bank of america merrill lynch global metals, mining and ... · 5/12/2015 · bank of america...

Notice to ASX

Vaughn Walton Assistant Company Secretary

Tim Paine Joint Company Secretary

Rio Tinto plc 2 Eastbourne Terrace London W2 6LG United Kingdom T +44 20 7781 1345 Registered in England No. 719885

Rio Tinto Limited 120 Collins Street Melbourne 3000 Australia T +61 3 9283 3333 Registered in Australia ABN 96 004 458 404

Bank of America Merrill Lynch Global Metals, Mining and Steel Conference 12 May 2015 Attached is the presentation given by chief executive Sam Walsh at the Bank of America Merrill Lynch Global Metals, Mining and Steel conference held today at 8.30am (BST) / 5.30pm (AEST) in Barcelona, Spain. The presentation will be available on Rio Tinto’s website at www.riotinto.com/presentations The presentation will be webcast live and can be accessed at http://edge.media-server.com/m/p/chtfu8mh

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http://www.riotinto.com/presentations

http://edge.media-server.com/m/p/chtfu8mh

Generating value through the cycle Sam Walsh, Chief executive

BoAML Global Metals, Mining & Steel Conference 2015 12 May 2015

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©2015, Rio Tinto, All Rights Reserved

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. In this presentation all figures are US dollars unless stated otherwise.

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.

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-looking statements will not differ materially from actual results.

Disclaimer

Neither this presentation, nor the question and answer session, nor any part thereof, may be recorded, transcribed, distributed, published or reproduced in any form, except as permitted by Rio Tinto. By accessing/ attending this presentation, you agree with the foregoing and, upon request, you will promptly return any records or transcripts at the presentation without retaining any copies.

This presentation contains a number of non-IFRS financial measures. Rio Tinto management considers these to be key financial performance indicators of the business and they are defined and/or reconciled in Rio Tinto’s annual results press release and/or Annual report.

2 F

or p

erso

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Improve Strengthen Deliver

Reduced costs

Decreased capex Reduced net debt

Operating, exploration and evaluation cost reductions achieved by 31 December 2014 vs 2012 Full year 2014 spend vs 2012

Since net debt peaked at 30 June 2013

Recycling capital via divestments

Released working capital

Materially increased cash returns

Divestments completed since January 2013

Working capital cash release 31 December 2014 vs 2012

2014 total dividend growth and capital return compared to 2013

3

Early and decisive actions

$4.8bn by

$9.4bn

+64% $3.9bn

by

$9.6bn

$2.1bn

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Source: IMF (2015)

4

The ‘New Normal’

Global growth continues Real GDP (US$ trillion) Real GDP growth (%)

• Period of economic adjustment

• Developed markets recovering

• China transitioning to major developed economy

− Lower growth on a higher base

• Rising demand from other emerging market economies

• Industry focussed on costs and productivity to improve efficiency

Switch China and other dev.

0%

2%

4%

6%

8%

10%

0

20

40

60

80

100

'03 '05 '07 '09 '11 '13 '15 '17 '19

China

Other developing economies

Developed economies

World real GDP growth (RHS) For

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0

500

1000

1500

2000

2500

2010 2015 2020 2025 2030

0

500

1000

1500

2000

2500

3000

2010 2015 2020 2025 2030

• Chinese steel mix evolving: − New infrastructure slowing − Increased replacement − Rise in scrap − Manufactured goods increasing − Growing exports − 1 billion tonnes of crude steel

production towards 2030

• Rising steel output in new markets including ASEAN and India − Will require imported ore

• Recovery of developed regions supports global trade

5

Iron ore demand growth continues

Crude steel production Million tonnes per annum

Contestable iron ore demand Million tonnes per annum

Source: Rio Tinto analysis


China

Developed economies


China

Developed economies

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17%

14%

16% 9%

17%

7%

20%

~1.7 billion tonnes

• ~775 Mt of 2014 supply from China, non-traditionals and rest of world

• ~125 Mt of high cost supply exited the market in 2014

• ~85 Mt likely to exit in 2015 with further 80 Mt ‘at risk’ − Q1 2015 saw supply decline from

non-traditionals and junior seaborne

Marginal iron ore supply is exiting

Source: Rio Tinto analysis, GTIS – Global Trade Information Services 1 Non-traditionals include Russia, Malaysia, Iran, Mexico and Indonesia. 2 RoW includes Africa, South America, Europe, Canada and India.

6

Majors accounted for ~47% of 2014 supply Percentage of contestable iron ore market

Marginal supply is responding to prices Quarterly production annualised

= 47% Rio Tinto BHP Vale

$0

$20

$40

$60

$80

$100

$120

$140

$160

-

100

200

300

400

500

600

Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15e

US$/t, CFR Mt/a ChinaNon-traditionalsPlatts 62% Fe, CFR

= 53% China Non-traditionals 1

Rest of world 2

FMG

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7

Success in the ‘New Normal’

World-class portfolio

Sustainable shareholder

returns Capital

allocation discipline

Balance sheet

strength

Quality growth

Free cash flow

generation

Operating and

commercial excellence

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0.0

0.5

1.0

1.5

2.0

’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 '14

All injury frequency rateLost time injury frequency rate

Injury frequency rates Per 200,000 hours worked

8

Safety and responsibility are fundamental

Accountability

Respect

Integrity

Teamwork

• Relentless pursuit of shareholder value • Disciplined decision-making

• For the environment and communities • For health, safety and wellbeing

• Transparency in what we do • Fairness, honesty and openness

• Long-term partnerships • Continuous improvement

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0%

20%

40%

60%

80%

100%

Rio Tinto Peer 1 Peer 2 Peer 3 Peer 4

Leading the market in the current environment

30-45%

45-60%

Capex discipline...

…allow balanced capital allocation...

…and efficient working capital...

Source: Company filings. 1 Last 12 months. 2 Working capital defined as current and non-current inventories + accounts receivable – accounts payable. Excludes marketing segments. 3 As at 31 Dec 14. 4 Dividend per share declared multiplied by weighted average shares outstanding plus buybacks declared and undertaken.

... and material deleveraging

Net working capital (US$bn) 2,3

2014 shareholder returns 4

2014 capex spend 1,3 Capex cut since 2012

02468

10121416


US$

billi

on

(54%) (36%) 0% (28%) (23%)

Net debt 3 Net debt / (Net debt + book equity) 3

19%

22%

29%

37%

31%

0

5

10

15

20

25

30

35


US$

billi

on

0

1

2

3

4

5

6


US$

billi

on

2014 capex 1

9

Rio Tinto

Rio Tinto

Rio Tinto

Rio Tinto

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Highest dividend growth and strongest balance sheet 10

Shrinking returns, strong balance sheet

Growing returns, strong balance sheet

Shrinking returns, weaker balance sheet

Growing returns, weaker balance sheet

Bubble size represents total dividends declared during FY12,13 & 14 divided by average market cap during the same period. Lighter circles also include share buybacks.

Rio Tinto Peer 1

Peer 2

Peer 3

Peer 4

15%

20%

25%

30%

35%

40%(60)% (40)% (20)% 0% 20% 40% 60%

Gea

ring

Dividend growth (2011-2014)

Source: Company filings.

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0

20

40

60

80

100

120

140

0 200 400 600 800 1000 1200 1400 1600 1800

$/dm

t CFR

Chi

na 6

2% E

quiv

alen

t

Rio Tinto Pilbara Q3 Producer

Mtpa

11

Tier 1 iron ore assets…

Source: Company filings. 1 EBITDA defined as sales margin + D&A for years where Adjusted EBITDA is not published.2 2014 real FOB WA iron ore price.

2014 Fourth quarter delivered iron ore cost curve (WoodMac)

…and operational excellence deliver through the cycle Average annual margin 37% 63%

66% 62%

54%

44%

59% 61% 57%

66% 60%

72% 75% 68% 70%

64% 60%

29% 23% 26%

31%

21%

35% 32%

55%

36%

62% 59%

37% 43%

31%

4%

0

60

120

180

0%

20%

40%

60%

80%

01 02 03 04 05 06 07 08 09 10 11 12 13 14 Q1 15

Iron

ore

pric

e

(FO

B W

A, U

S$/d

mt)2

EBIT

DA

mar

gin1

RTIO Pilbara Third quartile producer Iron ore price (RHS)

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vs Vale

-13.0

+1.0

-20.0

-15.0

-10.0

-5.0

-

5.0

Vale RTIO

vs FMG

-17.7

+0.3

-20.0

-15.0

-10.0

-5.0

-

5.0

FMG RTIO

vs BHP

+1.7 +3.5

-20.0

-15.0

-10.0

-5.0

-

5.0

BHP RTIO

Commercial excellence captures full value

(US $/wmt FOB)

Source: Rio Tinto, Company Reports. Note Rio Tinto and Vale prices reflect actual sales and have not been adjusted to reflect differing levels of sales made on a CFR basis. In line with Vale’s own reporting, achieved price does not include ROM or Pellet sales.

(US$/dmt, including freight revenue)

12

(US $/wmt including freight revenue)

2014 like-for-like iron ore sales price performance:

62%Fe index

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50

75

100

125

150

175

2012 2013 2014

Delivering value through iron ore growth 13

• 360 infrastructure in final stage

− Minimal capital investment

− Maximise infrastructure capacity through productivity

− Maintain focus on efficiency

• 2014 sustaining capex down to $3.50 per tonne2

• Continue to defer Silvergrass

Consistently improving capital efficiency (US$/t) Capital intensity of 220-360Mt/a Pilbara expansion1

19%

8%

1 Mid-points of guidance ranges shown in graph. 2012 guidance was mid $150s/t. 2013 guidance reduced to $120-130/t which was further reduced in 2014 to $110-120/t. 2 Average over the previous four years $5 per tonne.

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Aluminium business delivering quality growth 14

South of Embley

Aluminium operations

Kitimat

Bauxite operations

First hot metal expected mid-2015: • First decile cost position • 50% increase in capacity and halves

emissions compared to old plant

South of Embley feasibility study and investment decision expected towards the end of 2015

• Low capex creeping projects have increased production by 4% over the last two years

• 80% of our smelting capacity in first cost quartile post completion of the Kitimat modernisation

• Gove expansion to 8Mt/a run-rate ahead of expectations, now expected by Q4’15 (run-rate currently 7Mt/a)

• Productivity improvements at Weipa have delivered an incremental 5.5 Mt (+27%) of production since 2011

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Significant growth in Copper ahead 15

KUC volumes to recover in 2016 following de-weighting/ de-watering east wall

Oyu Tolgoi underground will significantly increase value (80% of total value)

New 152 ktpd concentrator expected to complete in H1’15 at Escondida

Rio Tinto expects significant metal share from Grasberg in 2016/171

La Granja project reshaping study underway

Resolution land swap approved in 2014 with permitting now underway

1 Based on latest Freeport McMoRan guidance for Grasberg given in their Q1’15 earnings presentation. Rio Tinto shares in 40% of all metal above the metal strip (see our Chartbook for current guidance on metal strip thresholds) and will benefit from 40% of all metal produced from 2022 onwards.

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16

Building the world’s best mining company

World-class portfolio

Sustainable shareholder

returns Capital

allocation discipline

Balance sheet

strength

Quality growth

Free cash flow

generation

Operating and

commercial excellence

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bank of america merrill lynch global metals, mining and ... · 5/12/2015 · bank of america...

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