Rio Tinto Plc · LSE:RIO
Rio Tinto — Investor Day (December 2016)
77 slides from Rio Tinto's investor day presentation, Dec 6, 2016
Slide 1: Investor Seminar
Investor Seminar 6 December 2016 London
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 30 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: Investor Seminar – J-S Jacques, Chief executive
Investor Seminar 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 $5.3 billion of disposals since 2013 Incubator for new minerals and projects 1 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 $5 billion of free cash flow in productivity improvements over five years Value Chain Exploration Major projects Mining Asset Processing Infrastructure Marketing management Broadening our cost saving programme to include productivity Opportunity to Opportunity to Opportunity to impro
Slide 13: Protecting our licence to operate
Protecting our licence to operate Exploration Closure and rehabilitation Operations ©2016, Rio Tinto, All Rights Reserved 13
Slide 14: Developing our people and capabilities
Developing our people and capabilities Building capabilities Technical excellence Commercial excellence ©2016, Rio Tinto, All Rights Reserved 14
Slide 15: Focusing on value over volume
Focusing on value over volume Revenue Price impact of incremental tonnes Protecting quality Capex Maximising free Sustaining cash flow through the cycle Replacement Operating cost Growth Unit cost Impact on cost base ©2016, Rio Tinto, All Rights Reserved 15
Slide 16: Consistent delivery of value
Consistent delivery of value Long-term strategy Cash focus Capital discipline and shareholder returns Team and performance culture ©2016, Rio Tinto, All Rights Reserved 16
Slide 17: Investor Seminar – Chris Lynch, Chief financial officer
Investor Seminar Chris Lynch Chief financial officer
Slide 18: Generating significant returns for shareholders
Generating significant returns for shareholders Consistently high margins despite lower revenues Disciplined allocation of cash EBITDA margin and gross revenue 2013 – H1 2016 Cash flows 2013 – H1 2016 ($ 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 1 Essential sustaining capex 2 Ordinary dividends Further cash Compelling 3 returns to growth Iterative shareholders cycle of ~$10 billion Debt management 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 growth 23.6 35% 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 Proforma 31 October 2016 debt maturity profile 1 $6.0 billion of debt purchased or repaid with cash in $m H1 2016 3,000 $4.1 billion of Oyu Tolgoi Project Finance fully consolidated in H1 2016 2,000 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 – Chris Salisbury, Iron Ore
Delivering optimal value Chris Salisbury Chief executive, Iron Ore
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 1.0 – critical controls 12 month rol
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 are well placed with our product suite, including Pilbara Blend
…but we are well placed with our product suite, 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
Slide 30: 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 31: …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 31
Slide 32: 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 $1.2bn 25 -25% 138 371 20 15 359 10 5 323 0 Rio Tinto Peer 1 Peer 2 Peer 3 2013 2014 2015 H1 2016 1H 2016 cas
Slide 33: Replicating best practice drives greater value……
Replicating best practice drives greater value…… Haul Truck Effective Utilisation Plant Effective Utilisation Time %, indexed, Sept YTD, site comparison Time %, indexed, Sep YTD, site comparison 23% 1.23 17% 1.17 1.14 1.00 1.00 IO Manned Ave. IO Autonomous Ave. IO Best Autonomous IO Ave. IO Best Per
Slide 34: …as does productivity and technology
…as does productivity and technology Train dumping cycle time Train loading cycle time Indexed to 2015 monthly average Indexed to 2015 average High -6% Low 1.00 Avg 1.00 0.96 -46% variability 0.94 2015 2016 Sep YTD 2015 2016 Sep YTD AutoHaul® Current rail system Frequency Improves safety controls an
Slide 35: Installed infrastructure offers high-value optionality
Installed infrastructure offers high-value optionality Optimising system capacity Mt/a Production optionality Mine capacity can be delivered through productivity Mines Silvergrass and low capital brownfields pathway and productivity Rail capacity can be delivered through productivity, low capital in
Slide 36: Sustaining best value production
Sustaining best value production Low-cost brownfield mine expansions have dominated Pilbara mine capital intensity US$/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 37: 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$29/t Mine sustains Operating costs IRR >100%1 capital intensity (CI) Pilbara Blend quality significantly reduced 1IRR calculated using consensus iron ore prices at May
Slide 38: High-quality, low-cost options available to offset depletion
High-quality, low-cost options available to offset depletion Pilbara mine development options Multiple options leveraging existing infrastructure US$/t Installed capital intensity – West Angelas Deposit F and Yandi Oxbow Capital 120 Bubble size indicates capacity Intensity <$10/t; IRR >100%1 Brownfi
Slide 39: Sustaining best value production
Sustaining best value production Capital expenditure US$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 40: 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 41: 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 42: 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 43: Break
Break 6 December 2016 Al is.
Slide 44: Copper
Copper Arnaud Soirat Chief executive, Copper & Diamonds
Slide 45: Safety is our first priority
Safety is our first priority Continual improvement in safety Copper AIFR per 200,000 hours worked Continuous improvements in All Injury Frequency 1.6 Rate 1.4 1.2 Focus on fatality and catastrophic event prevention 1 – Embedding Critical Risk Management 0.8 – Process and Underground safety Balanced
Slide 46: Sector-leading attributes
Sector-leading attributes Robust long-term demand Attractive industry Constrained supply fundamentals Deficit expected towards end of decade Long-life, low-cost, expandable assets Large, high-quality Interest in three of the world’s Tier 1 copper mines resources Productivity & processing optimisatio
Slide 47: Rio Tinto well placed to benefit from copper's attractive long-term fundamentals
Rio Tinto well placed to benefit from copper’s attractive long-term fundamentals Copper supply/demand New projects have moved market into oversupply (million tonnes) driving short-term price volatility Surplus Deficit 25 Rio Tinto copper growth to be delivered into a supply deficient market Further
Slide 48: Strategy to deliver further value
Strategy to deliver further value Maximise value from existing operations Deliver medium-term growth Develop our people and progress long-term options & partnerships Unlock additional value through productivity initiatives ©2016, Rio Tinto, All Rights Reserved 48
Slide 49: Maximising value from existing operations
Maximising value from existing operations Kennecott truck productivity trends Strong culture of cost improvements $1 billion of cost reductions delivered since 2013 Cost performance helped deliver a H1 2016 EBITDA margin of 30% Further opportunities: – Contractor management and external optimisation
Slide 50: Kennecott – a simplified and reset business
Kennecott – a simplified and reset business Asset optimisation – Fully utilise excess smelter and refinery capacity with third party product South Wall push back underpins over a decade of high-quality cash flow Returns to higher grades from 2021 Operational excellence to maximise value – Overall im
Slide 51: Oyu Tolgoi - the leading Tier 1 copper project
Oyu Tolgoi - the leading Tier 1 copper project Underground development – unlocks the value of Oyu Tolgoi The highest quality, major copper project in development ~3x higher production using existing infrastructure Experienced project management team Highly capable and motivated workforce Long-life r
Slide 52: Non-managed interest in two of the world's best copper mines
Non-managed interest in two of the world’s best copper mines Escondida Grasberg Strong cash flows underpin dividends Contract of Work is a priority for the business No additional significant capex required for near Rio Tinto participation steps up to 40% in 2021 future Transition to underground to o
Slide 53: Future optionality for the Copper business
Future optionality for the Copper business Resolution Exploration Continue to advance permitting process Continued focus on copper exploration, primarily the Americas Strengthen licence to operate 16 copper exploration projects ongoing Complete pre-feasibility study by 2020 La Granja regional explor
Slide 54: Delivering medium-term growth and progressing long-term options
Delivering medium-term growth and progressing long-term options Supply surplus Supply deficit 2017 2018 2020 2021 2025-2030 Kennecott South push back underpins margin & volume increase Oyu Tolgoi HNL1 development to first production Ramp-up to ave. 560 ktpa copper production1 Escondida LCE & EWS2 ~1
Slide 55: Developing our people and our partnerships
Developing our people and our partnerships Working with our partners to improve safety Strengthening indigenous relationships Consulting with communities Building long-term sustainable relationships at Oyu Tolgoi – 93% local employment – Best in class for water efficiency – 85% of water recycled – 4
Slide 56: Takeaways
Takeaways Attractive industry fundamentals Sector-leading large, high-quality resources Maximising value from existing operations Delivering value-adding growth Developing our people & partnerships ©2016, Rio Tinto, All Rights Reserved 56
Slide 57: Growth & Innovation
Growth & Innovation Steve McIntosh Group executive, Growth & Innovation
Slide 58: 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 58
Slide 59: 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 60: 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 61: 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) $25 Number of discoveries 200 Expenditures (2015 US$b) Expenditures Expenditures (2015 real US$bn) $20 Incomple
Slide 62: 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 63: 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 64: 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 65: 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 66: 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 66
Slide 67: 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 67
Slide 68: Delivering value through technical excellence
Delivering value through technical excellence Technical 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 69: 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 70: 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 71: 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 72: J-S Jacques, Chief executive
J-S Jacques Chief executive 6 December 2016
Slide 73: 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 74: Investor Seminar
Investor Seminar 6 December 2016 London
Slide 75: Appendix
Appendix Al is.
Slide 76: Our five highly-valued iron ore products
Our five highly-valued iron ore 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 – Ideal chemical composi
Slide 77: 2017 guidance
2017 guidance Iron Ore: Pilbara shipments 330-340 Mt (100% basis) Aluminium: 48-50 Mt bauxite, 8.0-8.2 Mt alumina, 3.5-3.7 Mt aluminium Copper & Diamonds: 525-665 kt mined copper, 185-225 kt refined copper, 19-24 Mcts diamonds Coal: 17-18 Mt thermal, 3.3-3.9 Mt semi-soft coking, 7.8-8.4 Mt hard coki