March 2014 Strategy Financial position Outlook and businesses Appendix. Fixed income investors update Delivering greater value

Transcription

1 March 2014 Strategy Financial position Outlook and businesses Appendix Fixed income investors update Delivering greater value

2 Cautionary statement 2 This presentation has been prepared by Rio Tinto leading international mining group headquartered in the UK, combining Rio Tinto plc, a London and New York Stock Exchange listed company, and Rio Tinto Limited, which is listed on the Australian Securities Exchange. By reviewing/attending this presentation you agree to be bound by the following conditions. Forward-looking statements This presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of All statements other than statements of historical facts included in this presentation, including, without limitation, those regarding Rio Tinto s financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to Rio Tinto s products, production forecasts and reserve and resource positions), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Rio Tinto, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding Rio Tinto s present and future business strategies and the environment in which Rio Tinto will operate in the future. Among the important factors that could cause Rio Tinto s actual results, performance or achievements to differ materially from those in the forward-looking statements are levels of actual production during any period, levels of demand and market prices, the ability to produce and transport products profitably, the impact of foreign currency exchange rates on market prices and operating costs, operational problems, political uncertainty and economic conditions in relevant areas of the world, the actions of competitors, activities by governmental authorities such as changes in taxation or regulation and such other risk factors identified in Rio Tinto's most recent accounts in Australia and the United Kingdom and most recent Annual Report on Form 20-F filed with the United States Securities and Exchange Commission (the "SEC") or Form 6-Ks furnished to or filed with the SEC. Forward-looking statements should, therefore, be construed in light of such risk factors and undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this presentation. Rio Tinto expressly disclaims any obligation or undertaking (except as required by applicable law, the UK Listing Rules, the Disclosure and Transparency Rules of the Financial Conduct Authority and the Listing Rules of the Australian Securities Exchange) to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in Rio Tinto s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Nothing in this presentation should be interpreted to mean that future earnings per share of Rio Tinto plc or Rio Tinto Limited will necessarily match or exceed its historical published earnings per share.

3 March 2014 Strategy Financial position Outlook and businesses Appendix Strategy

4 A consistent strategy with clear priorities 4 Strategy Invest in and operate long-life, low-cost, expandable operations Priorities Improve performance Strengthen the balance sheet Deliver results Outcome Greater value for shareholders

5 March 2014 Strategy Financial position Outlook and businesses Appendix Financial position

6 Delivering greater value 6 Underlying earnings of $10.2 billion (+10%) Cash flows from operations of $20.1 billion (+22%) Net debt reduced to $18.1 billion Net earnings of $3.7 billion 15% increase to the full-year dividend

7 Delivering greater value 7 Transforming our business performance Cost reduction targets exceeded Record production Capex reduced Operating cash costs $2.3bn Exploration and evaluation $1bn 1 Copper equivalent growth calculated using long-term consensus price forecasts 9% production 1 growth in 2013 Thermal Coal Bauxite Iron Ore 26% less than in 2012

8 Exceeded 2013 cost reduction targets 8 Pre tax operating cash cost variance Reduction versus 2012 (US$ million) 2, % 2013 Target 2013 Actual 2014 Target Energy Aluminium 2,279 * Calculated at constant foreign exchanges rates 3,000 Copper Other PGs & Central $2.3 billion of operating cash cost improvement versus 2012 Exceeded $2 billion target for 2013 Further savings in 2014 to reach $3 billion full-year improvement against 2012 $1 billion reduction 1 in exploration and evaluation spend Exceeded $750 million target for 2013 by a third 4,000 net headcount reduction Significant productivity gains Group unit cash costs reduced by 10% versus 2012*

9 Strong cash flow from operations 9 Cash flow from operations US$ billion % increase in cash flows from operations versus 2012 Cash cost reductions 9% volume growth $5.6 billion increase in post tax cash flow from operating activities vs to $15.1 billion $3.5 billion of divestments announced or completed to date $2.5 billion received in 2013 $1 billion expected in early 2014 H H H H2 2013

10 Capital expenditure reduced by 26% 10 Expected capital expenditure profile* US$ billion % 12.9 >15% <11 >20% ~8 Five major projects completed in capex down by 26% compared to 2012 Iron ore growth pathway optimised at a lower capital intensity $1.9 billion reduction in sustaining capital across the Group Sequencing the best projects to optimise capex A 2013A 2014F 2015F Sustaining Pilbara sustaining Pilbara growth Other growth * Forecast capex is subject to variation in future exchange rates

11 Net debt has peaked and is declining 11 Net debt profile US$ billion Dec Jun Dec-13 Net debt reduced by: $4.0 billion versus 30 June 2013 $1.1 billion versus 31 Dec 2012 Long term and smooth debt maturity profile Weighted average maturity of around eight years Weighted average cost of debt of 4% $10.2 billion of cash at 31 Dec 2013 Targeting sustainable net debt levels in the mid-teen billion dollars Rated A-/A3 Stable by S&P/Moody s (S&P outlook revised on 27 February 2014)

12 Long-term and smooth bond maturity profile 12 Bond maturity profile (as at 28 February 2014) $ millions Rio Tinto Bonds - $22,945m Alcan Bonds - $2,050m

13 March 2014 Strategy Financial position Outlook and businesses Appendix Outlook and business update

14 Our businesses are well placed to meet global demand growth 14 OECD recovery underway Regional contribution to global PPP GDP growth 5% World GDP composition Percentage of world GDP, 2010 PPP$ 60% 4% 50% 3% 40% 30% 2% 20% 1% 10% 0% 2011A 2012A 2013A 2014F 2015F OECD China Other Source: Global Insight 0% China India Other emerging Asia Africa/Middle East Latin America Source: Global Insight

15 Delivering breakthrough iron ore growth 15 Mine capacity potential Million tonnes per annum Record Pilbara mine production of 250 Mt in 2013 (YoY +5%) 290 Mt/a commissioning continues to ramp-up ahead of schedule 360 Mt/a capital intensity reduced from mid $150s/t to $ /t* Rapid low-cost growth expected to produce more than 330 Mt* in 2015 Mine production capacity anticipated to grow by more than 60 Mt/a between 2014 and 2017 Global production guidance of 295 Mt* in 2014 * 100% basis

16 Copper delivers strong volume recovery 16 Mined copper volumes up 15% in 2013 with increased contributions from all four key operating assets Significant progress in executing the 4+2 strategy Disposals of $1.8 billion of noncore assets $514 million productivity improvement and cost savings Strategic review of Pebble interest La Granja and Resolution provide strong pipeline for growth through phased and prioritised development Mined and refined copper guidance 570,000 and 260,000 tonnes in 2014

17 Our other product groups are focused on reducing costs and improving productivity 17 Aluminium $574 million in cost reductions during 2013 Strengthening the portfolio Over $500 million improvement in earnings and EBITDA year on year Best bauxite reserves in the industry and an unrivalled position in renewable power Diamonds & Minerals Creating demand-led, integrated operations that are responsive to the changing external environment Driving returns through increasing productivity, reducing costs and delayering the organisation Advancing a tier 1 iron ore project in Guinea Energy Fostering a culture of performance and cost control $646 million in cost reductions during 2013 Optimising the portfolio through agreed sales of Clermont and Blair Athol for approximately $1 billion

18 Unrelenting focus to deliver on our priorities 18 Priority Delivered in 2013 Focus areas for 2014 Improve $2.3 billion cash operating cost reductions $1 billion lower exploration & evaluation spend Copper equivalent production growth of 9% Capex reduced by 26% to $12.9 billion Target further cost reductions to reach $3 billion full-year improvement on 2012 Sustain lower exploration & evaluation spend Continue improving productivity Strengthen Clear capital allocation priorities established Net debt down by $1.1 billion vs Systems & controls strengthened Remain disciplined in capital allocation Target continued net debt reduction to reach mid-teen billion dollar levels Preserve strong systems & controls Deliver Five major projects completed $3.5 billion of divestments announced Dividend increased by 15% Complete ramp up of Pilbara 290 project Complete approved projects Progress the Pilbara 360 project Greater returns to shareholders

19 March 2014 Strategy Financial position Outlook and businesses Appendix Appendix Delivering greater value

20 Rio Tinto a world leader in mining 20 Aluminium Leading position in: bauxite alumina aluminium Copper Leading position in: copper molybdenum Diamonds & Minerals Leading position in: titanium dioxide and zircon borates, diamonds and salt Energy Leading position in: uranium export coking and thermal coal Iron Ore Leading position in: seaborne iron ore

21 More than 80% of assets in OECD 2013 total assets (excluding non-controlling interests) by region 21 Canada 23% Europe 4% Mongolia 4% US 7% Other Asia 1 3% 1% Indonesia 1 Other Asia mainly relates to assets in Singapore and Oman. Total assets as at 31 December 2013 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. 4% South America Africa 6% 2013 total assets = $83 billion Australia/NZ 48%

22 Strength in diversity 22 Revenue by destination Percentage Revenue by commodity Percentage Diamonds 11% Europe 7% Other China 2% Gold 1% 6% 8% 4% Other 35% Iron Ore 15% North America 48% 22% Other Asia 15% Japan 16% Copper 9% Gross sales revenue in 2013 = $54.6 billion

23 Capital allocation priorities 23 1 Essential sustaining capex 2 Progressive 3 Iterative dividends cycle of: Further cash returns to shareholders Compelling growth Debt reduction

24 Iron Ore: Other developing regions should ensure a strong long-run demand 24 Total iron ore requirements Million tonnes 3,500 Growth fundamentals CAGR China India 3,000 Population ,500 Urban population ,000 GDP per capita , , China JKT EU27 India ASEAN Middle East Other Source: Rio Tinto Population Urban population GDP per capita ASEAN Source: United Nations, Global Insight, Rio Tinto Middle East

25 Copper: Strong long term fundamentals driven by supply gap and increasing demand 25 Primary mill grades Percentage (industry average) Mine supply / demand balance Million tonnes per annum Highly Probable Projects Base case production capability Primary demand Short term volatility -25% +8Mtpa to meet demand Supply drivers Declining ore grades at existing mines Higher costs (opex & capex) for new mines Greater depth Increasing ore hardness Rising labour costs Increasing utility costs (electricity, water) New supply in difficult jurisdictions Demand drivers China and other emerging markets (India, South East Asia) Non-traditional energy sources Energy efficiency and safety requirements Source: Wood Mackenzie Q3 2013

26 Aluminium: Market in modest deficit but expansions in China could reverse the trend 26 Global aluminium production balance Million tonnes A 2009A 2010A 2011A 2012A 2013A Series1 LME Price LME+Premium Source: Platts, Metal Bulletin, London Metal Exchange and CRU Aluminium cash cost curve* US$ per tonne 3000 US$/t 4,000 3,000 2,000 1,000 - Aluminium market currently in modest deficit due to Continued strong demand Curtailments/ production disruptions Inventories expected to stay high as financial deals remain attractive LME changes could bring regional premiums down to historical levels putting more pressure on smelters % 50% 75% RoW China Price * Cost curve includes an estimate of premiums as a credit to costs

27 Diamonds & Minerals: Long-term demand fundamentals are robust 27 Global commodity demand trajectories Indexed (2013) TiO2 feedstocks Diamond jewellery Salt (Asia only) Zircon Refined borates Increases in demand equivalent to: 7 new operations the size of Richards Bay Minerals by new operations the size of Boron by 2030 Increasing Chinese and emerging market wealth underpins long-term demand fundamentals for all products China GDP per capita currently 20% of USA levels More than 10 million people per year urbanising in China to 2030 Source: Rio Tinto

28 28 Energy: Strong long-term fundamentals for coal demand Seaborne thermal coal demand to grow 19% by 2018 Million tonnes (24) Europe JKT China India Other Asia 40 (6) 1067 RoW 2018 Thermal coal China, India and emerging South East Asian countries continued urbanisation and industrialisation driving demand Coking coal Seaborne metallurgical coal demand to grow 30% by 2018 Million tonnes Strong steel demand in China and India support coking coal Non-prime and semi-soft coking coals increasingly needed in the long run to manage scarcity of prime hard coking coal Europe JKT China India Brazil RoW 2018 Source: Wood Mackenzie coal market service (H2 2013)

29 Focused reductions in exploration and evaluation spend 29 Exploration and evaluation costs US$ million (pre tax) 2,250 2,000 1,750 1,500 1,250 1, $1,023 million Strong project pipeline Copper: La Granja and Resolution Further 28 projects ongoing across 10 commodities Exceeded $750 million target for exploration and evaluation savings in 2013 Exploration and evaluation spend to be sustained at around this level in 2014 and beyond YoY saving 2013 Iron ore evaluation Copper evaluation Aluminium evaluation Energy evaluation D&M evaluation Central exploration

30 Credit rating 30 Moody s 2 Standard & Poor s 3 Fitch 4 DBRS 5 Long-term A3 A- A- A Low Short-term P-2 A-2 F2 R1 Low Outlook Stable Stable Stable Stable 1. A rating is not a recommendation to buy, sell or hold securities, and may be subject to revision, suspension or withdrawal at any time by the assigning rating agencies 2. Moody s Investors Service Rating Action November 12, 2010 Rio Tinto 3. Standard & Poor s Ratings Direct February 27, 2014 Rio Tinto 4. Fitch Ratings February 19, 2010 Rio Tinto (rating not solicited by Rio Tinto) 5. DBRS Press Release July 3, 2009 Rio Tinto

31 Modelling earnings 31 Earnings sensitivity 2012 average published price/rate 2013 average published price/rate 10% change in 2013 average Impact on 2013 full year underlying earnings ($m) Copper 361c/lb 333c/lb +/-33c/lb 221 Aluminium $2,018/t $1,845/t +/-$185/t 553 Gold $1,669/oz $1,410/oz +/-$141/oz 29 Iron ore (62% Fe FOB) $122/t $126/t +/-$13/t 1,214 Coking coal (average spot) $209/t $159/t +/-$16/t 135 Thermal coal (benchmark) $99/t $85/t +/-$9/t 155 A$ 104USc 97USc +/-US9.7c 563 C$ 100USc 97USc +/-US9.7c 289 The sensitivities give the estimated effect on underlying earnings assuming that each individual price or exchange rate moved in isolation. The relationship between currencies and commodity prices is a complex one and movements in exchange rates can affect movements in commodity prices and vice versa. The exchange rate sensitivities include the effect on operating costs but exclude the effect of the revaluation of foreign currency working capital. They should therefore be used with care.