overview of minerals exploration, development and production · pdf file ·...

Ken Tainton Exploration Director – Africa-Eurasia Global Mining Finance London – 13 March 2015

Overview of Minerals Exploration, Development and Production In Emerging Markets - A Major's Viewpoint

©2015, 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-looking statements will not differ materially from actual results.

2 ©2015, Rio Tinto, All Rights Reserved

Rio Tinto – a world leader in mining


Aluminium Leading position in: •  bauxite •  alumina •  aluminium

Copper & Coal Leading position in: •  Copper •  Export coking and thermal

coal •  molybdenum

Diamonds & Minerals Leading position in: •  titanium dioxide and

zircon •  borates, diamonds and

salt •  uranium

Iron Ore Leading position in: •  seaborne iron ore

More than 80% of assets in the OECD


2014 total assets (excluding non-controlling interests) by region 2014 total assets = $80 billion

1 Other Asia mainly relates to assets in Singapore and Oman. Total assets as at 31 December 2014 adjusted for non-controlling interests, cash, current and deferred tax receivables and derivatives. Excludes assets held for sale, cash and bank balances, current and deferred tax receivables, derivative assets.

US 7%

Australia/NZ 50%

1% Indonesia

3%

5%

Canada 22%

4% Mongolia

2% Other Asia1

Africa

South America

6%

Europe

We are not running out of resources globally

IOC

RT ET

RT CID

RT BKM RT MM

RT DID RT Simandou

1Bt 5Bt 10Bt 20Bt

0

100

200

300

400

500

600

700

15% 35% 55%

Cum

ulat

ive

Tonn

age

(Bt)

Fe %


Copper (in-situ resource inventory)

Iron (in-situ resource inventory)

25Bt

10Bt

5Bt

1Bt

In-situ inventory

Sources: Rio Tinto compilation of public domain data. Rio Tinto Resources and Reserves - 2013 Annual Report, Rio Tinto Exploration Target – 17/10/2014 Press Release, Escondida data - BHP-B 2013 annual report, Grasberg data – FCX Form10-K, 31 December 2012

0

15

30

45

60

1900 1920 1940 1960 1980 2000 0

600

1200

1800

2400

1900 1920 1940 1960 1980 2000 0

5000

10000

15000

20000

1900 1920 1940 1960 1980 2000

Global production trends – why explore?


Aluminum Supply (Mt/a) Primary Copper* Supply (Kt/a) Iron Ore Supply (Mt/a)

Source: US Geological Survey / Wood Mackenzie 2014

2000-2014** 5.8%

2000-2014** 2.5%

2000-2014** 6.0%

* Primary copper, not refined copper demand, which is above 20Mt this year, but includes scrap ** Compound annual growth rate

Evolution of copper grade

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Industry weighted average Cu grade (%)

Source: Wood Mackenzie 2013 Cost Service

- 25%

2013


In the absence of new discoveries, average head-grade will progressively decline

Exploration spend and discovery rate Significant mineral discoveries & expenditures (excluding bulks)

8

Source: Discoveries - MinEx Consulting February 2014 ; Expenditures - SNL Metals & Mining February 2015

*Significant defined as >100Koz Au, >10Kt Ni, >100Kt Cu equiv, 250Kt Zn+Pb, >5Moz Ag, >5kt U3O8

Caution: Incomplete discovery data in recent years

0

50

100

150

200

0

5

10

15

20

25

1996 2000 2004 2008 2012

Number of discoveries

Estimated worldwide exploration expenditure (US$B)

Estim

ated

wor

ldw

ide

expl

orat

ion

expe

nditu

re (U

S$B

)

Discoveries

Expenditures

Num

ber o

f Dis

cove

ries


2014 estimated spend: US$B11


Exploration spend continues to decline Industry context – Australia


0

2

4

6

8

10

12

$0

$1

$2

$3

$4

$5

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Metres drilled; new deposits Metres drilled; existing deposits Expenditures

Expe

nditu

res

(rea

l US$

B)

Drilled metres on existing (brownfield) and new (greenfield) projects - All mineral commodities

Expenditures

* 2014 Expenditure & metres drilled estimate based on H1 2014 results Source: Australian Bureau of Statistics

Met

res

drill

ed (m

illio

ns)

2014 estimated

spend: US$B1.6

Exploration Industry


Risks and value just like other R&D sectors

Source: Stevens and Burley, Plotting the rocket of radical innovation, 2003

3,000 raw ideas

300 ideas submitted

125 small projects

9 early stage developments

4 major developments

1.7 launches 1 success

Num

ber o

f ide

as

Stage of new business development process 100% of targets 0.1% of targets

Target Generation

Target Testing

Project of Merit

Order of Magnitude

Area Selection

Universal industrial success curve Exploration process

•  Exploration is similar to generic R&D, as only around 1 in 1,000 prospects becomes a mine


Exploration Accountability

Target Generation

Target Testing

Project of Merit

Order of Magnitude

Area Selection

Discovery Pre Feasibility Feasibility

Product Group Accountability

100% of targets <0.1% of targets •  Exploration on an industry-wide basis is a

high-risk activity

•  Success - the creation of value -demands ongoing rigorous testing and prioritisation of opportunities

•  Getting the process right requires technical expertise, high-quality management and rigorous prioritisation

Mine & Process

Discovery

Production

0yrs

~10yrs

~25yrs

Tim

elin

e The key to value creation is rigorous opportunity prioritisation

Exploration pays its way - Centrally Controlled Exploration costs over the last 10 years are more than offset by divestments prior to Decision to Mine

Acquisition cost calculated based on publically declared transaction value grossed up for whole Tier 1 orebody based on percentage ownership. Central Exploration costs are Centrally Controlled Exploration costs net of Sepon, Kintyre, PRC and Chapudi divestment proceeds (after tax) Anglo American investment in Amapa and Minas Rio, Lundin acquisition of Tenke based on 20 day VWAP as per 11 Apr 07 announcement, Vale investment in Zagota and Simandou North, Marubeni acquisition of stake in Esperanza and El Tesoro, Areva acquisition of Uramin Inc., BHPB and Mitsubishi acquisition of New Saraji, ARMZ acquisition of Uranium One, China Railway Materials Commercial Corp. investment in Tonkolili, Vale acquisition of PRC/Regina, BHPB acquisition of Saskatchewan Potash,

0 1 2 3 4 5 6 7

0 1 2 3 4 5 6 7

Athabasca Potash (2010) Hathor (2012)

Potassio Rio Colorado (2009) Tonkolili (2010)

New Saraji (2008) Trekkopje (2007)

Uranium One (2013) Riversdale (2011)

Esperanza Tesoro (2008) Simandou N/Zogota (2010)

Tenke Fungurume (2007) Minas Rio (2008)

US$b

US$b Tier 1 Acquisition Cost RTX Avg Net Discovery Cost


From ~2010 Big data & the Cloud emerge

as key drivers

Early 1990’s Useful GPS for positioning &

communication arrives

1970’s Remote sensing &

airborne geophysics takes off

1950’s Prospector led discovery

dominated until late 1950’s*

1960’s Role of Plate Tectonics

and understanding mineral systems

emerged

* Gold prospectors in Australia doing it the old-fashioned way in 1851. (Three Lions/Getty Images)

1950’s -1960’s 1990’s – 2000’s 2010 - onwards 1970’s – 1980’s

1980’s The PC arrives,

computing in the field now possible


The role of technology is evolving

Global discovery trends

0

500

1000

1500

2000

1900 1920 1940 1960 1980 2000 2020 Geophysics

Geophysics + Geochem

Geochemistry

Extrapolated from Known Mineralisa9on Geological Mapping

Conceptual/Geological

Visual

Prospector

Other

Note: Base Metal deposits >100kt Cu, >250 kt Zn+Pb, >10 kt Ni Excludes satellite deposits within existing Camps

Global discovery trends Depth of cover and discovery method Prospect-scale base metal discoveries in the World: 1900-2013


Source: MinEx Consulting © February 2014

Over time we are exploring under progressively deeper cover

Dep

th o

f Cov

er (m

)

>5MtCu Porphyries

10My

450My Cu

mula/

ve Dura/

on

of Sub

duc/on

<5MtCu Porphyries

Distribution of known porphyry copper deposits


Known deposits are disproportionately located in developed jurisdictions

Digitising the ‘old business’


Rio Tinto Exploration archives

Government archives

4D Visualisation / Interpretation

New technologies

1001010 100100101 10010101001001 1001010 100100101 10010101001001

1001010 100100101 10010101001001

1001010 100100101 10010101001001

1001010 100100101 10010101001001

1001010 100100101 10010101001001

1001010 100100101 10010

Rio Tinto discoveries - 2000 to 2014 Majority of Rio Tinto discoveries since 2000 are outside the OECD

©2015, Rio Tinto, All Rights Reserved 17

Saskatchewan 2012, potash Eagle

2004, nickel** Resolution 2002, copper

La Granja 2005,

copper

Amargosa 2011, bauxite

Potasio Rio Colorado 2000, potash*

Simandou 2004,

iron ore

Bunder, 2008, diamonds

Mutamba 2008, mineral sands

Jadar 2009, borate/lithium

Sulawesi 2008, nickel laterite***

Caliwingina 2005, iron ore

Yandi Braid 2014, iron ore

Aluminium

Copper

Diamonds & Minerals

Energy

Iron Ore

Developed countries

Developing countries *sold to Vale in 2009 **sold to Lundin in 2013 ***sold in 2014

65 year track record of greenfield discovery success

1947 Canada Lac Allard Ilmenite Kennecott

1953 Canada Elliot Lake Uranium RTZ

1955 Australia Weipa Bauxite Zinc Corporation

1956 South Africa Palabora Copper RTZ

1960 Turkey Kirka Borates US Borax

1962 Australia Tom Price Iron Ore CZP

1968 Namibia Rössing Uranium RTZ

1970 Australia Tarong (QLD) Coal CRAE

1972 Brazil Paragominas Bauxite RTZ

1979 Australia Argyle Diamonds CRAE

1982 Brazil Moro de Ouro Gold RTZ

1983 PNG Lihir Gold Kennecott

1986 Australia Kintyre Uranium CRAE

1996 Canada Diavik Diamonds KEX

2002 USA Resolution Copper RTX

2004 Guinea Simandou Iron Ore RTX

2008 India Bunder Diamonds RTX

2008 Indonesia Sulawesi Nickel RTX

2008 Mozambique Mutamba Ilmenite RTX

1960 USA Seirrita Copper Kennecott

1955 Australia Mary Kathleen Uranium RTMA

1964 PNG Panguna Copper CRAE

1968 PNG OK Tedi Copper Kennecott

1972 South Africa Richards Bay Ilmenite RTZ

1977 Indonesia Kelian Gold CRAE

1984 Indonesia Kaltim Prima Coal CRAE

1990 Australia Century Lead-Zinc CRAE

1996 Spain

Las Cruces Copper

RTX

2000 Argentina

PRC Potash

RTX

2009 Serbia Jadar

Lithium RTX

2005 Australia

Caliwingina Iron Ore

RTX

2005 Peru

La Granja Copper

RTX

2007 South Africa

Chapudi Coal RTX

1991 Brazil Corumba Iron ore RTZ

2011 Brazil Amargosa Bauxite RTX

1996 Lao PDR

Sepon Copper CRAE

2013 Canada

Saskatchewan Potash

RTX

1956 Guinea Sangaredi Bauxite Alcan

2004 USA Eagle Nickel RTX

2004 Peru Constancia Copper RTX

1999 Zimbabwe Murowa Diamonds RTX

1947

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

Significant potential development projects

Founding discoveries for key product groups


2014 Australia

Yandi Braid Iron Ore

RTX

Shared commitment is essential whereby mining companies invest in local development while governments provide stable legal and fiscal frameworks to attract investment.

Contribution of mining to economic development

Source: ICMM – Enhancing mining’s contribution to the Zambian economy and society


Foreign Direct Investment

Exports

Government Revenue

Gross Domestic Product

Direct Employment

60%-90% 86%

30%-60% 80%

3%-20% >25%

3%-10% 12%

1% 1.7%

Typical share in low- and middle-income mineral-driven countries

Zambia

The resources industry can be a catalyst for broader economic growth

Aluminium

Copper

Diamonds & Minerals

Energy

Iron Ore

Greenfield projects

Brownfield projects

Rio Tinto Exploration 2015 operational footprint Exploring for 8 different commodities across 18 countries


Conclusions

©2013, Rio Tinto, All Rights Reserved 21

•  The mining and mineral exploration industries have entered an extended downturn following a decade of unprecedented expansion

•  Despite explosive growth in consumption, the world is generally not short of resources for the major traded commodities following a decade of resource uplifts through brownfield drill-outs

•  In the absence of new greenfield mineral discoveries, average run-of-mine grades and/or quality will continue to decline

•  New greenfield discoveries are required to replenish the resource inventory – these will be made disproportionately in frontier jurisdictions

•  For many developing countries, responsible development of their mineral resources can be the basis for economic upliftment

•  However regulatory uncertainties create a major impediment to investment •  Effective stakeholder engagement, seeking to establish mutually beneficial partnerships, is now a core

competency for explorationists

•  Exploration strategy needs to balance technical and jurisdictional risk, focusing on delivering investible options

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