 50 steel companies Spot 15% • Of our 2015 volume: Q Actual − ~85% sold under ter
Slide 49: Australia's delivered cost advantage to China
48 Australia’s delivered cost advantage to China For personal use only H1 2015 freight component of the Dry bulk shipments Platts 62% Fe price 100% 8% 19% 80% 92% 81% 60% 0% Brazil Australia Source: Platts, BCI FOB Freight • A standard vessel round trip of load port, to China, and back to load port
Slide 50: Delivering value through port to customer supply chain
49 Delivering value through management of the port to customer supply chain For personal use only Rio Tinto Pilbara – Shipments • Value created through Million tonnes 300 CFR − Price maximisation 250 FOB − Supply chain efficiency 200 162 109 150 − Product placement flexibility 100 82 135 127 • Locat
Slide 51: Commercial excellence captures full value
50 Commercial excellence captures full value For personal use only H1 2015 absolute price comparison: vs BHP2 vs FMG3 vs Vale4 (US $/wmt FOB) (US$/dmt CFR) (US $/wmt CFR) 5.0 5.0 5.0 3.4 2.1 2.0 1.8 62%Fe index1 - - - -5.0 -5.0 -5.0 -7.1 -10.0 -10.0 -10.0 -12.4 -15.0 -15.0 -15.0 -20.0 -20.0 -20.0 BH
Slide 52: Summary
51 Summary For personal use only Supplier of choice to the Asian steel industry Full offtake and close management of credit exposures Value-maximising mix, aligned to customer needs and our resource base Optimising our market placement through segmentation Delivering value through alignment between
Slide 53: Advancing productivity at Rio Tinto
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation For personal use only Advancing productivity at Rio Tinto Greg Lilleyman, group executive, Technology & Innovation
Slide 54: T&I delivers world-class projects and step change productivity
53 T&I delivers world-class projects and step change productivity For personal use only World-class projects World-class productivity • Project Shaping: project shaping • Productivity Generation: and strategic production planning productivity, innovation and analytics • Major Project Delivery: deliv
Slide 55: Rio Tinto Projects delivers major capital projects
54 Rio Tinto Projects delivers major capital projects For personal use only Cape Lambert Port Wickham Housing Estate Paraburdoo Kitimat, March 2015 Rail infrastructure Nammuldi Below Water Table Yandicoogina Fume Treatment Centre West Angelas Power Station West Angelas Deposit B Brockman 4 First hot
Slide 56: Delivering value through optimising the Pilbara expansions
55 Delivering value through optimising the Pilbara expansions For personal use only Consistently improving capital efficiency • Original 360 expansion included (US$/t) Capital intensity of 220-360 Mt/a Pilbara expansion1 175 − Silvergrass − Koodaideri 150 19% • Optimised route relies on low-cost bro
Slide 57: Sustainable growth delivered for less
56 Sustainable growth delivered for less For personal use only 2015 capital expenditure guidance US$ billion <7.0 (0.5) 5.5 (0.4) (0.3) Original guidance Cost savings Deferrals FX Current guidance ©2015, Rio Tinto, All Rights Reserved
Slide 58: Current focus is on three key growth projects
57 Current focus is on three key growth projects For personal use only Iron Ore Aluminium Copper Pilbara mines South of Embley OT Underground Mine Push mine capacity through Feasibility study expected to Over 80% of the value lies in low-cost growth to fill expanded complete towards end of 2015 the
Slide 59: Steady progress on AutoHaul implementation
58 Steady progress on AutoHaul® implementation For personal use only • World’s first fully autonomous long distance heavy haul railway • Improves productivity & safety • Over 250 journeys completed in automated mode • ~90% of locomotive modifications Autohaul® operation complete • Wayside works are
Slide 60: Delivering productivity improvements across the Group
59 Delivering productivity improvements across the Group For personal use only Advanced World-class asset technology Energy productivity management deployment - Increased truck - Optimised asset servicing utilisation by 14% - Transparent energy - Standardised measurement - ADS availability +10% main
Slide 61: Advancing productivity through the Mine of the Future programme
60 Advancing productivity through the Mine of the Future™ programme For personal use only Technologies developed include: • Autonomous trucks • AutoHaul® • Advanced analytics • Resistate indicator minerals • RTVis™ / Mine Automation RTVis™ Haul Truck Wheel Changer Haul Truck Wheel Changer System • T
Slide 62: Big data analytics manages risk and reduces costs
61 Big data analytics manages risk and reduces costs For personal use only 900 haul trucks Cloud based 4.9 Tb data per day advanced neural networks Target run- Actual Run- Deferred time (hrs) time (hrs) spend Engine 1 RTIO 25,000 27,867 $61,927 Predictive Engine 2 RTIO 25,000 30,022 $108,475 analyti
Slide 63: T&I delivers significant value
62 T&I delivers significant value For personal use only World-class projects World-class productivity • Best-in-class project portfolio • Group-wide deployment of world World-Class Projects World-Class Productivity class technologies and productivity platforms • High-quality investment options • Lea
Slide 64: Summary
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation For personal use only Summary Andrew Harding, chief executive, Iron Ore
Slide 65: Best performing iron ore business
64 Best performing iron ore business For personal use only Our priority is the safety and wellbeing of our people Tier one assets and tier one people Creating value through technology and innovation Embedding a culture of constant improvement Clear strategy that will deliver value through the cycle
Slide 66: Appendix
3 September 2015 Economics & Markets Iron Ore Sales & Marketing Technology & Innovation For personal use only Appendix
Slide 67: Mineral Resources and Ore Reserves
66 Mineral Resources and Ore Reserves For personal use only Pilbara resources, reserves and production Drilling Million tonnes (LHS, dry; RHS, wet) Metres 25,000 300 700,000 600,000 20,000 500,000 225 400,000 15,000 300,000 150 200,000 10,000 100,000 0 75 2006 2007 2008 2009 2010 2011 2012 2013 2014
Slide 68: The Pilbara - a fully integrated system
67 The Pilbara - a fully integrated system • +12,500 workforce For personal use only • 15 mines • 1,700kms rail • 4 port terminals • 3 power stations • 360 trucks • 39 production drills • 190 locomotives ©2015, Rio Tinto, All Rights Reserved
Slide 69: Rio Tinto share of shipments reconciliation
68 Rio Tinto share of shipments reconciliation For personal use only Calculation of Rio Tinto share of Pilbara shipments kt Rio Tinto Iron Ore Global Sales 122,672 Less: IOC Concentrate (1,530) Less: IOC Pellets (2,806) Rio Tinto Iron Ore Pilbara Sales 118,336 Adjustment to increase Robe River Mines