delivering long-term shareholder value - rio tinto - … and analysis to estimate a mineral resource...
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Delivering Long-Term Shareholder Value9 October 2014, Perth
©2014, Rio Tinto, All Rights Reserved
Cautionary statement
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 bound by the following conditions.
Forward-looking statements
This document contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Rio Tinto Group. These statements are forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, and Section 21E of the US Securities Exchange Act of 1934. The words “intend”, “aim”, “project”, “anticipate”, “estimate”, “plan”, “believes”, “expects”, “may”, “should”, “will”, “target”, “set to” or similar expressions, commonly identify such forward-looking statements.
Examples of forward-looking statements include those regarding estimated ore reserves, anticipated production or construction dates, costs, outputs and productive lives of assets or similar factors. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors set forth in this presentation that are beyond the Rio Tinto Group’s control.
For example, future ore reserves will be based in part on market prices that may vary significantly from current levels. These may materially affect the timing and feasibility of particular developments. Other factors include the ability to produce and transport products profitably, demand for our products, changes to the assumptions regarding the recoverable value of our tangible and intangible assets, the effect of foreign currency exchange rates on market prices and operating costs, and activities by governmental authorities, such as changes in taxation or regulation, and political uncertainty.
In light of these risks, uncertainties and assumptions, actual results could be materially different from projected future results expressed or implied by these forward-looking statements which speak only as to the date of this presentation. Except as required by applicable regulations or by law, the Rio Tinto Group does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events. The Group cannot guarantee that its forward-lookingstatements will not differ materially from actual results.
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©2014, Rio Tinto, All Rights Reserved
Competent Persons Consent Statements
Mineral Resources and Ore ReservesMineral Resources and Ore Reserves presented in this document are sourced from Rio Tinto Annual Reports from 2001
through to 2013.
Exploration TargetsThe information in this report that relates to the Pilbara Exploration Targets is prepared by Mr Bruce Sommerville who is
a Fellow of the Australian Institute of Mining and Metallurgy. Mr Sommerville is a full-time employee of Rio Tinto Iron Ore
and has experience which is relevant to the style of mineralisation and type of deposits under consideration and to the
activity which they have undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian
Code for Reporting of Exploration Results, Minerals Resources and Ore Reserves’. Mr Sommerville consents to the
inclusion in the report of the matters based on their information in the form and context in which it appears.
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©2014, Rio Tinto, All Rights Reserved
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Extending our competitive advantage
Driving industry-leading margins supported by automation, innovation and technology
Continued proven delivery of world-class projects
Rio Tinto is maximising sustainable shareholder value
World-class assets, seamless supply chain, unencumbered
optionality
Product blend & specialist marketing
capture full value
©2014, Rio Tinto, All Rights Reserved
Yandicoogina overland conveyor
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Brownfields mine development – one of many examples of value maximisation
• Maximising value is part of our DNA
• The 360Mt/a expansion is not tonnage but value-driven
• Chase outcomes that offer greatest value, for example protection of premium Pilbara Blend products
• ~40Mt/a of brownfield mine projects approved and in implementation
• Average mine production capital intensity less than $15/t
West Angelas Stacker 3
©2014, Rio Tinto, All Rights Reserved
• China is forecast to reach ~1Bt of crude steel production by around 2030
• Driven by exports of manufactured goods and replacement demand
• Iron ore demand growth will be driven by emerging economies which have more than 80% of the world’s population
• Other contestable iron ore markets likely to develop over the coming decades including India, the Middle East and the ASEAN countries
China’s crude steel production forecast (Mt/a)
Source: Rio Tinto
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Long-term iron ore fundamentals remain robust
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1,000
1,200
2010 2015 2020 2025 2030
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500
1,000
1,500
2,000
2,500
3,000
3,500
2010 2015 2020 2025 2030China JKT EU27 India ASEAN Middle East Other
Total iron ore demand projections (Mt/a)
©2014, Rio Tinto, All Rights Reserved
Uniquely positioned to capture value enhancing growth
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• Industry supply response to date commensurate with attractive fundamentals
• Fourth quartile tonnes are now being displaced
• Rio Tinto’s resource, cost and market position drive sustainable long-term value from production growth
• Pilbara expansion delivers compelling incremental and absolute value
Source: Rio Tinto, Wood MackenzieNote: Includes shipping and sustaining capital expenditure and is adjusted for inflation and FX. 2020 cost curve based on 2014 real data
2010 Industry cost curve 2020 Industry cost curve
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0 500 1000 1500 2000
RTIO Pilbara
Mtpa
$/wmt CFR
Cumula
2
Mt/a
2
0
50
100
150
200
0 500 1000 1500 2000
RTIO Pilbara$/wmt CFR
Mt/a
©2014, Rio Tinto, All Rights Reserved
• Our low cost advantage has been sustained
over many years
• H1 2014 cash unit cost of US$20.40/t
(11% lower than H1 2013)
• Maintain consistent and attractive
margins (66% in H1 2014)
• An embedded culture of cost discipline
• A ‘cash generation office’ active since
the 2008, drives cost and productivity
focus
• Over 200 individually tracked cost
reduction and productivity improvement
projects
• Sustainable position as the most
profitable producer in the Pilbara
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Industry-leading cash costs and margins
RTIO- Pilbara cash unit cost / EBITDA
margin
(US$ per tonne)
©2014, Rio Tinto, All Rights Reserved
Pilbara longevity through leading resources and reserves
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50.0
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Proven Probable Measured
Indicated Inferred Production
1 Mineral Resource and Ore Reserves are reported in dry metric tonnes, and are reported on a 100% basis, Mineral Resources are reported exclusive of Ore Reserves. Details of the Mineral Resources and Ore Reserves from 2001 to 2013 are found in the Rio Tinto Annual Reports
Pilbara resources, reserves and production1
• Million tonnes (Dry)
Resource Development Drilling
• Metres
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100,000
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Actual Drill (m) Planned Drill (m)
Exploration Targets2
• Billion tonnes (Dry)
2 Exploration Targets. Rio Tinto Iron Ore has extensive ground holding within the Pilbara which has been broadly assessed by various exploration methods including mapping, geophysical sensing and drill hole sampling. There has been insufficient exploration and analysis to estimate a Mineral Resource and that the potential quantity and quality is conceptual in nature and it is uncertain if further exploration will result in the estimation of a Mineral Resource. Grades range from 50% Fe to 62% Fe.
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2007 2008 2009 2010 2011 2013
Exploration Target (±50%)
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• 75% complete
• All 360Mt/a marine and wharf works complete
• Port B shiploader, stacker and reclaimer commissioned early
• First ore through car dumper 7 ahead of schedule
• All rail works complete, including AutoHaul® wayside works
• First autonomous AutoHaul® journey complete
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360Mt/a infrastructure on time and budget
Cape Lambert 360Mt/a shiploader first ore
Cape Lambert car dumpers 5, 6 & 7
©2014, Rio Tinto, All Rights Reserved
Operations Centre integral to capturing innovation benefits
• Value derived from real-time optimisation of production, maintenance and logistics:
− Revised car dumper timing and additional consist provide extra ~4Mt over 2014 and 2015
− OC optimises the system to ensure no lost tonnes from major conveyor belt rip
• Change in mindset and culture to ensure continued innovation
• Rio Tinto continues leading-edge advantage with key partners
Automationand autonomy
Big data and
analysis
Big data and
analysis
Smart people,smart
operations
Smart people,smart
operations
Mine of the
Future™
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Control room, Operations Centre
©2014, Rio Tinto, All Rights Reserved
Iron ore supply and pricing 12
70
90
110
130
150
170
190
Oct-10 Jun-11 Feb-12 Oct-12 Jun-13 Feb-14 Oct-14 Jun-15
Spot Historical
Forward (SGX)
Iron ore spot and forward prices
($/dmt, CFR China)Annualised global crude steel production
(Mt)
• Iron ore prices have declined throughout 2014 due to increased supply
• Market mechanisms are playing out with ~ 125Mt of high cost global iron ore supply likely to exit the market in 2014
• Crude steel production continues to run at healthy levels
• We continue to witness consistently high demand for Rio Tinto iron ore products across varied market conditions
Source: Platts, SGX
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1,000
2003 2004 2006 2008 2009 2011 2013
China
Japan+Korea+Taiwan
N.America
Rest of World
EU
EU (15)
Source: WSA, RTIO Analysis, Mysteel
©2014, Rio Tinto, All Rights Reserved
• Iron ore demand growth is inextricably
linked to the development pathway of
emerging economies where more than
80% of the world’s population resides
• China’s growth story is set to continue
albeit at more modest rates than
witnessed over the past decade
• As China continues to develop, less
steel will be required for domestic stock
accumulation - particularly in buildings
and infrastructure - with more steel
required for stock upgrading and exports
of manufactured goods
• China is forecast to reach ~1Bt of crude
steel production by around 2030
China’s crude steel production forecasts
(Mt/a)
Source: Rio Tinto
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Long-term fundamentals for Chinese iron ore demand remain strong
0
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2010 2015 2020 2025 2030
For exported goods
Replacement domestic demand
New domestic demand
©2014, Rio Tinto, All Rights Reserved
Pilbara Blend products are the basis of our expansions
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Product Strengths H1 2014 %
Pilbara BlendFines(61.5% Fe, 8.5% H2O)
• Consistent quality
• The most marketed iron ore product globally
• Base load sinter blend in Asian markets
• ~45%
Pilbara BlendLump(62.5% Fe, 4% H2O)
• Avoids the costs of sintering which will increase with increasing emissions legislation
• ~25%
HIY Fines(58.5% Fe, 9% H2O)
• Ideal chemical composition for the Asian sinter blends, with low alumina and phosphorus
• Coarse sizing aids sinter granulation
• ~20%
©2014, Rio Tinto, All Rights Reserved
The integration of marketing and operations maximises portfolio value
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• Product offering and customer segmentation drives our mine development and production planning
• RTIO Technical Marketing works with customers, researchers and universities to maximise the value-in-use of our products
• Pilbara Blends are the most marketed and commercially liquid ores in the market
• Reported spot transactions highlight that Pilbara Blend Fines consistently achieve a premium over the Platts 62% Fe index
0%
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90%
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China Japan Korea, Taiwan Atlantic Other
PBF PBL RRF RRL HIY Conc. Pellets
H1 2014 products by market
%
©2014, Rio Tinto, All Rights Reserved
Marketing strategies which maximise value16
• Rio Tinto has built a reputation for consistent quality and supply which supports our marketing strategy
• Rio Tinto’s customer portfolio is focused on long term contracts with large mills that have substantial offtake capability
• Of our 2014 volume:
• ~85% will be sold under term contracts
• ~15% uncontracted for sale into the spot market, in support of liquid and transparent indices
2014 Pilbara offtake agreements by pricing
mechanisms
Monthly55%
Q Lagged25%
Q Actual5%
Spot15%
©2014, Rio Tinto, All Rights Reserved
Strong relationships enable supply chain optimisation
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Pilbara shipments to Japan and China (Mt)
Shipments on a 100% basis and includes all Pilbara operations controlled by Rio Tinto.
• Since 1966 Rio Tinto has shipped over 3Bt to Japan and China
• Continuing partnerships with Japan, including the Robe River joint venture, remain central to our business
• The Channar Joint Venture was established in 1987 and has delivered over 200Mt to China
• The Bao-HI Joint Venture was established in 2002 and has delivered over 130Mt to China
• Partnerships allow Rio Tinto to improve sales processes and lower transaction and administration costs
1 billionth tonne shipped to China
1 billionth tonne shipped to Japan
©2014, Rio Tinto, All Rights Reserved
Take-aways
• Iron ore market fundamentals remain robust
• Rio Tinto’s resource, integrated logistics and marketing drives sustainable long-term value
• Rio Tinto will protect margins by remaining the world’s lowest cost major producer
• Commitment to technology and innovation is key to Rio Tinto’s competitive edge
• Pilbara Blend delivers sustained premiums and creates additional value
• Pilbara 360Mt/a delivers compelling and resilient project economics
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Operations Centre
Investor visit9 October 2014
©2014, Rio Tinto, All Rights Reserved
• Concept originated through RTIO’s Industry Leadership Programme.
• Business context: growth, volatility, complexity - needed a more responsive organisation.
• Decision made to establish an integrated planning function and an Operations Centre.
Control
Room
OB1
OB2
A strategically important project20
©2014, Rio Tinto, All Rights Reserved
UtilitiesMines Plants Rail Ports
Centralised Control Room
Integrated Planning and Scheduling
Whole of System Visibility
Improved access to
information
Collaboration
Operations Support
Asset MgtMining Whole of Business PlanningLogisticsQualityProcessing
OPERATIONS CENTRE
Operational
Excellence
System Performance
Better, smarter, faster
decision making
Rapid Replication
Operations Centre Optimising System Plans and Performance
BENEFITS
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There are 4 key managerial functions, all with strong linkages to Site Operations
• Continue to make operational decisions
• Retain accountability for health and safety
• Site knowledge and expertise
• Better, smarter faster decisions
• Focus on tonnes and quality
• Optimising the whole value chain
• Local people leadership and training
• Driving controller improvement & standardisation
• Control Room team dynamic/culture
• Day to day systems support
• System improvement projects
• Capital program management
Dynamic Scheduling Controllers Production Systems Next Generation
• Business process redesign
• Interface standardisation
• Delivery Plan co-ordination
• Business Improvement co-ordination
Site Operations
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Control Room layout
Mining & PlantsPorts & Dynamic Scheduling
Rail
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Control, Monitor and Optimise (Pit to Port)
The Control team has three main functions to ensure safe tonnes are delivered to our customers on time, at the right cost
• Monitor production rates and control set points• Minimise performance loss by active communication and coordination during system
outages• Collaborate across functions and sites to provide better, faster and smarter decisions
to optimise system performance
Control Monitor Optimise
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©2014, Rio Tinto, All Rights Reserved
The Control Room has evolved over time
Control Room Stabilised
• Roles moved to Perth from the Pilbara
Multi skill & optimise
• Dynamic Constraint Utilisation, Controller Role consolidation, Brockman 4 TLO, Asset Health, Rail Maintenance Alignment, Business Resilience, SCADA Standardisation
New Technology
• Multi-skilling of Pit & Plant roles, Control System automation, Loco GPS, Electronic Train graphing, Advanced collaborative environments, Remote Assist (MATE), Wireless Mesh
Automation
• Autonomous Drilling, Autonomous Trucks, Autonomous Trains
Future
• Next Gen, Transformation of people and processes, Big Data, Automation
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©2014, Rio Tinto, All Rights Reserved
Operations Centre summary
• The nerve centre of the Pilbara integrated network, seamlessly bringing it all together
• Full end to end visibility means the entire system is optimised
• Comprehensive insight into system bottlenecks, improvement efforts and reduction and avoidance of costs
• Enormous future potential
This is just the beginning…
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