Rio Tinto Plc · LSE:RIO
Rio Tinto — Investor Day (October 2012)
56 slides from Rio Tinto's investor day presentation, Oct 10, 2012
Slide 1: ASX cover letter for investor seminar presentation
Rio Tinto Limited 120 Collins Street Melbourne 3000 Australia Postal Address: GPO Box 384D Melbourne 3001 Australia T +61 (0) 3 9283 3333 F +61 (0) 3 9283 3707 For personal use only ASX Market Announcements Australian Securities Exchange SYDNEY NSW 2000 10 October 2012 Attached is a presentation giv
Slide 2: Investor seminar London / New York, 9 October 2012
For personal use only Oyu Tolgoi, Mongolia Investor seminar London / New York 9 October 2012
Slide 3: Cautionary statement
©2012, Rio Tinto, All Rights Reserved 2 Cautionary statement For personal use only This presentation has been prepared by Rio Tinto plc and Rio Tinto Limited (“Rio Tinto”) and consisting of the slides for a presentation concerning Rio Tinto. By reviewing/attending this presentation you agree to be b
Slide 4: Tom Albanese, Chief executive
3 For personal use only Tom Albanese Chief executive
Slide 5: Agenda
©2012, Rio Tinto, All Rights Reserved 4 Agenda For personal use only Introduction, outlook and strategy Tom Albanese Capital allocation and performance Guy Elliott Technology & Innovation Preston Chiaro Break Copper Andrew Harding Summary Tom Albanese Q&A
Slide 6: Safety remains our core value
©2012, Rio Tinto, All Rights Reserved 5 Safety remains our core value For personal use only Injury frequency rates 2003 – Aug 2012 Per 200,000 hours worked 2.0 All injury frequency rate 1.8 Lost time injury 1.6 frequency rate 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 Aug- 1
Slide 7: Overview
©2012, Rio Tinto, All Rights Reserved 6 Overview For personal use only • Short term outlook is uncertain and volatile • Focus on balance sheet discipline and single A credit rating • Strong operational performance under tough conditions • Significant reductions in operating and evaluation costs and
Slide 8: Short term market uncertainty and volatility continue
©2012, Rio Tinto, All Rights Reserved 7 Short term market uncertainty and volatility continue For personal use only Synchronised slowdown underway • Continued deleveraging and Purchasing Managers Index – Manufacturing 65 austerity in OECD Above 50 = Expansion 60 55 • Rate of growth in our markets in
Slide 9: The long term demand outlook remains attractive
©2012, Rio Tinto, All Rights Reserved 8 The long term demand outlook remains attractive For personal use only Global commodity demand trajectories • ~2 billion additional people to Index (2012 = 100) urbanise by 2030 200 • Global steel consumption expected to grow by 2 per cent per annum 180 • China
Slide 10: Continued urbanisation will drive Chinese steel demand growth
©2012, Rio Tinto, All Rights Reserved 9 Continued urbanisation will drive Chinese steel demand growth For personal use only Total steel demand over respective 20-year period • Significant urbanisation to continue (tonnes per capita) • China’s cumulative steel US 1960-80 consumption per capita remain
Slide 11: The industry supply response is increasingly challenged
©2012, Rio Tinto, All Rights Reserved 10 The industry supply response is increasingly challenged For personal use only Local Chinese iron ore supply is working harder • ~100 million tonnes of mostly 80% Chinese iron ore production is 60% unprofitable today 40% • Evidence that a large proportion of 2
Slide 12: Our fundamental strategy is consistent and unchanged
©2012, Rio Tinto, All Rights Reserved 11 Within this context, our fundamental strategy is consistent and unchanged For personal use only • To maximise total shareholder return by sustainably finding, developing, mining and processing natural resources • Invest in and operate large, long term, cost c
Slide 13: Strategy focussed on finding, developing and operating tier one assets
©2012, Rio Tinto, All Rights Reserved 12 Our strategy is focussed on finding, developing and operating tier one assets For personal use only Higher 10.00 Tier 1 expandability 9.00 8.00 Implement operating Grow and protect enhancements Focus of new investment 7.00 6.00 Optionality/ expandability/ 5.0
Slide 14: Constant steps to improve the quality of the portfolio
©2012, Rio Tinto, All Rights Reserved 13 We are taking constant steps to improve the quality of the portfolio For personal use only Higher 10.00 expandability Leveraged Tier 1 plays 9.00 8.00 7.00 6.00 Optionality 5.00 4.00 3.00 2.00 Marginal Cash 1.00 cows Lower assets expandability 0.00 Higher 0.0
Slide 15: A clear and consistent strategy
©2012, Rio Tinto, All Rights Reserved 14 A clear and consistent strategy For personal use only • The long term demand outlook remains attractive • Post GFC effects continue to drive short term market uncertainty and volatility • Increasingly delayed industry supply side response • Rio Tinto’s fundam
Slide 16: Guy Elliott, Chief financial officer
15 For personal use only Guy Elliott Chief financial officer
Slide 17: Balancing investment with shareholder returns and a prudent balance sheet
©2012, Rio Tinto, All Rights Reserved 16 Balancing value adding investment with returns to shareholders and a prudent balance sheet For personal use only • Prudent balance sheet and single A credit rating in a volatile environment Cash from operations • Progressive dividend provides sustainable long
Slide 18: Integrated strategy and planning sets capital framework
©2012, Rio Tinto, All Rights Reserved 17 Integrated strategy and planning process sets the key elements of our capital framework For personal use only Existing capital Capital commitments, planned Single A Progressive credit rating dividend boundaries divestments Integrated • Set strategic framework
Slide 19: Investment themes and evaluation criteria drive investment approach
©2012, Rio Tinto, All Rights Reserved 18 Distinctive strategic investment themes and standard evaluation criteria drive our investment approach For personal use only Board / Exco Macro-economic Develop investment Jurisdiction themes Sector “sieves” • Market size, demand • Competitive advantage • Per
Slide 20: Capital allocation process ensures good decisions
©2012, Rio Tinto, All Rights Reserved 19 Our capital allocation process ensures we are making good decisions For personal use only Develop investment themes Investment Committee Set Project Opportunity review Board evaluation criteria development and Final decision ranking Set ranking criteria
Slide 21: Capital expenditure prioritised on highest quality projects
©2012, Rio Tinto, All Rights Reserved 20 Capital expenditure is being prioritised on the highest quality projects For personal use only Approved1 capital expenditure • Capex programme managed within US$ billions limits of target single A credit rating 18 • Rio Tinto’s proportionate share of 16 2012
Slide 22: Shaping the portfolio in line with our strategy
©2012, Rio Tinto, All Rights Reserved 21 Shaping the portfolio in line with our strategy For personal use only • Capturing value from assets that no longer fit our strategy − >20 divestments worth a total of $12bn completed since 2008 − Various strategic review and divestment processes underway Sign
Slide 23: Prudent balance sheet management
©2012, Rio Tinto, All Rights Reserved 22 Prudent balance sheet management For personal use only Proforma gross debt maturity profile at 30 June • Aim to maintain a single A credit 20121 (US$bn) rating 5.5 • Long term and smooth debt maturity 5.0 profile 4.5 4.0 • Weighted average maturity of 3.5 ove
Slide 24: Strong operational performance; further cost reductions planned
©2012, Rio Tinto, All Rights Reserved 23 Strong operational performance; further significant cost reductions planned For personal use only EBITDA margin by product Australian capital cost inflation 2012 first six calendar months (2000 = 100) 80% 190 70% Rio Tinto 180 60% Peer group 170 Typical Mine
Slide 25: A disciplined approach to capital allocation
©2012, Rio Tinto, All Rights Reserved 24 A disciplined approach to capital allocation For personal use only • Prudent balance sheet and single A credit rating in a volatile environment • Clearly defined approach to capital allocation • Investment programme focused on the highest quality opportunitie
Slide 26: Preston Chiaro, Technology and Innovation
25 For personal use only Preston Chiaro Group Executive, Technology and Innovation
Slide 27: Technology and Innovation makes Rio Tinto operations best in sector
©2012, Rio Tinto, All Rights Reserved 26 Technology and Innovation makes Rio Tinto operations best in sector For personal use only T&I partners with, supports, and challenges Rio Tinto Product Groups and functions to deliver industry leading performance in strategically critical areas, including: Op
Slide 28: Optimising operating assets for industry leading performance
©2012, Rio Tinto, All Rights Reserved 27 Optimising our operating assets to achieve industry leading performance For personal use only • World leading centralised model of technical expertise • Distinctive capabilities and unique processes in critical disciplines • Strategic Production Planning grou
Slide 29: Standardised global asset management drives down costs
©2012, Rio Tinto, All Rights Reserved 28 Standardised global asset management processes drive down costs For personal use only Pre-tax cash flow cumulative savings from • Improve the performance of physical better Asset Management (US$m) assets 1600 • Global metrics for standardised 1400 reporting a
Slide 30: Unique processes and systems deliver value
©2012, Rio Tinto, All Rights Reserved 29 Unique processes and systems deliver value For personal use only Haul truck availability • Increased haul truck availability has (%) resulted in 18 trucks not being 88% 1000 required 950 • T&I has supported improvement 87% 900 through standardised metrics 86%
Slide 31: Improved performance of critical assets reduces costs
©2012, Rio Tinto, All Rights Reserved 30 Improved performance of critical assets reduces operating costs For personal use only Mean time between failures • Mean Time Between Failures (MTBF) Haul Truck MTBF (Utilised Hours) is an indicator of reliability...how often 70 does an asset breakdown 65 60 •
Slide 32: Centralised major projects capabilities share best practice
©2012, Rio Tinto, All Rights Reserved 31 Centralised major projects capabilities shares best practice For personal use only Achieve repeatable success on major projects: Central capability supports Product Groups • Consistent methodologies lowers project costs • Regional and commodity based delivery
Slide 33: We drive step change innovation
©2012, Rio Tinto, All Rights Reserved 32 We drive step change innovation For personal use only Our Mine of the Future™ is shaped by four significant value levers Find Develop Mine Recover • Find future tier one • Develop future block • Optimise resource • Recover more from ore bodies cave mines safe
Slide 34: Rio Tinto innovation network model
©2012, Rio Tinto, All Rights Reserved 33 Rio Tinto innovation network model For personal use only Technology partnerships 1 Komatsu 2 Aker Wirth 3 Atlas Copco 4 e2v 5 3 5 Tomra 4&6 6 University of Nottingham 2 2&8 1 7 University of Western Australia 5 8 Herrenknecht 8 1 9 Río de Cobre 6 Centres of E
Slide 35: Systematic approach to innovation
©2012, Rio Tinto, All Rights Reserved 34 Systematic approach to innovation For personal use only Proof of Idea Pilot Demo Deploy Support Concept • Structured control and governance • Data management and security • Rigorous investment proposals • Freedom-to-operate • Patent families and walls • Trade
Slide 36: T&I is central to managing technical risk
©2012, Rio Tinto, All Rights Reserved 35 T&I is central to managing technical risk For personal use only An integral part of our risk management and capital allocation Activities and groups involved include: • Technical guidance and due diligence of investment opportunities • Support of resource and
Slide 37: Summary
©2012, Rio Tinto, All Rights Reserved 36 Summary For personal use only T&I partners with, supports, and challenges Rio Tinto Product Groups and functions to deliver industry leading performance in strategically critical areas, including: Operational Optimising our operating assets Improvement Major
Slide 38: Oyu Tolgoi, Mongolia Investor seminar
For personal use only Oyu Tolgoi, Mongolia Investor seminar London / New York 9 October 2012
Slide 39: Andrew Harding, Chief executive, Copper
For personal use only Oyu Tolgoi, Mongolia Andrew Harding Chief executive, Copper
Slide 40: Long-term demand drivers remain positive
©2012, Rio Tinto, All Rights Reserved 39 Long-term demand drivers remain positive For personal use only Electrification of large emerging markets While sectors such as automotive have significant will support demand growth potential Per capita electricity consumption (GWh/capita) 1970-2010 Passenger
Slide 41: Declining grades and mine closures impact supply
©2012, Rio Tinto, All Rights Reserved 40 Declining grades and mine closures impact supply For personal use only 1.8Mt production loss between 2012-2016 Continued project development is necessary to meet due to closures medium term demand Copper mine supply-demand outlook (Mt) 2012 322 40 2013 144 35
Slide 42: Higher grades improve unit cost and business performance
©2012, Rio Tinto, All Rights Reserved 41 Higher grades improve unit cost and business performance compared to 2012 For personal use only Production profile – Rio Tinto share • Over 13% CAGR in copper to 2015 2012–2015 production forecast • Production impacted by Kt Cu/ Koz Au unfavourable grades and
Slide 43: Oyu Tolgoi, a world class copper business
©2012, Rio Tinto, All Rights Reserved 42 Oyu Tolgoi, a world class copper business For personal use only • Tier one asset with first quartile net unit cash costs • Average annual production of 425kt of copper and 460koz of gold • Underground reserves of 437mt at 1.9% copper and 0.42 g/t gold with op
Slide 44: Countdown to first production at Oyu Tolgoi
©2012, Rio Tinto, All Rights Reserved 43 Countdown to first production at Oyu Tolgoi For personal use only • Project over 97% complete Timeline Event from Power • Sales contracts for 75% of concentrate in place First ore through SAG mill 6 weeks • Physical construction of all power First concentrate
Slide 45: The next phase will take Oyu Tolgoi underground
©2012, Rio Tinto, All Rights Reserved 44 The next phase will take Oyu Tolgoi underground For personal use only • DIDOP feasibility study H1 2013 • Optimising production schedule through use of Strategic Production Planning • First production planned for 2016 and completed by 2018 • Operating rates u
Slide 46: Kennecott 100% owned, large, long life, low cost
©2012, Rio Tinto, All Rights Reserved 45 Kennecott 100% owned, large, long life, low cost For personal use only • Unit costs reduced by gold, silver and molybdenum by-products • US$660m approved for additional HME and facilities to extend mine life to 2029 − 515mt of ore at 0.79% CuEq − Unit cost pe
Slide 47: Alternatives for Kennecott underground development
©2012, Rio Tinto, All Rights Reserved 46 Alternatives for Kennecott underground development are being considered For personal use only Kennecott resource • US$165m approved for North Rim Skarn pre-feasibility studies to 2014 development • Continued focus on evaluating underground options Conceptual
Slide 48: Phased development at La Granja
©2012, Rio Tinto, All Rights Reserved 47 Unlocking value through phased development at La Granja For personal use only • +40 year mine life with phased approach to development • Starter mine in pre-feasibility with first production in 2017 − Significant capital investment delayed until after first p
Slide 49: Resolution a major future underground operation
©2012, Rio Tinto, All Rights Reserved 48 Resolution a major future underground operation For personal use only • Drilling continues to confirm a world class orebody − 1.47% copper with significant molybdenum • Land exchange bill approved in US House of Representatives • Progressed shaft 9 and 10 dev
Slide 50: Investment for organic growth in our operations
©2012, Rio Tinto, All Rights Reserved 49 Investment for organic growth in our operations For personal use only Escondida Grasberg • Improved recovery through advancing • Investment in the transition to a major leaching technology, productivity underground operation with planned improvements and debo
Slide 51: Technology and capability key to delivering our strategy
©2012, Rio Tinto, All Rights Reserved 50 Technology and capability key to delivering our strategy For personal use only Copper NuWave™ (ore sorting technology) Tunnel Boring Machine • Plant constructed and • Commissioning at NPM pilot underway • Potential to reduce • Increased concentrator Undergrou
Slide 52: Focused profitable growth and operational excellence
©2012, Rio Tinto, All Rights Reserved 51 Focused profitable growth and operational excellence For personal use only • Confidence in industry fundamentals • Best copper assets in the business • High quality and diverse portfolio • Margin delivery through cost discipline and operational performance •
Slide 53: Tom Albanese, Chief executive
52 For personal use only Tom Albanese Chief executive
Slide 54: Our fundamental strategy is consistent and unchanged
©2012, Rio Tinto, All Rights Reserved Our fundamental strategy is consistent and unchanged For personal use only • To maximise total shareholder return by sustainably finding, developing, mining and processing natural resources • Invest in and operate large, long term, cost competitive mines and ass
Slide 55: Executing our strategy
©2012, Rio Tinto, All Rights Reserved 54 Executing our strategy For personal use only • Long term industry fundamentals remain attractive • Rio Tinto’s strategy remains unchanged – large, long life, low cost assets • Disciplined and rigorous capital allocation and prioritisation • Strong operational
Slide 56: Oyu Tolgoi, Mongolia Investor seminar
For personal use only Oyu Tolgoi, Mongolia Investor seminar London / New York 9 October 2012