Rio Tinto Plc · LSE:RIO
Rio Tinto — H1 2006 Earnings Presentation
54 slides from Rio Tinto's earnings presentation, Aug 3, 2006
Slide 1: 2006 Half Year Results Presentation
2006 Half Year Results Presentation 3 August 2006 1 2006 Half Year Results Presentation 3 August 2006
Slide 2: Cautionary statement
Cautionary statement For the purposes of the Forward-Looking Statements Safe Harbor provisions of the US securities laws This presentation contains statements which constitute forward-looking statements within the meaning of the US securities laws. Such statements include, but are not limited to, st
Slide 3: Paul Skinner
Paul Skinner 3 2006 Half Year Results Presentation 3 August 2006
Slide 4: Presentation outline
Presentation outline Paul Skinner Results and outlook Leigh Clifford Overview of performance Guy Elliott Financial results Leigh Clifford Projects Questions 4 2006 Half Year Results Presentation 3 August 2006
Slide 5: Record first half earnings
Record first half earnings 5,000 $m H1 H1 2005 2006 4,000 Underlying 2,087 3,751 +80% 3,000 earnings 2,000 Excluded 78 45 1,000 items 0 Net 2,165 3,796 +75% 2003 2004 2005 2006 earnings H2 underlying earnings ($m ) H1 underlying earnings ($m ) Data for 2003 are adjusted earnings under UK GAAP, from
Slide 6: Highlights of first half 2006
Highlights of first half 2006 • Underlying earnings of $3.75 billion, up 80% • Cash flow from operations of $5.2 billion, up 52% • Capital investment of $1.8 billion, up 58% • Capital management programme of $4 billion ahead of schedule • $1.5 billion special dividend paid to shareholders • $1.0 bil
Slide 7: China
China • Chinese growth remains very strong • Well positioned with a growing customer base • Demand trends are very positive • Ensuring supply capability to meet customer demand 7 2006 Half Year Results Presentation 3 August 2006
Slide 8: Outlook
Outlook • Interest rates and political events leading to increased volatility but… • …global growth continues to be robust • Supply side constraints continue • Demand prospects remain favourable 8 2006 Half Year Results Presentation 3 August 2006
Slide 9: Leigh Clifford
Leigh Clifford 9 2006 Half Year Results Presentation 3 August 2006
Slide 10: Earnings strengthen across the board
Earnings strengthen across the board H1 2005 H1 2006 4,000 Diamonds +14% 3,000 Ind. Minerals +10% Aluminium +82% $m 2,000 Energy +23% Iron Ore +40% 1,000 Copper +140% 0 H1 2005 H1 2006 Product group underlying earnings 10 2006 Half Year Results Presentation 3 August 2006
Slide 11: Record production levels at many operations
Record production levels at many operations • Record capital investment is delivering additional capacity • Operations are running at full stretch • Focus on managing impact of industry wide cost pressures • Shortages continue, including skilled people • IPT is bringing benefits through consistently
Slide 12: EBIT margins improve again
EBIT margins improve again 50 40 30 % 20 10 0 2003 2004 2005 H1 2006 Group EBIT as a percentage of gross turnover Data for 2003 are under UK GAAP, from 2004 data are under IFRS 12 2006 Half Year Results Presentation 3 August 2006
Slide 13: Copper
Copper • Very strong copper market 80 • Co-products remain strong 60 • Operations performing well – KUC and Northparkes stand out 40 – Escondida • Norte makes a contribution 20 • Sulphide Leach started up in June 0 – Palabora block cave going well 2004 2005 H1 06 Product Group – Lower grades at Gras
Slide 14: Leveraging moly market strength
Leveraging moly market strength 1000 Copper and Moly Sales at KUC: 2003 - H1 2006 800 Moly Prices Production and Prices indexed 600 (2002 =100) 400 200 0 2003 2004 2005 H1 2006 14 2006 Half Year Results Presentation 3 August 2006
Slide 15: Leveraging moly market strength
Leveraging moly market strength 1000 Copper and Moly Sales at KUC: 2003 - H1 2006 800 Moly Prices Production and Prices indexed 600 (2002 =100) 400 Moly Sales 200 0 2003 2004 2005 H1 2006 15 2006 Half Year Results Presentation 3 August 2006
Slide 16: Leveraging moly market strength
Leveraging moly market strength 1000 Copper and Moly Sales at KUC: 2003 - H1 2006 800 Moly Prices Production and Prices indexed 600 (2002 =100) 400 Moly Sales 200 Copper Sales 0 2003 2004 2005 H1 2006 16 2006 Half Year Results Presentation 3 August 2006
Slide 17: Iron Ore
Iron Ore 60 • Demand remains strong • 2006 price settlement reflects fundamentals 40 • Production recovered from cyclones early in the year 20 • Expansion projects are on track • Hope Downs construction is under way 0 2004 2005 H1 06 • Simandou mining concession signed in April Product Group • HIsme
Slide 18: Energy
Energy 30 • Thermal coal prices remain strong in Pacific Basin and North America 20 • Powder River Basin rail capacity improves • Spring Creek and Antelope mines are being 10 expanded • Clermont moves towards approval 0 • Uranium market continues to strengthen 2004 2005 H1 06 • Progress continues on
Slide 19: Aluminium
Aluminium 40 • Stronger aluminium market • Investment continues in Weipa capacity 30 • Comalco Alumina Refinery at over 90% 20 capacity • CAR II is under evaluation 10 • Smelters are performing well 0 • Seeking greenfield smelting opportunities 2004 2005 H1 06 and alumina alliances Product Group EBI
Slide 20: Seizing smelter development opportunities
Seizing smelter development opportunities • Exciting greenfield smelting opportunity in Abu Dhabi • Leveraging strong upstream position and technical / commercial skills • Pre feasibility study under way • Stage 1: 550,000 to 700,000 tonne capacity range envisaged • 50/50 partnership with General Ho
Slide 21: Diamonds
Diamonds 50 • Underground development at Argyle 40 and Diavik advances 30 • Diavik A418 dyke project is ahead of 20 schedule 10 • Airlift overcomes ice road challenges 0 • Argyle recovered from heavy rains 2004 2005 H1 06 earlier in the year Product Group EBIT margin in % 21 2006 Half Year Results P
Slide 22: Industrial Minerals
Industrial Minerals 20 • UGS ramps up 15 • Madagascar project construction under way 10 • TiO2 market in reasonable balance, co-products remain strong 5 • Rio Tinto Minerals structure is delivering 0 2004 2005 H1 06 • Potasio Rio Colorado progressing Product Group EBIT margin in % 22 2006 Half Year
Slide 23: Operational summary
Operational summary • Challenging operating environment early in the year • Operations performing consistently well • Substantial investment programme to add capacity • Growth projects remain on track 23 2006 Half Year Results Presentation 3 August 2006
Slide 24: Guy Elliott
Guy Elliott 24 2006 Half Year Results Presentation 3 August 2006
Slide 25: Strong markets lift earnings
Strong markets lift earnings 4,000 7 -79 3,000 1,804 $m 2,000 3,819 1,000 2,087 0 2005 H1 Prices Fx Inflation 25 2006 Half Year Results Presentation 3 August 2006
Slide 26: Copper dominates price effect
Copper dominates price effect Traded metals Other products 1,006 r 1,000 pe op C $m re O n s 600 Iro al um te er xi gy i in in 396 au M er m /B lu En ds l ria A on a d st in ol m du 217 207 m G ia lu In 200 D A 110 er 18 18 y 25 th ol O M -200 -97 -96 Earnings impact from price $1,804 million 26 200
Slide 27: Volumes up but impacted by weather
Volumes up but impacted by weather 7 -79 129 4,000 3,000 1,804 $m 2,000 3,819 1,000 2,087 0 2005 H1 Prices Fx Inflation Volumes 27 2006 Half Year Results Presentation 3 August 2006
Slide 28: Copper and moly benefit from investment and grades
Copper and moly benefit from investment and grades 200 $m 100 Volume contribution to earnings +$129m 0 Copper Moly Gold Iron ore Coal Diamonds Other Total 171 67 -79 30 -43 -15 -2 129 28 2006 Half Year Results Presentation 3 August 2006
Slide 29: Industry cost pressures increase
Industry cost pressures increase 4,000 7 -79 129 -71 -386 -56 3,000 1,804 $m 2,000 3,819 1,000 2,087 0 2005 H1 Prices Fx Inflation Volumes Non Cash Energy Cash Costs 29 2006 Half Year Results Presentation 3 August 2006
Slide 30: Cost impact on underlying earnings
Cost impact on underlying earnings Investing / Energy Input Prices Cost of Prod’n Exploration Expansion 0 $m -50 -100 -150 -200 -250 Investment costs +$99m Common industry costs +$343m -300 30 2006 Half Year Results Presentation 3 August 2006
Slide 31: Cost impact on underlying earnings
Cost impact on underlying earnings Investing / Energy Input Prices Cost of Prod’n Exploration Expansion 0 $m -50 -100 -150 Grade Contractors -200 Labour -250 Weather Investment costs +$99m Maintenance Common industry costs +$343m -300 Other 31 2006 Half Year Results Presentation 3 August 2006
Slide 32: 'Other' benefits from recognition of US deferred tax asset
‘Other’ benefits from recognition of US deferred tax asset 4,000 7 -79 129 -71 -386 -56 316 3,000 1,804 $m 2,000 3,819 3,751 1,000 2,087 0 2005 H1 Prices Fx Inflation Volumes Non Cash Energy Other 2006 H1 Cash Costs 32 2006 Half Year Results Presentation 3 August 2006
Slide 33: No significant asset sales in 'Excluded Items'
No significant asset sales in ‘Excluded Items’ 4,000 7 -79 129 -71 45 -386 -56 316 3,000 1,804 $m 2,000 3,751 3,819 3,796 1,000 2,087 0 2005 H1 Prices Fx Inflation Volumes Non Cash Energy Other 2006 H1 Excl’d Net Cash Costs Items Earnings 33 2006 Half Year Results Presentation 3 August 2006
Slide 34: Operational cash flow strengthens in H1
Operational cash flow strengthens in H1 Dividends from JCEs & associates H2 Cash flow from 8,000 consolidated operations H1 Cash flow from 6,000 consolidated operations $m 4,000 2,000 0 2003 2004 2005 H1 06 Cash flow from consolidated operations excludes cash flows relating to capital expenditure, a
Slide 35: Balance sheet remains strong
Balance sheet remains strong Net debt Net debt / total capital (%) 7,000 Interest cover (times) 100 90 6,000 80 5,000 70 $m 4,000 60 50 3,000 40 2,000 30 20 1,000 10 0 0 93 94 95 96 97 98 99 00 01 02 03 04 05 H1 06 Net debt, interest cover and gearing ratios are as at the period ending 31 December,
Slide 36: More cash to investment, shareholders and tax
More cash to investment, shareholders and tax 7,000 H1 2005 H1 2006 6,000 Buyback $1.1 bn 5,000 Dividends $2.0 bn 4,000 (ordinary plus special) $m 3,000 Capex $1.8 bn 2,000 1,000 Tax $1.6 bn 0 Cash Cash Cash Cash Inflows Outflows Inflows Outflows 36 2006 Half Year Results Presentation 3 August 2006
Slide 37: Capital management status
Capital management status • Special dividend of $1.5 billion was paid in April • Interim ordinary dividend set at 50% of 2005 full year rate • Final ordinary dividend level is under review for the full year • $2.5 billion share buyback over two years is ahead of schedule • Assessment of further init
Slide 38: Leigh Clifford
Leigh Clifford 38 2006 Half Year Results Presentation 3 August 2006
Slide 39: Construction projects will increase volumes
Construction projects will increase volumes Diavik A418 dyke Capex over $1bn UGS expansion Capex from $500m to $1bn PRB coal Capex less than $500m Cortez Hills expansions gold KUC Boric acid pushback Big Gossan expansion Weipa portal Kennecott land projects Madagascar TiO2 Hail Creek Argyle expansio
Slide 40: Numerous conceptual and early stage projects
Numerous conceptual and early stage projects Capex over $1bn Capex from $500m to $1bn Capex less than $500m Sari Gunay Eagle nickel gold Resolution Abu Dhabi copper smelter La Sampala Murowa nickel expansion La Granja Peru Clermont Simandou coal Corumbá iron ore Hail Creek Expansions expansion + Fur
Slide 41: Numerous conceptual and early stage projects
Numerous conceptual and early stage projects Alaska copper / Capex over $1bn Pebble Diavik IOC pellet Capex from $500m to $1bn plant + underground Capex less than $500m US coal Sari Gunay Unspecified Kennecott Eagle nickel gold land Orissa iron Abu Dhabi ore Resolution copper smelter Deep Cortez Ken
Slide 42: Exploration is generating projects in new regions
Exploration is generating projects in new regions Core countries Emerging programmes Under review No present interest
Slide 43: Iron Ore infrastructure capacity to 200 million tonnes is under way
Iron Ore infrastructure capacity to 200 million tonnes is under way • Port and rail expansions on schedule • Total infrastructure capacity of 200 million tonnes in 2008 • Further expansion of Cape Lambert is under review • Envisaging next phase to 220 million tonnes 43 2006 Half Year Results Present
Slide 44: Iron Ore mine development continues
Iron Ore mine development continues • Mines being expanded to meet demand • Nammuldi completed on time and budget • Other brownfield expansions progressing • Yandi to 52 million tonnes is under way • Construction has started on Hope Downs 44 2006 Half Year Results Presentation 3 August 2006
Slide 45: Construction has started on Madagascar project
Construction has started on Madagascar project • Project on schedule • World Bank involvement • Port contract soon to be awarded • First production is due at the end of 2008 • First phase 750,000 tonnes of ilmenite per annum by 2012 • Will fill supply gap anticipated post 2009 45 2006 Half Year Resu
Slide 46: Potasio Rio Colorado is progressing
Potasio Rio Colorado is progressing • Large resource • In feasibility study • Solution mining trials progressing well • Approximately 5% of global potash supply • Would be first major potash producer in southern hemisphere • Competitive position for Brazilian market 46 2006 Half Year Results Present
Slide 47: La Granja – a very large copper orebody
La Granja – a very large copper orebody • 2 billion tonne mineralisation • Grade is 0.6% copper • Potential large, long life operation • Innovation through technology • Order of magnitude study under way 47 2006 Half Year Results Presentation 3 August 2006
Slide 48: Summary
Summary • Weather related operational challenges • Good operational performance in strong markets is delivering record cash flows • Record capital expenditure on organic growth options • Expansion projects in different regions are on track • Demand outlook remains positive • Total focus on performan
Slide 49: 2006 Half Year Results Presentation
2006 Half Year Results Presentation 3 August 2006 49 2006 Half Year Results Presentation 3 August 2006
Slide 50: Changes in underlying earnings
HANDOUT Changes in underlying earnings $millions H1 2005 Selling Exchange Inflation Sales Costs Tax & H1 2006 prices rates vols other Iron ore 681 396 (8) (9) 30 (152) 17 955 Energy 307 207 10 (27) (40) (111) 31 377 Industrial Minerals 124 18 (10) (4) 2 (20) 27 137 Aluminium 203 242 10 (22) (2) (52)
Slide 51: Exchange rate effects balance out
HANDOUT Exchange rate effects balance out 45 35 Earnings impact +$7 million 25 $m 15 A$ C$ Rand NZ$ Ch peso Other 5 41 (24) 4 3 (4) (13) -5 -15 -25 -35 Total non A$ (34) 51 2006 Half Year Results Presentation 3 August 2006
Slide 52: Variance analysis methodology
HANDOUT Variance analysis methodology • Price = Change in commodity price x prior year sales volumes • Exchange = (Change in exchange rates x Prior year cost of sales) + Relative movements in exchange gains and losses on working capital • Inflation = Inflation rate x Prior year cash cost of sales •
Slide 53: Earnings reconciliations (handout only)
Earnings reconciliations (handout only) Palabora US$m Earnings per Palabora press release (R258m) 42 Add interest and fx gain/loss on debt shown centrally by Rio Tinto 39 Less: minority interest (53.6%) (43) Underlying earnings as reported by Rio Tinto 38 Coal & Allied Earnings per Coal & Allied pre
Slide 54: Analysis of interest
HANDOUT Analysis of interest Six months ended 30 June US$ millions H106 H105 Per cash flow statement Interest received 67 23 Interest paid (116) (90) Net interest per cash flow (49) (67) Interest capitalised 11 15 Change in accruals (2) (9) Subsidiary interest per Income Statement (40) (61) Taxation