Rio Tinto Plc · LSE:RIO
Rio Tinto — Investor Day (December 2015)
66 slides from Rio Tinto's investor day presentation, Dec 8, 2015
Slide 1: Aluminium Seminar
8 December 2015 Economics & Markets Aluminium Technology & Innovation Sales & Marketing Aluminium Seminar
Slide 2: Cautionary statement
2 Cautionary statement 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-looki
Slide 3: Mineral resources, reserves and production targets
3 Mineral resources, reserves and production targets Mineral Resources and Ore Reserves Details of Rio Tinto group Bauxite Mineral Resource and Ore Reserve estimates which appear on slides 27, 41 and 52 of this presentation are estimates, or an aggregation of the estimates, previously reported at pa
Slide 4: Introduction
8 December 2015 Economics & Markets Aluminium Technology & Innovation Sales & Marketing Introduction Alf Barrios, chief executive, Aluminium
Slide 5: Aluminium and bauxite market fundamentals
8 December 2015 Economics & Markets Aluminium Technology & Innovation Sales & Marketing Aluminium and bauxite market fundamentals Vivek Tulpulé, head of Economics & Markets
Slide 6: Rio Tinto Economics & Markets
6 Rio Tinto Economics & Markets Extensive data collection Independent advice Primary research Report to CFO Internal and external resources Fundamental demand and supply Risk and scenario analysis analysis Rigorous testing of results Proprietary cost curves Understand and quantify uncertainty Detail
Slide 7: Aluminium value chain
7 Aluminium value chain Bauxite Alumina Aluminium Large global resource base Increasingly de-linked from LME Strong demand growth outlook Grade and location key drivers of High level of vertical integration Near-term oversupply value High capital intensity outside Competitive advantage of Q1 Declini
Slide 8: Aluminium market gradually moving back to balance
8 Aluminium market gradually moving back to balance Primary aluminium production, consumption • Aluminium still dealing with excess and stocks inventory and capacity overhang from Million tonnes Weeks of consumption the global financial crisis Ex-China China 70 Consumption Stocks (right axis) 18 • M
Slide 9: Robust growth in global aluminium demand
9 Robust growth in global aluminium demand Global aluminium demand • Rising incomes in developing countries Semi-manufactured products, percentage and efforts to achieve environmental Sectors Regions targets will be aluminium intensive 100% • The transport sector is expected to be the major source o
Slide 10: Transport sector is the key driver of future aluminium growth
10 Transport sector is the key driver of future aluminium growth Aluminium per passenger vehicle • Increasing aluminium penetration into Average kg per vehicle the transport sector, particularly cars 300 North America China • Aluminium offers a cost-effective route for meeting emissions targets thro
Slide 11: Aluminium products typically have shorter lifecycles and high recycle rates
11 Aluminium products typically have shorter lifecycles and high recycle rates Aluminium products have shorter life spans • Average aluminium lifecycles are lower Expected life of metal consumed in 2015 than other metals due to high proportion 0-9 years 10-20 years 20+ years of manufactured goods •
Slide 12: China's aluminium sector facing headwinds
12 China’s aluminium sector facing headwinds Policy changes Stronger focus • Moves towards pricing carbon on the environment • Reduced coal utilisation on the coast Industry specific Macroeconomic Increasing Wage • Declining bauxite quality will lead to alumina costs • China wage growth of ~6% pa es
Slide 13: Demand for bauxite and alumina has grown rapidly in China
13 Demand for bauxite and alumina has grown rapidly in China Rapid growth in bauxite demand • China’s demand for bauxite and alumina Million tonnes of bauxite equivalent1 has increased 16% per year since 2005 140 • 65% of the growth has been met by Imported alumina increased domestic bauxite product
Slide 14: Availability of quality bauxite reserves is deteriorating
14 Availability of quality bauxite reserves is deteriorating North China’s bauxite reserves • Since 2009, a deterioration in the Estimated reserves available for smelter grade alumina production, years of current production1 average quality of China bauxite 60 reserves has occurred • This deteriorat
Slide 15: Majority of China's aluminium industry is far from its bauxite reserves
15 Majority of China’s aluminium industry is far from its bauxite reserves China’s aluminium industry, 2014 • Most China alumina refineries are located in northern provinces of Shanxi, Henan and Shandong • China’s bauxite reserves are predominately located in southern provinces of Guangxi and Guizho
Slide 16: Strong demand creates compelling opportunity for bauxite growth
16 Strong demand creates compelling opportunity for bauxite growth The world needs increasing volumes of aluminium: 3.5-4% growth Strong demand growth will return the aluminium market to balance Declining size and quality of domestic bauxite resource positive for imports Attractive Chinese bauxite i
Slide 17: Generating value through the cycle
8 December 2015 Economics & Markets Aluminium Technology & Innovation Sales & Marketing Generating value through the cycle Alf Barrios, chief executive, Aluminium
Slide 18: Safety is a fundamental business priority
18 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 - '08 '09 '10 '11 '12 '13 '14 YTD'15 Note: Year-to-date 2015 represents January to September (inclusive). ©2015, Rio Tinto, All Rights Reserved
Slide 19: Clear focused strategy
19 Clear focused strategy Bauxite First quartile smelters Competitive Q1 smelters based on low-cost, advantage Industry-leading bauxite position low carbon power Productivity improvement and cash Strategic focus Market-paced growth flow generation Alumina: competitive security of supply to our smelt
Slide 20: Consistently increasing shareholder value
20 Consistently increasing shareholder value Portfolio Increased bauxite optimisation with exports by curtailments and 15% since 2013 disposals Alumina Smelting cost conversion cost position from 40th position from Q4 to to 11th percentile Q2 since 2013 since 2013 Kitimat first hot Cash costs metal
Slide 21: Over $1.1 billion of cost reductions since 2013
21 Over $1.1 billion of cost reductions since 2013 Cash cost reductions • Consistently exceeded our cash US$ million reduction targets over last 3 years 1,250 • Cumulative reduction of over $1.1 billion from: Functional 1,000 Support − Raw materials down $456 million − Production fixed costs cut 750
Slide 22: Disciplined on costs and capital
22 Disciplined on costs and capital Headcount1 Sustaining capex Working capital Full time equivalents US$ million US$ million -8% -11% -10% -7% -29% -48% 15,346 747 1,174 14,120 674 12,623 629 828 432 2013 2014 2015F 2013 2014 2015F 2013 2014 2015F 1 Includes the impact of assets divested in the per
Slide 23: We continue to outperform our peers
23 We continue to outperform our peers Upstream EBITDA margin 1 Percentage 50% Rio Tinto Aluminium Competitors 40% 30% 20% 10% 0% -10% 2011-Q4 2012-Q2 2012-Q4 2013-Q2 2013-Q4 2014-Q2 2014-Q4 2015-Q2 1 Rio Tinto internal analysis which includes adjustments to externally reported EBITDA margins, tradi
Slide 24: Operating and commercial excellence is embedded across the business
24 Operating and commercial excellence is embedded across the business 6% increase in Modifications to Gove Australian bauxite bauxite loading production with low facilities to utilise post- panamax ships capital in last 12 saving $3 million per months annum in freight New 1.2 MW solar 6% Gladstone
Slide 25: Unlocking value in 2015 – reducing costs by $300 million
25 Unlocking value in 2015 – reducing costs by $300 million and further reducing working capital Bauxite Alumina Smelting $8 million savings 21% savings in unit $133 million in HME servicing energy costs in reduction in goods and spares at Gladstone and services Weipa refineries More than 21%
Slide 26: $300 million in cost reductions targeted in 2016
26 $300 million in cost reductions targeted in 2016 Cash generation focus continues with 850+ improvement initiatives underway 150+ bauxite 200+ alumina improvement initiatives improvement initiatives 500+ smelting improvement initiatives Targeting $300 million in additional cost reductions in 2016
Slide 27: Leading bauxite resource and market positions
27 Leading bauxite resource and market positions Rio Tinto bauxite position versus peers Unrivalled Tier 1 assets Global bauxite resources/reserves (billion tonnes)1,2 • Largest bauxite position with interests in 3.5 Resources Reserves four of the world’s major bauxite mines • Well located to supply
Slide 28: Growing high margin, third party bauxite sales
28 Growing high margin, third party bauxite sales Rio Tinto third party sales • Growing our third party sales to meet Million tonnes demand from our customers 30 • Generating attractive margins based on our competitive advantages: 25 − Large and secure source of supply 20 − Low-cost mining assets −
Slide 29: Amrun is a Tier 1 investment
29 Amrun is a Tier 1 investment 2020 seaborne bauxite cost curve • Attractive Chinese import bauxite CFR north China, not value in use adjusted demand growth outlook • First quartile delivered mining costs Other Rio Tinto, Australia • Over 40 year mine life • Low capital intensity of ~$83/t • Compel
Slide 30: 150+ bauxite improvement initiatives underway
30 150+ bauxite improvement initiatives underway Reducing production costs • Replacing vehicle haulage used to move bauxite to the port at the Gove bauxite mine with a special purpose conveyor − Reduced operating costs by $14 million per annum and increased bauxite export capability Improving mobile
Slide 31: Improving our alumina conversion cost position
31 Improving our alumina conversion cost position Conversion cost curve 1 • Conversion costs down 37 percentile US$ per tonne points since 2013: − Fully curtailed high-cost Gove refinery 500 − Increased production at Yarwun and QAL refineries by 712 kt/a or 14% 400 − Cost reduction through operation
Slide 32: 200+ alumina improvement initiatives underway
32 200+ alumina improvement initiatives underway Enhancing contracting strategy to reduce costs • Consolidating 750,000 contract hours a year at Yarwun and retendering to save over $10 million per annum, starting in 2016 • Similar initiative implemented in Vaudreuil in 2012 saved $17 million per ann
Slide 33: Improving our smelting cost position
33 Improving our smelting cost position Business operating cost curve1 • Reducing to 11th percentile since US$ per tonne 2013: 2,500 − Portfolio rationalisation with 2,250 divestment of Alucam and Soral − Fixed cost per tonne reduced 37% 2013 2,000 Rio Tinto average position − Modernised and expande
Slide 34: Kitimat ramp-up on track to be a first decile smelter
34 Kitimat ramp-up on track to be a first decile smelter • Modernised and expanded Kitimat smelter to deliver 50% more capacity with half the emissions • Self-generated and fully-owned hydro power • First hot metal June 2015 Kitimat, anode change • Close to 60% of the 384 pots now energised • On tra
Slide 35: 500+ smelting improvement initiatives underway
35 500+ smelting improvement initiatives underway Leveraging our Aluminium Operations Centre • Skilled resources centralised in one location to improve our smelters’ performance and reduce overall support costs − Close to half of our global smelting production under 24/7 monitoring & control, with t
Slide 36: Rio Tinto's low-cost power is a sustainable competitive advantage
36 Rio Tinto’s low-cost power is a sustainable competitive advantage Industry average smelting costs by quartile1 • Power is the single most important US$ per tonne differentiator of cost position 2,000 • 80% power from low carbon sources; 55% self-generated • Rio Tinto’s unrivalled hydro power 1,50
Slide 37: Leading performance through the cycle
37 Leading performance through the cycle Safety of our people remains a key priority Strong focus on cash generation across all assets ‒ Further improve current bauxite mining operations ‒ Aggressively reposition alumina refineries ‒ Continue driving the smelting portfolio further down first cost qu
Slide 38: 20 minute break
8 December 2015 Economics & Markets Aluminium Technology & Innovation Sales & Marketing 20 minute break
Slide 39: Generating value through the cycle
8 December 2015 Economics & Markets Aluminium Technology & Innovation Sales & Marketing Generating value through the cycle Alf Barrios, chief executive, Aluminium
Slide 40: World-class projects and productivity
8 December 2015 Economics & Markets Aluminium Technology & Innovation Sales & Marketing World-class projects and productivity Greg Lilleyman, group executive, Technology & Innovation
Slide 41: T&I delivers major projects and productivity improvements
41 T&I delivers major projects and productivity improvements World-class projects World-class productivity • Project Shaping: including strategic • Productivity Generation: production planning productivity and innovation pipeline • Major Project Delivery: of world- • Technical Discipline Leadership:
Slide 42: Amrun is a Tier 1 investment
42 Amrun is a Tier 1 investment Cape York • Cape York Bauxite Mapoon − 1.5 billion tonnes Ore Reserves1 − 1.9 billion tonnes Mineral Resources1 • Amrun project − New mine, port and associated Existing Weipa Operations (Andoom infrastructure & East Weipa) − 22.8Mtpa1 to replace East Weipa and Weipa t
Slide 43: Low-cost, high-grade bauxite well-located for exports to China
43 Low-cost, high-grade bauxite well-located for exports to China Amrun - key operational components 1 Bauxite mine 2 Load & Haul 3 Process 4 Shiploader 5 Port Surface mining Utilising existing mine 22.8Mtpa beneficiation Single Panamax 9,000tph shiploader Free dig (no blasting) fleet from East Weip
Slide 44: Using significant project expertise to maximise capital efficiency
44 Using significant project expertise to maximise capital efficiency Capital estimate for Amrun • Reduced initial capital by around US$ billion 2.6 $400 million after exchange impact • Majority capital spend in 2017/2018 1.9 (0.4) (0.3) • Leveraging lessons learnt from recent major projects • Using
Slide 45: Amrun timeline and construction workforce
45 Amrun timeline and construction workforce 2015 2016 2017 2018 2019 1,300 River facilities 1,100 Accommodation village 900 Construction Workforce Main access road & bulk earthworks 700 Export facility 500 Power station/switchrooms & Water Supply/Tailings 300 Process facilities 100 Commissioning &
Slide 46: Delivering productivity across the Group
46 Delivering productivity across the Group Advanced World-class asset technology Energy productivity management deployment Mine of the Future™ technologies - Optimised asset servicing - Transparent energy measurement - Ops/ excellence centres - Predictive asset health - Advanced analytics - Power o
Slide 47: Advancing productivity at Andoom
47 Advancing productivity at Andoom Bauxite production at Andoom (Weipa) • Upgraded to advanced plant control Million tonnes system enabling: 18 +50% ‒ Dynamic constraint control 16 utilising advanced analytics 14 ‒ Targeted de-bottlenecking 12 • Deployed enhanced operational tactics 10 • Very low c
Slide 48: T&I delivers significant value
48 T&I delivers significant value World-class projects World-class productivity • Best-in-class project portfolio • Group-wide deployment of technology and productivity • High-quality investment options • Leading the mining industry in step-change innovations • Reduced capital intensity • Moving bey
Slide 49: Maximising value from mine to market
8 December 2015 Economics & Markets Aluminium Technology & Innovation Sales & Marketing Maximising value from mine to market Gervais Jacques, managing director, Aluminium Sales & Marketing
Slide 50: Our sales and marketing capabilities maximise the value of our products
50 Our sales and marketing capabilities maximise the value of our products Industry A deep understanding of markets and the industry knowledge from bauxite to aluminium and its end uses Product Aligning our resource and asset base with customer alignment needs to maximise product value Continuous de
Slide 51: Steady pricing despite bauxite supply growth
51 Steady pricing despite bauxite supply growth China’s bauxite imports1 Million tonnes • China imported 44Mt year to date, exceeding expectations 8 • Australia exported 16Mt year to 7 date (100% from Rio Tinto) 6 • Malaysian exports have increased 5 but constrained by resources and infrastructure 4
Slide 52: Short-term aluminium pricing pressures
52 Short-term aluminium pricing pressures Aluminium price and market premia US$ per tonne • Pressure on prices: 600 2,000 − Lower input costs (strong USD, Midwest power subsidies) − Selling pressure on LME 450 EU 1,750 commodities due to macro uncertainties Japan LME (RHS) • Announced cutbacks help
Slide 53: Rio Tinto has a pre-eminent position in bauxite
53 Rio Tinto has a pre-eminent position in bauxite Rio Tinto bauxite position versus peers • Production in both markets provides Global bauxite resources/reserves (Billion tonnes)1,2 security of supply to our world-class 4.0 Resources Reserves smelters and our bauxite customers − Significant Reserve
Slide 54: Customers value bauxite differently
54 Customers value bauxite differently Customer value drivers Rio Tinto proposition • Alumina content ranges from 30% - 65% • High alumina content (50%-55%) Grade • Silica range 2% – 30% • Consistent quality with significant • Grade consistency resource position • Refineries designed and built to pr
Slide 55: Stable, high alumina content of Weipa bauxite
55 Stable, high alumina content of Weipa bauxite Alumina content in bauxite • High alumina content matters: Percentage ‒ Lower production and shipping 60 Weipa costs Gove CBG 50 ‒ Less generation of waste per tonne of alumina produced 40 Malaysia Indonesia • Consistent quality and grade 30 Western c
Slide 56: Achieving best value for our product
56 Achieving best value for our product Rio Tinto H1 2015 bauxite contract mix • Bauxite contracts are typically fixed Percentage volume with quarterly bilateral price China sales negotiation 10.5 Mt • Sales mix used to discover market price and maintain volume certainty • More than half of new Amru
Slide 57: Our alumina business provides competitive security of supply
57 Our alumina business provides competitive security of supply to our world-class smelters Rio Tinto alumina production and consumption1 • Rio Tinto has a broadly balanced Million tonnes alumina position 10 Atlantic Pacific • Swaps to address alumina geographical imbalance optimises 8 supply chain
Slide 58: Attractive margins on our value-added product
58 Attractive margins on our value-added product Rio Tinto H1 2015 value-added product mix • Value-added products (VAP) Percentage 6% represent c.60% of our production 8% • VAP are priced above standard 37% remelt ingot (product premium) Remelt VAP 20% • In H1 2015, we achieved ‒ Average product pre
Slide 59: Well-positioned to capture demand growth in North America
59 Well-positioned to capture demand growth in North America North American value-added product demand • Over 4 million tonnes of additional Million tonnes value added product required by 20 2025 driven by: 18 Rod ‒ Rising aluminium content in cars 16 Investment in utilities ‒ Recovering housing mar
Slide 60: Additional margins from sustainable solutions
60 Additional margins from sustainable solutions Automotive light-weighting LEED1 registered Unique low CO2 label Partnering with leading LEED registered products 80% of our primary aluminium customers to improve fuel meeting Green Building specifications and trends comes from carbon free energy eco
Slide 61: Maximising the value of our products
61 Maximising the value of our products Supplier of choice in the growing bauxite market – with Tier 1 bauxite assets Competitive and secure alumina supply to our world-class smelters Capturing high-margin sales in North America’s growing VAP market Low CO2 footprint – responsible aluminium adds val
Slide 62: Summary
8 December 2015 Economics & Markets Aluminium Technology & Innovation Sales & Marketing Summary Alf Barrios, chief executive, Aluminium
Slide 63: Aluminium - generating value through the cycle
63 Aluminium - generating value through the cycle World-class bauxite and first quartile smelting assets Quality growth from our high-margin bauxite business Capturing additional value through marketing mix Focus on cash generation ©2015, Rio Tinto, All Rights Reserved
Slide 64: Appendix
8 December 2015 Economics & Markets Aluminium Technology & Innovation Sales & Marketing Appendix
Slide 65: Rio Tinto has a global aluminium business
65 Rio Tinto has a global aluminium business Production 1 Bauxite Mines 41.9 Mt Alumina Refineries 7.5 Mt Isal Aluminium Smelters 3.4 Mt Quebec power 206 kt Smelting Power Stations 2 4.8 GW 3,147 MW Lochaber Quebec smelters Kitimat 3 1,488 kt 42 kt 420 kt 105 MW Dunkirk 865 MW 270 kt Vaudreuil 1.4 M
Slide 66: Smelting and alumina capacity curtailed, closed or divested since 2009
66 Since 2009 about 1 Mt/a of smelting and 3 Mt/a of alumina capacity curtailed, closed or divested Smelting - Divestments, Closures and Capacity Curtailments (kt/a) Closures and Curtailments Kt/a Country (RTA share) 2009 Beauharnois smelter 52 Canada 2009 Anglesey smelter 147 UK 2009 Soral smelter