Rio Tinto Investor Seminar, London - 11 December 2013

Transcription

1 Slide 1 Title slide Slide 2 Cautionary statement Page 1 of 81

2 Slide 3 Agenda (Mark Shannon) Good morning everyone and welcome to the second of our investor seminars. I m Mark Shannon, head of investor relations at Rio Tinto. In a moment, Sam Walsh will make some opening comments about his vision for the company, our strategy and how we re delivering against our targets. Chris Lynch will then provide more detail on the levers we re pulling to improve performance, and drive our free cash flow. Alan Davies will talk about the actions he has implemented in our Diamonds and Minerals business in response to market changes and Harry Kenyon-Slaney will give you an update on the transformation work he is leading in our Energy business. Following a short break, Andrew Harding will share with you the details of our breakthrough iron ore growth programme. Sam and the team will then be happy to take your questions. Before we start, though, I would be grateful if you could all ensure that your mobiles are switched off. We will now provide an important safety briefing. Page 2 of 81

3 Slide 4 Emergency procedure Slide 5 Sam Walsh cover slide Good morning, everyone, it s a pleasure to be here. Since becoming chief executive in January, I ve been re-focusing the business on delivering Page 3 of 81

4 greater value for you, our shareholders. As you can well imagine, this has meant spending plenty of time focusing on how the business is travelling. And, I ve been really impressed by what I ve seen. We have great people, tier one operations, a healthy pipeline of projects, and industry leading technologies. This is a world-class company. But, to be frank, we had lost focus on what really matters delivering superior value to shareholders. My goal is to transform Rio Tinto into the highest performer in our sector. We are taking decisive action. We are improving performance, strengthening our balance sheet, and we're delivering results. But, we have more to do, and driving change across the organisation has my undivided attention. Slide 6 Delivering value for shareholders This year, we ve achieved substantial cost reductions across our operations, and in our Page 4 of 81

5 exploration and evaluation spend. Last week,in Sydney, I said that we had achieved $1.8 billion of cost savings to the end of October. In fact, at the end of November, we ve now exceeded our targets for We have taken more than two billion dollars out of our operating costs, and reduced our exploration and evaluation spend by over 800 million dollars. At the same time, we ve set new production records, as we've realised productivity gains across our portfolio. We ve enhanced our capital allocation, and we intend to halve our capital expenditure, over the next three years, to around eight billion dollars in Importantly, this is not at the expense of value adding growth. I really do believe that expanding our world class, high margin Pilbara operations is the most attractive investment opportunity anywhere in the mining industry. It is right in line with my commitment to be totally focused on only allocating capital to opportunities that will generate the best returns. The breakthrough pathway we announced two weeks ago combines brownfield expansions with low-cost productivity solutions, and the deferral of greenfield mine development. As a result of this breakthough, we will deliver the expansion at around three billion dollars less than previously estimated. And we have already completed the first phase of the Pilbara expansion, to 290 million tonnes a year, four months ahead of schedule and 400 million dollars under budget. Of course, our achievements are not confined to Iron Ore. In Energy, we successfully completed the Kestrel mine extension project, and began producing and shipping coal earlier this year. This will enable us to grow our coking coal volumes by 25% over the next five years. In Diamonds and Minerals, our transition from open pit to underground at the Argyle diamond mine reached a significant milestone in April, with the official opening of the underground. And in Copper, we have completed phase one of the Oyu Tolgoi copper-gold mine in Mongolia, where we are now ramping up shipments to match production. Finally, we are actively re-shaping the portfolio by selling non-core businesses. Page 5 of 81

6 This year we ve announced or completed sales of 3.3 billion dollars, including the Clermont thermal coal mine for just over a billion dollars. All of these successes are underpinned by the cultural transformation that I'm driving, to ensure that everyone in this business acts as an owner, taking accountability for their decisions. Whilst we have more to do, our performance shows we are delivering results. Slide 7 Safety culture critical to operating effectively But before I continue, let s talk about safety. We ve made significant improvements in our safety performance over the last decade. But, I am not satisfied with our progress. Tragically, we ve had three fatalities at our managed operations this year. Sadly, just last month, a contractor working at our Richards Bay Minerals operation in South Africa, died as a result of a vehicle incident. A terrible accident, and I extend my condolences and prayers to his family and friends. I want all of our employees and contractors to go home safe and well at the end of each day. And so we re improving the way that we learn from serious near miss incidents, in order to prevent them happening again. Page 6 of 81

7 We are constantly looking for ways to engage our people, in a very personal way, on the impacts of safety incidents. Because, at the end of the day, safety is about caring for people. Slide 8 Copper 4+2 strategy set to create substantial and sustainable value for shareholders Last week, in Sydney, Jean-Sebastien Jacques and Jacynthe Cote provided an update on our Copper and Aluminium businesses. Let me briefly recap on the key points, starting with Copper. Jean-Sebastien set out the strong long-term outlook for the copper market, and he shared the work underway to reposition our Copper assets around a 4+2 strategy. The 4 of the strategy represents the tier 1 operating assets we currently have. These long-life, low cost assets are Kennecott, Oyu Tolgoi, Escondida and Grasberg. The 2 in the strategy represents two world-class greenfield projects, Resolution in the United States and La Granja in Peru. The strategy focuses on delivering productivity improvements and cost savings at our existing operations, to improve the quality of earnings over the next five years. This will set a solid foundation to grow the business when the time is right, through phased and prioritised investment in our tier one greenfield projects. Page 7 of 81

8 This strategy is a clear road map to position the Copper group as a first quartile low cost producer. I have already mentioned the completion this year of phase one of the Oyu Tolgoi copper-gold mine in Mongolia. This is an outstanding achievement, and a great example of delivering a growth project on time and to budget. We continue to discuss the pathway forward for the phase 2 underground project with the Government of Mongolia. It's a constructive dialogue, and we remain committed to resolving the outstanding issues, so that we might all be able to move forward confidently with this project. Slide 9 Transforming Rio Tinto Alcan through reducing cost, improving productivity and strengthening the portfolio Whereas the outlook for Copper is strong, Aluminium faces a set of very different market dynamics. The Aluminium market is currently in a modest deficit, following several years of oversupply. At current prices, we continue to see around 25% of the industry s product capacity operating at below cash breakeven levels. In alumina, the market is expected to be near balanced in 2014, trading at around the marginal cost of production. The silver lining is bauxite, with strong growth in Chinese demand. Page 8 of 81

9 And we expect bauxite demand to continue to outpace demand growth for aluminium metal, due to declining Chinese domestic bauxite reserves and grades. It s against this backdrop, that Jacynthe and her team have been working to transform our Aluminium assets and take the tough but necessary decisions. Since 2009, we have closed or curtailed over 600,000 tonnes of aluminium capacity and sold a further 13 non-core businesses. Most recently, we announced suspension of the Gove alumina refinery in Australia, to focus on the Gove bauxite operations. I said in Sydney that, after much analysis, including whether a sale, spin or an IPO of the aluminium product group were viable options, we have decided that it remains part of our diversified portfolio. Within the context of this decision, I will be seeking continued efforts to transform the product group. And, we re making headway. We have a variety of cost saving programmes underway. These target asset and labour productivity, fixed production and raw material costs, as well as functional support costs. So far, these have delivered over 450 million dollars of cost savings this year. By the end of 2014, we expect that these cost savings would have reached our target of one billion dollars. So, we are improving the business. But, clearly, it s a tough place to be. Page 9 of 81

10 Slide 10 Our businesses are well placed to meet global demand growth In terms of the global economy, from where I stand, we continue to see market fragility and volatility as underlying structural weaknesses remain unresolved. The hangover from quantitative easing and austerity programmes remain, and so I believe that we should continue to expect short-term risk for the time being. Looking to the long-term, the economic growth of China, India and the populous ASEAN countries, will continue to drive demand growth for our products. In China alone, around 170 million people are expected to move to an urban environment by I therefore remain optimistic about the demand for our products, which are vital for the developing world. And supply will continue to be constrained. Poor returns on some investments made over the past few years are leading investors to demand higher rates of return, and lower capital expenditure. This means that the rate of supply growth across some commodities is likely to be lower than many have previously predicted. And so, the outlook for our business is attractive. Page 10 of 81

11 Slide 11 A consistent strategy with clear priorities Now, I can t control the external world we operate in. But I can influence how we position our company to meet head-on any challenges the world might present. With this in mind, I am confident that our strategy to invest in long life, low cost and expandable assets is absolutely right. And the key for us now is disciplined and unrelenting execution of this strategy. The goal is to transform the performance of our business and deliver the best results from some of the best assets in the industry. Today, you ll hear more about how we are doing exactly that. Work continues, across the Group, on many different fronts. I have changed our incentive schemes, and our performance metrics, so that they are directly linked to achieving our targets, such as cost reduction. Cash generation offices are being set up across the Group, so our leaders have visibility on how the business is tracking. And, as I ve mentioned before, I m changing our mind-set to behave more like owners of this great business. This makes absolute and clear sense as we look to instill greater accountability and rigour Page 11 of 81

12 across our activities. In doing so, we re doing exactly what we said we d do reliably and flawlessly executing our strategy. Now, we have a full agenda. So, before handing over to our Product Group heads, let me ask Chris to take you through the progress we re making against our targets. Slide 12 Chris Lynch cover slide Thanks. As Sam has already mentioned, we ve taken steps across the business to reduce costs and increase productivity. Our capital expenditure profile is coming down at the same time as we re bringing on significant new volumes. And we ve announced or completed 3.3 billion dollars of divestments this year. So, we ve got some runs on the scoreboard and we expect significant improvement in our free cash flow generation in future periods. We ve also taken steps to strengthen and enhance our systems and controls around capital allocation, so that we only invest in the best opportunities. This will ensure that we generate greater returns throughout the cycle. Page 12 of 81

13 I ll talk you through some of the thoughts we have in this area. In summary, we are taking positive action to build a strong and robust balance sheet for whatever range of futures we may face. Slide 13 Strong performance on operating cash costs We continue to make strong progress on our cost reduction programme. I said in Sydney that we ve delivered over 1.8 billion dollars of improvement in unit operating cash costs in the ten months to October. We ve continued that progress and, at the end of November we ve now exceeded our target of two billion dollars of operating cost savings for this year. And you can expect more from us next year, as we progress towards our three billion dollar target for 2014 against In addition, we ve cut our exploration and evaluation spend by more than 800 million dollars. So, we've already exceeded our targets for both operating cost reductions, and lower exploration and evaluation spend. This strong performance comes from over 1,500 separate initiatives which have been implemented across the businesses. These cover a vast range of activities. Page 13 of 81

14 Let me mention a few examples of the great work underway. The Copper group has reduced service and support costs by more than 50 million dollars in the first ten months of the year, primarily through reducing headcount and right-sizing the business following divestments. In Aluminium they ve been able to increase truck utilisation at the Weipa bauxite mine, through using condition-based maintenance and reducing turnaround times. Initiatives such as these have allowed them to achieve a 47% increase in labour productivity since At the same time, they ve been able to strip out costs in their procurement spend with a reduction of 14% in materials and services costs since At a global level, we ve taken almost 4,000 people out of the business since June 2012, even after taking into account eighteen hundred new roles to support the iron ore expansions. And this doesn't include a further 3,000 roles that have gone with divested assets. So the business is now being run much more tightly, with a real focus on cash generation, and I think you can see that we re making good progress. But it s a journey and we have more to deliver in future years. Slide 14 Targeted reductions in exploration and evaluation spend Our enhanced approach to capital allocation is driving targeted reductions to our exploration and evaluation spend. Page 14 of 81

15 We simply can t expect to push forward with every opportunity at the same time, and so have prioritised and sequenced our spend on longer-dated evaluation projects. As a result, we ve already beaten our 750 million dollar target reduction for this year, with a reduction of over 800 million achieved to the end of November. We ve roughly halved our spend, and we will sustain this reduced level into We have slowed a number of evaluation projects. They will continue to progress, but at a pace that matches our overall view of investment priorities. Our central exploration budget, shown in red on the slide, remains at around 200 million dollars a year. This is a critical activity for us, in order to secure future options. We are a long-term business that s been in operation for 140 years. We intend to continue to develop attractive growth options for future generations. Slide 15 Delivering strong growth and lower capital expenditure As well as reducing costs, we re getting capex down, well down, from its peak last year. To give you more colour, let me give you some numbers. Page 15 of 81

16 Between 2006 and 2010, we spent around five and a half billion dollars. In each of the three years from 2011 to 2013, we spent an average of around fourteen and a half billion dollars. This most recent step change upwards was just not sustainable. We will therefore be more disciplined in the allocation of capital in future. This is most clearly illustrated by the breakthrough growth pathway in the Pilbara that we announced last week. This is exciting value creation. By combining brownfield expansions with low cost productivity gains we have been able to reduce and postpone the investment required to grow our mine capacity. And we are adopting the same mindset to our sustaining capital. The breakthrough pathway does not increase our rate of spend on new mines to maintain production levels in the Pilbara. And, across the business, we are reducing sustaining capex that is required to maintain our existing plant and machinery. Taken together, sustaining capex, including Pilbara sustaining mines, will reduce by over two billion dollars in 2013, to around five billion dollars, and stay around this lower level going forward. We will still be delivering strong growth, but with lower capex. So far this year we have completed the Pilbara 290 project, Oyu Tolgoi phase one, Argyle underground, Kestrel mine extension and AP60. As a result, we have significant volume growth coming through as these key projects ramp up over the next two years and we see the additional benefit of our productivity improvements across the portfolio. For example, over the five years from 2012 our iron ore volumes will grow by more than 50% and coking coal by more than 25%. We will continue to expand. But I believe we can deliver steady growth while reducing total capex. Next year, our capex will be less than 11 billion dollars, and we expect it to reduce further to around 8 billion dollars in This will result in a strong balance sheet, which will allow the Board to make further Page 16 of 81

17 decisions around returns to shareholders and other allocations of capital. Slide 16 Capital allocation priorities We have changed the way we think about capital allocation, and have enhanced the systems and controls we have in place to ensure that we keep our capex at a suitable level, while continuing to invest in the very best projects. Some of the changes may seem like subtle nuances. But it s a fundamental adjustment to the way we look at capital allocation. Put simply, we no longer consider whether each individual project is a good use of capital. We are looking at our portfolio of investment opportunities over a number of years to determine what will be the best use of capital. A key consideration in determining the best use of capital is our progressive dividend policy, and the extent to which we need to strengthen the balance sheet. As always, relative attractiveness is assessed based on value and returns. We will only allocate capital to a project where it can generate a return well above our cost of capital, taking in to account a range of potential risks. And it s not just about NPVs and IRRs, it s about much more than that. We have to look at a broad suite of data and metrics to quantify the risk and relative quality of the opportunity. Page 17 of 81

18 For instance, pay-back period, probability distributions, profitability index and industry structure also have their place in our analysis. Alongside this, we must also consider ways that we can secure our license to operate and de-risk projects without investing vast sums of money upfront, but instead approaching it in a phased way. And, as I indicated before, the investment parameters have changed. We want to invest in a sustainable way through the cycle, which means we invest only what we can afford, having consideration of shareholders expectations of returns, and the robustness of our balance sheet. We don t have a target level of capital investment that we must reach. If projects are not able to generate a return well above our cost of capital then we won t invest. And if we can t get the returns we demand, and our balance sheet is strong, then we can enhance returns to shareholders, as we have done in the past. Slide 17 Progressing non-core asset disposals As a part of our focus on ensuring that capital is allocated to the best assets, we ve also been divesting non-core businesses. This year we ve divested 3.3 billion dollars of non-core assets. And we ve received proceeds of around 2.3 billion dollars to date. Page 18 of 81

19 Most recently we reduced our stake in Constellium, the former Alcan Engineered Products business, for 315 million dollars, and closed out the sale of Northparkes. The Clermont sale is making good progress and we expect to receive the 1 billion dollars cash proceeds early in the New Year. So, we ve been able to capture significant value for assets that no longer fit our strategy. This is an ongoing process for us and we ve now divested around 17 billion dollars of assets since Slide 18 Greater returns for shareholders So, in summary, each of the drivers of free cash flow that we can control is improving. We re reducing costs while growing volumes, and divesting non-core assets. We ve enhanced our systems and controls, and we re changing the way we approach capital allocation to ensure that our cash flows are deployed to the very best uses of capital. We need to have a balance sheet that will be resilient enough to absorb any shocks in commodity markets, or the economy generally, and still give us the flexibility to invest throughout the cycle, and pay strong cash returns to shareholders. From the end of 2010 to June 2013, our net debt grew from 4 billion dollars to over 22 billion. It has now started to reduce, and we want to see it come back down to a more sustainable Page 19 of 81

20 level. For this reason, paying down debt will be the priority for We re also lowering capex to a more sustainable level, with year on year reductions of around 20% in each of 2013, 2014 and This is creating a base for generating enhanced growth in our cash returns to shareholders in future periods. With that, let me hand you over to Alan. Slide 19 Alan Davies cover slide Thanks Chris. Good morning everyone. I will now take you through our Diamonds & Minerals business which I expect will become an increasingly significant contributor to Rio Tinto s earnings. I will also cover the tier one Simandou iron ore project in Guinea which remains under my leadership. Page 20 of 81

21 Slide 20 A leader in our markets Diamonds and Minerals is a portfolio of market-leading businesses, which are well positioned to grow margins in line with increasing demand for our products. This is driven by the robust, consumer-led macro-economic trends of urbanisation and rising per capita income. We therefore expect to benefit from later cycle growth in China and other emerging economies. These commodities have a wide range of end uses and are typically a small proportion of the cost of the end product. This provides an opportunity to create and capture value through proprietary market insight, customer segmentation, value-in-use pricing, and product innovation. Our businesses are strong leaders in both cost and market position, and are underpinned by large resource bases and expansion optionality. We are the number one producer of high-grade titanium dioxide feedstocks globally. Last year we consolidated our titanium dioxide position through our $1.7 billion investment in Richards Bay Minerals in South Africa, doubling our stake. This transaction was earnings accretive from day one, and we now control a tier one, low cost, expandable, highly cash generative asset. We operate a global integrated diamonds business, producing the full range of rough Page 21 of 81

22 diamonds for both established and emerging markets. In California we have a tier one borates business, producing over 30% of global supply of refined borates. We also have three salt fields in Western Australia, which are well positioned to capture the growing demand from Asia. Lastly, we are advancing Simandou, a tier one iron ore project in Guinea, where progress and alignment with our partners is very encouraging. Slide 21 Operating demand-led operations in attractive markets The Diamonds & Minerals strategy is focused on running safe, demand-led integrated operations in attractive markets. This means that through our proprietary market insight, we create and enter new markets for our products, and we maintain the flexibility to respond to market changes. This year, we have experienced softer market conditions for some of our products. We have therefore taken the opportunity to transform our businesses by simplifying our organisation, reducing costs, boosting productivity, and empowering our people closer to our assets. Page 22 of 81

23 Slide 22 Long-term demand fundamentals are robust Let s first take a look at the long-term fundamentals, which remain very positive. This is driven by the mid-to-late cycle fundamentals of urbanisation and rising per capita income. Our products are largely used in consumer and high-end industrial applications, such as jewellery, high quality pigments for paint, glass applications and technology. We are therefore geared to the rising wealth of emerging economies. As that wealth increases, demand for our products is set to rise significantly. To put this into context, for titanium dioxide this demand increase is the equivalent of seven new Richard's Bay Minerals by For borates it would equate to two new Boron operations by Page 23 of 81

24 Slide 23 A responsive market-driven business We are using our proprietary market insight to respond to market conditions by aligning production with demand. Our diamonds business is experiencing strong demand for its range of diamond products, which we will supply from the ramp up in production from Argyle. On the other hand, at RBM we placed our zircon and rutile production on care and maintenance in February. We have recently restarted zircon production, but it is not yet operating at full capacity. At RTFT in Canada we have taken a threefold approach to reduce production given reduced demand: We took the high grade UGS facility offline earlier this year which has only just restarted, but at reduced capacity. In July we brought forward a planned maintenance shutdown of one of our nine furnaces. The rebuild will not take place until markets improve. And we shut the ilmenite mining facilities at Havre Saint Pierre for five weeks during the summer, and a further 6 weeks over Christmas. In Madagascar, we have shut the mineral sands mining operation for two months over December and January. And finally, at Boron, we have implemented an extended vacation shutdown through Page 24 of 81

25 December, as we did last year. We continue to monitor market conditions and flex our operations accordingly. Coupled with these actions, we are improving the performance of our operations. This includes system wide optimization to ensure greater focus on just in time management of our inventory positions, the creation of an integrated planning centre, and maintaining our distinctive focus on our customers and reliability for supply. Further optimization and focus on reducing variability in operating and process controls will be a focus for Slide 24 Driving operating performance by cutting costs, improving productivity and managing capital We are making good progress on our sustainable cost and productivity improvements. We expect to complete 2013 with cash operating costs around 9% lower, and capital expenditure around 25% lower than We are taking a back to basics approach with our operations, getting back to what we do best running safe, reliable, efficient and process controlled businesses. We have simplified and streamlined the organisational structure, generating annual savings of around 30 million dollars in support costs alone. All businesses have significantly reduced their headcount in order to drive productivity gains. Page 25 of 81

26 Since January we have removed over 1000 positions from our business. These cost and productivity improvements will enhance the structural postion of the business as volumes return. We have optimised our capital spend to improve free cashflow. And our development capital in the next few years is expected to be limited to completing projects currently underway. Slide 25 Titanium dioxide fundamentals remain strong Let s take a closer look at titanium dioxide. Our key market is the pigment industry, which in turn is driven by demand for paint and coatings, plastics and paper. Last year In Sydney, I outlined that titanium dioxide markets would enter a period of softness, due to higher stocks in the value chain. We saw this eventuate and we expect this to persist into next year. However, we continue to believe that the medium to long-term fundamentals remain very positive. This is underpinned by pigment demand growth in emerging economies, and a constrained supply side. Our analysis indicates that Chinese pigment consumption per capita will grow by 34% by Page 26 of 81

27 2020, and double by Growth in building and construction, consumer durables, and packaging, are all expected to support this increasing intensity. Turning to supply, few large-scale projects have been brought on-stream over the last two decades, and clearly new feedstock and pigment production is required to meet this growing demand. We are continuing to replace long-term contracts with quarterly or spot pricing. This could potentially result in a 100% pricing uplift on our legacy contracts, based on current market prices. This will flow directly through to our bottom line. In 2012, weaker than expected demand, particularly for pigment, resulted in a sharp increase in finished product inventory through the value chain. Pigment demand increased in 2013, allowing producers to unwind inventories. Despite reports of increased pigment plant capacity utilisation, demand for feedstocks has been weak through 2013, leading to a substantial build-up of inventory across all segments. We expect increased pigment production to flow through to higher feedstock demand in 2014, which will help to unwind these feedstock inventory levels. Our co-products high purity iron, steel, metal powders and zircon are expected to account for approximately 50% of Iron & Titanium s revenues in For zircon, we expect 2014 demand to be similar to 2013, with the challenge of continued inventory overhang in some parts of the value chain. Page 27 of 81

28 Slide 26 Demand-led operating philosophy with flexibility to respond to market changes So we are taking advantage of this short-term market softness to transform our titanium dioxide business. The build-up of inventories in 2012 coincided with two of our furnace rebuilds. And together with actions taken in 2013, we're currently operating at around 25% below capacity. This operating mindset has been coupled with an extensive transformation programme. We have been growing our position in ChIna through new warehouse facilities, and expanding our technical presence, to work with our customers to help them extract the most value from our products. As markets recover, we will be in a great position to participate. We have maintained our growth options with a number of brownfield and greenfield projects. This includes progressing the prefeasibility study Zulti South, which will enable us to maintain RBM smelter capacity, and options to expand Havre-Saint Pierre, QMM or develop our greenfield licenses in Mozambique. These will provide us with the opportunity to grow alongside our customers and the industry. Page 28 of 81

29 Slide 27 Diamonds are well positioned for profitable growth Turning now to diamonds. We made a decision to retain the business in June this year and have always strongly believed in the demand outlook. This business is in an attractive market, with high quality assets. Recent capital investment will see our output grow, and the business become highly cash flow generative. Despite some short-term market challenges, we see strong industry fundamentals driving price appreciation over the medium term. Supply is expected to be flat due to the lack of new discoveries and the long lead time for development. We therefore anticipate a supply deficit for some time yet. We see strong demand growth driven by China and India, with continued demand in the all-important US market. As these markets grow, we are positioning ourselves as a leading supplier in all diamond market segments. Our on-going partnership with Chow Tai Fook, the number one jewellery retailer in China, has seen Argyle diamond jewellery placed in over 1000 stores in mainland China and Hong Kong. Page 29 of 81

30 At the operational level, the Argyle underground mine was commissioned in April this year. The second crusher is now under construction, and expected to be completed in the fourth quarter of Underground volumes are being ramped-up, and we expect to produce over 11 million carats in And at Diavik we are operating the underground mine at capacity. We are making significant headway in optimising performance at both sites, through cost reductions and simplification. As you can see from the graph, unit costs are expected to be reduced by 30 to 40% between 2012 and Slide 28 Aligning borates production to market demand We also see strong demand growth for refined borates over the medium-term driven by three trends of urbanisation, energy efficiency and agriculture. We are delivering our MDDK project, which allows for direct dissolving of kernite ores, and will support efficient ore body utilisation over the remaining mine life and will optimize our product mix. The project is on track for completion in mid-2014, and will enable us to respond to increases in demand with very low capital investment, delivering significant returns. Over the last year we have been focused on driving cost and productivity improvements Page 30 of 81

31 through the operation. For example, at the mine, we have improved effective truck utilisation by over 10%. This has resulted in a reduction of the overall fleet in service, elimination of overtime, and reduced manpower. We expect savings to exceed $6 million annually from this initiative alone. We also have a number of early stage options to expand into the complimentary sectors of potash in Canada, and lithium carbonate in Serbia, at the appropriate time. Slide 29 Dampier Salt is focused on building capacity to deliver greater value Dampier Salt's assets are strategically located in Western Australia, close to the growing Asian demand centres. Each of the three sites has its own port facility, with our Port Hedland operation occupying space in the Inner Harbour. We anticipate on-going growth in demand from China and other south-east Asian economies. We sell into all key Asian markets and we have already locked in more than 75% of our volumes under contract for We have also made very good progress in boosting labour productivity during Page 31 of 81

32 We have adopted a drumbeat process at all sites to drive increased tonnes every shift. This approach has allowed us to move from a 4 panel roster down to 3 at Port Hedland, leading to almost $4 million in annualised savings. As a result, we expect tonnes per shift to increase by at least 20% by Slide 30- Advancing a tier one iron ore project in Guinea Moving onto Guinea. Simandou is a truly world class asset. It is a rich deposit of over 2 billion tonnes of high grade iron ore. It can sustain a mine life in excess of 40 years, and will make Guinea one of the world s top iron ore exporters. Once operational, Simandou will be positioned in the first quartile of the cost curve. It will be a simple operation, with no iron ore processing requirements to make a final product. It will also be the largest greenfield development in Africa, with supporting infrastructure including a 650km multi-user rail line and port facility. We have a unique development team made up of the Government of Guinea, Chinalco and IFC, with full alignment and commitment between the partners. Page 32 of 81

33 Slide 31 Require Investment Framework ratification and infrastructure funding plan to accelerate The project requires Investment Framework ratification, and an agreement on infrastructure funding to accelerate. Constructive discussions are underway between all parties. Earlier this year, the Government of Guinea decided not to take up its 51% share of the infrastructure company. This has created a gap in the funding of the project which now needs to be closed. As illustrated here, the infrastructure project will be developed as a distinct project. The focus of Rio Tinto s investment will be on the mine, which will provide a stable revenue stream for the infrastructure. The infrastructure development and ownership model will be underpinned by a haulage contact from the mine. Over a short period of time, we plan to mobilise new investors and infrastructure owners to raise a significant portion of the required capital in equity, with the remainder to be funded by project finance debt. As these additional investors are brought in, it will reduce the capital funding requirements by the existing Simandou partners. The full integrated infrastructure and mine project will be governed by the Investment Page 33 of 81

34 Framework. We are in constructive discussions with the Government of Guinea to progress this to ratification early next year. Slide 32 Delivering value for shareholders In summary, the Diamonds and Minerals product group is a diverse portfolio of sector leading businesses which is delivering value for shareholders. Our demand led operating philosophy is creating agile and reliable businesses, by leveraging our unique market insight. We are getting back to running efficient, low cost, profitable operations. We are extremely well positioned to capture the uplift in consumer led demand, driven by on-going urbanisation, and growing incomes in emerging economic powerhouses, such as China, India and South East Asia. Our assets provide exposure to these economic drivers and later cycle inflection points, and are underpinned by long life, expandable resources with strong free cash flow and earnings momentum. We are advancing the world-class Simandou project, which will further position Rio Tinto as the premier iron ore producer in the world. Thank you, and now over to you Harry. Page 34 of 81

35 Slide 33 Harry Kenyon-Slaney cover slide Thank you Alan. Today I d like to provide you with an update of our Energy portfolio, which includes coal and uranium assets in Australia, Canada, Mozambique and Namibia. Slide 34 Rio Tinto Energy is getting back to basics by reducing costs and delivering value Page 35 of 81

36 You ve heard both Sam and Chris talk about reducing costs and increasing productivity across the group. In the energy industry, increasing costs and strong local currencies have resulted in lower productivity. These, combined with lower commodity prices and weaker markets, have placed the energy industry under significant pressure. At Rio Tinto Energy, we are transforming our business, and working relentlessly to improve our position on the cost curve, through aggressive cost reductions and productivity improvements. This has led to $600 million of savings to October 2013, and we re on track to deliver our targeted $1bn of ongoing cost savings by the end of This is essential to ensure our business remains competitive during tough cycles, and is able to deliver greater value to shareholders. In addition to our cost cutting programme, we are also focussing our efforts on a number of other areas. Firstly, using technology, including 3D seismic surveys and innovative visualisation techniques, to leverage our significant resource base. Secondly, maintaining our license to operate, by engaging constructively with communities and governments to deliver sustainable business outcomes. And finally, continually optimising our portfolio of assets, by divesting those considered non-core, and investing only in those that will provide attractive long term returns to shareholders. In October, we reached a binding agreement to sell our Clermont mine which should complete early in the new year. Whilst a great mine, Clermont is remote from our other operations and therefore our ability to realise synergistic benefits was limited. At a sales price at over one billion dollars, and costing $660 million to develop, we believe we have achieved an attractive value for the mine. Turning now to the market conditions for the Energy business. Page 36 of 81

37 Slide 35 Around one third of global seaborne thermal coal production has been loss-making this year Third party data and our estimates indicate that approximately one third of international seaborne thermal coal would be loss making at average 2013 spot prices. Onerous take or pay contracts in Australia will continue to induce uneconomic supply of thermal coal into the market. In comparison, Rio Tinto Coal Australia s assets are cash and earnings positive. In the coal industry, productivity continues to decline and a lack of access to financing is limiting the ability for significant upgrades to existing mine operations. In Australia, the strong dollar, increasing taxes and regulations, delays in government approvals, and community opposition to mining, have further exacerbated productivity issues. An example of this is our Mount Thorley Warkworth mine. We obtained state and federal government consent for an extension after a rigorous three and a half year public process, only to have a state court overturn the decision. This has created significant uncertainty for all major future investments. Mining is about long lead times. In an ever changing global market, in order to invest with confidence and achieve sustainable growth, we need predictability in policy and political certainty. Page 37 of 81

38 Slide 36 Strong long-term fundamentals for coal demand Energy demand will continue to rise, driven by economic growth in the emerging markets and further urbanisation and industrialisation in China and India. Much of this increased demand is expected to be met by coal, as the cheapest and most readily available source of energy. After two decades of remarkable development and transformation, China is only now reaching world average levels of electricity and energy consumption. The latest statistics show that China has shifted its position as a net exporter, to a net importer of both thermal and coking coal, and is now the world's largest seaborne coal importer. It is expected that China will import over 300 million tonnes of coal this year. India, with low per capita electricity consumption and 300 million people still without access to electricity, requires substantial investment in energy infrastructure to sustain the country s growth. With steel demand increasing and an additional GigaWatts of coal based power generation planned for the next ten years, India is facing a shortage of domestic thermal and coking coal. It is expected to depend increasingly on imported coal. The traditional markets in Japan, Korea and Taiwan continue to be important to Rio Tinto, with Australia as supplier of choice. Page 38 of 81

39 Coking coal is experiencing downward pricing pressure in the current market. But fundamentals for this product remain strong in the longer run, due to continued steel demand growth in China, India and other emerging Asian economies, as well as underlying global resource scarcity of premium coking coal. Our Australian coal, due to its quality, supply reliability and location, is well positioned to supply these Asian growth markets. The future demand for coal is strong, but the industry needs to work hard to reset how it operates to remain competitive. Slide 37 Hunter Valley assets are world class resources with transformed cost position Our resource base, with its premium quality thermal and coking coal, and proximity to existing infrastructure, is unique. These are large, adjacent and option-rich ore bodies that have the potential to support substantial open cut or underground mines for many decades to come. It would be difficult, if not impossible, to replicate such a valuable suite of assets. With our ability to operate our New South Wales operations as a network, and a range of development options not yet realised, there is further potential for our assets to deliver material, long term value to shareholders. But in order to deliver this value we have to transform our business to be competitive thoughout the cycle. Page 39 of 81

40 Slide 38 Improving performance through cost reductions and productivity gains As at the end of October we have delivered $600 million in cost savings, and are on track to deliver $1 billion by the end of Most savings have come from our Australian coal operations and include: increased labour productivity of 27% through increased production, and fewer roles and contractors; gains in truck utilisation of 7% with fewer trucks moving the same amount of material; parts substitution, condition-based replacement and price renegotiation delivering a 12% saving in consumables; and a further 13% reduction in consumable costs targeted through the use of emerging market suppliers. There are many other examples. Aligning maintenance schedules, increasing dragline productivity and conducting repairs and maintenance activities in the most efficient manner have also contributed to the reductions. The savings, together with strong production performance, will see unit cost reductions at these sites approaching $30 a tonne in 2013 compared with As well as the reductions already achieved, we will drive costs down further through a Page 40 of 81

41 number of future initiatives. These include; at Hail Creek, reprocessing coking coal reject to produce a thermal product, improving operator dig rate performance at Mount Thorley Warkworth, and increasing bypassed coal at Bengalla. Combined with the sustainable cost reductions already achieved, these projects ensure that the energy group is on track to meet its ongoing costs saving target of $1 billion by Improvements have occurred through clear articulation of the size and scale of the challenge by leadership teams, active engagement with and support of employees, incisive analysis of where value is really added, ruthless elimination of waste, and a regular drumbeat of delivery on actions. The result has been rapid and we believe, sustainable. We are very proud of this work. This however is only the start. Slide 39 We are improving our position on the cost curve Our transformation programme has seen an improvement in the position of our assets on the thermal coal cost curve since We have 1500 cost savings initiatives in the business. Here are just a few examples. Page 41 of 81

42 You ll see from these that no area of our business is immune from this work. And you can see that this is making a real difference to the unit costs at our operations. Slide 40 Rio Tinto Coal Australia has reduced unit cash costs to below 2010 levels while increasing productivity In an inflationary environment of 12%, our cost cutting program has delivered unit costs that are now 14% lower than September However, we are not only focussing on cost reductions to improve the position of our assets on the cost curve. Productivity is also important. We have increased our Australian coal production by approximately 11% this year. Our coal assets must earn the right to further investment, through continuing the aggressive drive to improve productivity, lower operational costs, and maximise the return on invested capital. The Kestrel Mine Extension, a $2 billion dollar extension adding 20 years to the mine's life, was opened in October this year. It will increase production of hard coking coal to around 6 million tonnes a year. It is one of the most advanced and sophisticated underground coking coal operations ever built in Australia. Page 42 of 81

43 A new Development Consent for the Bengalla mine, will extend its life another 21 years beyond the current approval date of 2017, and has the potential to increase production to a maximum of 15 million tonnes per annum. Our Hunter Valley Operations and Mount Thorley Warkworth mines have introduced improved efficiency measures. For example, the rate of breakdowns on Mount Thorley Warkworth s electric shovel fleet has reduced from around 15 per month to 6 through more effective maintenance scheduling. We are committed to extracting value from the investments in mine expansions and new equipment made over recent years. Our assets extend much further than just our Australian coal operations. Slide 41 We are working to secure a new pathway for our coal business in Mozambique Our Benga mine in Mozambique has established itself as a premium hard coking coal producer. We have also been working hard to improve the performance of this asset, by reducing operating costs and increasing productivity. Through 2013, Rio Tinto Coal Mozambique has delivered an operating cost reduction of $20 per tonne. It has increased annualised hard coking coal production by 22% compared with 2012, and improved hard coking coal yield by 5%. Page 43 of 81

44 And overall headcount has reduced by more than 25%. Notwithstanding these improvements, challenges remain due to near to mid-term infrastructure constraints and broader market conditions. We continue to work with the government on the establishment of a globally competitive coal chain solution for the country. Slide 42 The long-term outlook for uranium is positive within the global energy mix Turning to uranium, where our portfolio is geographically diverse. It includes several high grade projects, including, Roughrider in Canada, and Ranger 3 Deeps at ERA, as well as existing operations at Rossing and ERA. Last weekend at ERA s Ranger mine, we experienced a failure of a leach tank in the processing area, resulting in low grade slurry spilling into containment systems. This followed a similar incident several days earlier at Rossing. The containment systems worked as designed, no material left the sites, and there was no impact on the environment. We continue to work with key stakeholders and regulators. But it is too early to fully understand what the implications of these incidents will be. Turning to the market, uranium has an important part to play in the global energy mix. Page 44 of 81

45 The spot market is currently weak and we expect low prices will continue in the near term. However, we continue to see the benefits from entering in to long term contracts for uranium sales, as these are currently achieving above spot market prices. We see a positive long term outlook for this commodity, mainly driven by China, which has a very large, low cost nuclear construction programme expected to come online in the next decade. Other nations, including the UK, United Arab Emirates, India, France and former Soviet Union states, are building or planning to build new reactors, as a way to diversify their fuel mix for base load electricity supply. We are focussing on transforming our uranium assets. At ERA, we have achieved total cumulative cash savings of over $100 million of our $150 million targeted reductions. This is as a result of a number of initiatives, including a 20% fall in headcount, decreases in contractor costs, reducing the truck fleet from 15 to 9, and increased procurement efficiencies through consolidation of vendors and renegotiations of major contracts. At Rössing, since 2012, we have achieved unit cost savings in excess of 35% through cost savings and increased productivity. Overall strip ratios have dropped from almost 4:1 to 2:1 as a result of the Phase 3 pushback. During 2017, the strip ratio is expected to drop further, to below 1:1. The first high grade ore from Phase 3 is expected to reach the mills late Page 45 of 81

46 Slide 43 Our Energy group s transformation is delivering sustainable results So, to sum up. The long run fundamentals for our business remain strong. Our transformation program ensures we remain competitive through the cycle, and underpins the sustainable turnaround story for our operations. We are improving productivity and driving out significant costs through: An aggressive spend reduction programme, focussed on procurement and support cost reductions and labour productivity. A business wide improvement programme to maximise the performance from operations, and Reduced capital expenditure. We ve achieved a significant $600 million in cost savings up to October this year, and have identified areas where we can deliver more. To be clear, these are ongoing, sustainable cost reductions. We are taking a "whole of business" approach, which goes beyond cost savings and includes a focus on labour and asset productivity and mine planning. This will enable us to continue to transform our operations, and maximise the value from our Energy assets for shareholders. Page 46 of 81

47 Mark, over to you. Slide 44 Break We will now take a 20 minute break. Slide 45 Andrew Harding cover slide Page 47 of 81

48 Welcome back. It wasn t that long ago that some of you were on our tour to the Pilbara, seeing first-hand the great advances that we are making in our iron ore business. The rapid progress continues both on-site, and in the planning strategies being developed by my team, in order to optimise the value of our industry-leading integrated operations. This morning I will give you a full update on these efforts, including, our breakthrough growth pathway that will ultimately fully utilise the infrastructure capacity currently being developed. Slide 46 Sector leadership continues to deliver strong returns My clear priority is to maximise the value of our iron ore business. We continue to build our sector leadership through a range of key activities, to ensure that: We remain the lowest cost producer, with sector leading operational performance across our full supply chain We are delivering leading sales and marketing strategies, We are well ahead in the development and utilisation of innovative, new technology, and We continue to build on our long track record of delivering expansions on or ahead of time and under budget. Page 48 of 81

49 We have a relentless focus on driving continuous productivity improvements and cost reductions, as well as optimising the pace and cost of our major growth programme. Slide 47 Breakthrough Pilbara growth pathway provides a $3 billion saving in growth capital Let me start with some insight into our breakthrough Pilbara growth programme, announced two weeks ago. We have taken one of the industry s most attractive growth projects and made it even better. By identifying significant low cost brownfield growth and productivity gains we will be able to maximise the value of our expanded infrastructure as it comes on stream in the first half of This provides opportunities for deferring greenfield mine development, maximising free cash flow and optimising value. We have consistently said that we will have mine capacity to utilise our expanded infrastructure. The question was how to do this and when to do it. Back in September we had a broad range of mine capacity options. This range has been considerably narrowed, as we have developed an optimised plan. The new mine development pathway leads us to more than 350 million tonnes of Page 49 of 81

50 production by It is based predominantly on 40 to 50 million tonnes of brownfield expansions, supported by the new Silvergrass mine. These brownfield tonnes will be added at the marginal cost of production at each mine. The breakthrough pathway equates to more than a $3 billion saving in growth capital over the next 3 years with the deferral of the Koodaideri mine. It provides continued flexibility on greenfield mine decisions, with options to grow more quickly if warranted. The total capital cost of this new pathway, including both the infrastructure and the new mine capacity is optimised at an all- in capital intensity between 120 and 130 dollars per tonne, on a 100% basis. This pathway will see us grow from an annual production rate of 290 by the end of the first half 2014, to delivering 330 million tonnes in 2015, and then to more than 350 by Let me re-emphasise more than 350 million tonnes. We are currently looking for, and I expect we will find, further brownfield mine growth, to fully utilize the 360 million tonnes a year infrastructure capacity we will have available. Our track record suggests that we will be successful, and this increase will also be achieved at very low cost. We will continue to optimise our short term mine plans to defer large capital expenditure for as long as possible, and at the moment we do not expect our sustaining capital to change. Page 50 of 81

51 Slide 48 Infrastructure development to 360 Mt/a is progressing on budget and schedule Now, stepping through the detail. We approved the port and rail infrastructure expansion in June last year, and it is scheduled for completion by the first half of Suffice to say that work continues flat out and across a broad front and we remain on track to achieve our schedule on budget. Port dredging and wharf construction, including nearly all the wharf topside modules, have been completed. We now have both new stackers, a reclaimer and two dumper cells on site. There is still 18 months to go, but I am optimistic that work will continue to progress as per our past track record, and at least be delivered on time and on budget. Page 51 of 81

52 Slide 49 Brownfield expansions and productivity improvements at less than $15/t Turning to the mine capacity growth. The core of our new breakthrough expansion pathway is growth from existing mines. These are already producing and will quickly bring on incremental tonnes. There are multiple initiatives across our existing operations that add the required tonnage, at an average mine production capital intensity of less than $15/t. This includes, for example, Brockman 2, Nammuldi, West Angelas, Paraburdoo and Yandi. The rebased capacity of the mines relies on a combination of new work scopes and newly identified resources. New work scopes include activities such as plant modification of chute design and belt speed, extra trucks and diggers, and the use of mobile crushing and screening plant. In support of the brownfield expansions, we have approved $400 million of capital expenditure for plant equipment and modification, and additional heavy machinery for use at various mine sites in the Pilbara. Better resources have also been identified, not only in close proximity to existing infrastructure, but also with less pre- strip and reduced strip ratios. We expect current strip ratios to continue for the next 5 years. Around half of the additional tonnes for these brownfield expansions will come from these Page 52 of 81

53 newly identified resources. It is fair to say that the introduction of multiple small brownfield projects changes the execution strategy and risk profile. I am confident that we are well equipped to handle this. To be clear, our mine plans are constantly evolving as we find further productivity improvements and resources. This is being achieved without compromising the grade or quality of our Pilbara Blend products. We will continue to challenge our engineers and squeeze more from our assets. Slide 50 Opportunities to defer greenfield mine development reduces medium term capital expenditure Whilst the brownfields opportunities will allow us to grow quickly and at a low cost, new greenfield mine capacity will inevitably be required to sustain production at these higher volumes. As such, Silvergrass is required as a greenfield growth mine in the ultimate pathway to 360Mt/a. It is located only 12km from the Nammuldi mine and will share the same rail infrastructure. Development of this mine has not been approved as it is not yet required. Page 53 of 81

54 The identification of additional ore within the Brockman/ Nammuldi area now allows the deferral of a final decision on Silvergrass. As we continue to evaluate the optimal development plan for Silvergrass, we have been able to increase the nameplate mine capacity from 16Mt/a to 21Mt/a, while reducing the planned capital costs by more than 10%. The big advantage under the breakthrough is that the Koodaideri mine, with associated 180km railway line, is now not required in the medium term. It will be developed at some point, but first production is not needed before Slide 51 Pilbara operations and 290 Mt/a ramp-up in top gear At the same time as developing the most attractive iron ore growth pathway in the industry, we are running hard at our existing operations. We continue our hunt for improvements from better planning and co-ordination, debottlenecking and productivity enhancements. We had a record January - September Pilbara production of million tonnes, 4% higher than the first nine months of And Q3 provided new records for production of 64.3 million tonnes, and for tonnes railed and shipped. The Pilbara operations reached a significant milestone in August with the first shipments from the Cape Lambert 290 Mt/a expansion which was brought in 400 million dollars under budget and four months ahead of its original timetable. Page 54 of 81

55 Full 290Mt/a mine, rail and port operations will be achieved during the second quarter of next year, well ahead of the original schedule. The related Nammuldi below water table mine remains on schedule for commissioning in the fourth quarter 2014, but we are able to ramp up to 290 in advance of this commissioning. Over the last two years, bulk stocks have increased across the operations to assist in matching additional mine capacity with the expansion of port, rail and other infrastructure. With the ramp up to 290, approximately one third of these stocks will be drawn down over the next 12 months. The draw- down will continue through 2015 and 2016, to complement the rate at which we grow beyond 290. Slide 52 Pilbara operations achieving sustainable cost reductions Turning now to cost management. We maintain a strong focus on controlling our cash operating costs and remaining the lowest cost producer in the Pilbara, which is fundamental to our continued competitive advantage. While we have seen the pressures of a local hot environment ease considerably, we are also making large gains in a range of operational areas, concentrating on what we can control. Take for example, our mining operations. Page 55 of 81

56 Total material moved has increased as a proportion of saleable product as we ramp up to 290. However, we have been able to deliver reductions in our unit costs through initiatives spanning operations, maintenance and asset utilisation. For example, we have improved our payload per truck and improved efficiency to reduce consumable costs around tyres and fuel. Our increased use of truck automation is also contributing. Contractors are an area of focus. Despite a natural growth in contractor costs associated with growth towards 290, related spend at sustaining operations has been significantly reduced yielding more than 161 million dollars of savings this year. After extracting freight and royalty costs, our 2013 first half Pilbara unit costs were 6% lower than the corresponding period last year at $23.10 per tonne versus $ I am expecting unit costs to continue to decline in the longer term, once we have bedded down the expansion projects. We stand by our objective to continue to lower the cost of production in the Pilbara. Slide 53 Driving productivity through a large number of target improvement initiatives When you look at opportunities to improve productivity, anyone who is familiar with our business will understand just how many there are in such a complex and integrated system. Page 56 of 81

57 We literally have hundreds of improvement points and we are targeting each and every one of them including the port and rail examples used here. This is the first time in a decade that our mine capacity is less than our infrastructure capacity. We are excited by the opportunity to further transfer our proven ability in productivity improvement to the mines. And we add greater productivity opportunity through our innovation and automation journey, including through our unique innovations, such as the operations centre, and across our trucks and trains. This includes fully automating our trains during Slide 54 Iron Ore Company of Canada integrated mine to port production system Beyond the Pilbara, at our Canadian operations, our focus is on maximising the returns we achieve on recent investment by improving productivity and reducing costs. The Concentrator Expansion Project, or CEP, was initiated in 2010 to remove system bottlenecks and grow production. CEP1 adds truck and train capacity along with an overland conveyor to deliver ore to the concentrator. The second stage adds spiral capacity and power infrastructure along with additional mining equipment. Page 57 of 81

58 The key is to now ensure that our operational performance matches capacity as quickly as possible. While we have demonstrated performance approaching nameplate capacities, there is considerable system variability which is being targeted to maximise production from the new assets. By achieving the volume increase, unit costs will decline to historically low levels. IOC has a consistently high quality product with the lowest phosphorus in the industry. Slide 55 Chinese resurgence in steel demand this year, with further steady growth ahead Let me now turn to the market, where we continue to see an attractive demand and supply outlook. Much of this story continues to be driven by China and a resurgence in steel demand this year. Steel demand in China is estimated to rise by 7.5% to approximately 700 million tonnes. This demand acceleration has been driven by an expansion in credit and a revival in infrastructure spending. We also see positive signs for demand for iron ore coming out of the recent Chinese Plenum. Urbanisation will remain a priority, and the recent trends in housing and infrastructure are likely to continue. Page 58 of 81

59 China s steel demand growth post 2020 will be driven less by investment in infrastructure and more by increased domestic consumer consumption due to rising standards of living. This will lead to greater demand for steel to feed the automotive and machinery sectors. China is also likely to maintain or increase its international competitiveness in industrial sectors like transport and machinery. Our assessment remains that China will reach 1 billion tonnes of crude steel production by Slide 56 Other developing regions should ensure a strong long-run demand for iron ore Demand for iron ore and steel is not just a China story. There are many other contestable iron ore markets that are likely to develop over the coming decades, such as India, the Middle East and the ASEAN countries. With a combined population exceeding 600 million, the ASEAN countries have already experienced rapid growth in steel demand and will become increasingly significant as Chinese demand plateaus. In India, steel consumption forecasts have moderated based on recent UN population forecast revisions. However, its growth profile remains robust, with crude steel production expected to increase to around 140 million tonnes by 2020, nearly double Page 59 of 81

60 Slide 57 On-going constraint to the development of new iron ore supply And it s not just about demand growth. Supply continues to be constrained. We have consistently reflected over the last few years how difficult it has been for much of the seaborne iron ore industry to grow in line with increased demand. The reasons are clear - volatile and uncertain global markets; reduced sources of project financing; protracted approval processes; high capital costs; and the challenges of working in remote locations. It is a situation that we don t see getting any easier. We have also seen that Chinese domestic iron ore is highly price sensitive. As reserves are depleted, grades continue to decline, and labour and power costs increase, it is inevitable that China s domestic iron ore cost base will continue to rise. Even if we assume an anticipated increase in supply, we believe that our continued expansion makes sense as the lowest cost large volume producer in the world. We are a very low cost producer and continue to deliver new tonnes ahead of time and on budget - the consistent aim is to have the next best iron ore expansion option. Page 60 of 81

61 Slide 58 Rapid uptake of 2014 off-take opportunities with unfilled demand for Rio Tinto iron ores So, our volumes are increasing to serve a growing market. Long term customer relationships remain an integral component of our marketing strategy and term contracts will continue to represent the majority of our sales portfolio. Pilbara Blend products continue to be the product of choice for Asian steel producers. Our objective remains to provide our customers with reliable, long-term supply with stable quality. Pilbara Blend is an industry benchmark, with Pilbara Blend Fines by volume the single largest traded ore brand in the world. Of our 2014 Pilbara volume, approximately 60% is committed under existing long term contracts that were in place prior to the start of During 2013 we implemented a targeted contracting strategy which includes renewed or new long term contracts of around 80 million tonnes a year. At least 15% of production will be left unallocated to be sold in the spot market. By increasing participation in the spot market we will help ensure that pricing indices more accurately reflect the market clearing price of our products. Page 61 of 81

62 Slide 59 Sector leadership continues to deliver strong returns In summary, our iron ore business has long been one with considerable optionality. The latest re-assessment leading to our breakthrough pathway is another example of this, and takes full advantage of incremental brownfield resources. We retain competitive advantages across a suite of leadership positions as: the lowest cost producer with proven operational performance across our full supply chain the leader in sales and marketing strategies; and as the premier developer in the utilisation of innovative and, new technology. And we have continued our long track record of delivering expansion projects ahead of time and budget. Today I have discussed the next steps on our pathway to 360. Very low cost brownfields expansions will be supported by timely greenfield development, allowing us to save more than three billion dollars of growth capex. The future timing of the greenfield developments will be informed by our increasing knowledge of the existing assets and resources, and can be adjusted to fit market conditions. This pathway provides for a Rio Tinto share capital intensity of low one hundred dollars per Page 62 of 81

63 tonne. The pathway is exciting. It is real and achievable. It reflects our team s commitment and dedication to retaining its edge as an industry leader. Thank you and now back to you Sam. Slide 60 Sam Walsh cover slide Page 63 of 81

64 Slide 61 A diverse portfolio of sector leading businesses Before we move to your questions, I d like to make some closing remarks. Today, you have heard about some of the assets we have across a diverse range of commodities. We have some of the best assets across a range of sectors. And each will have their time in the sun as economies evolve. Our iron ore business is the best in the industry by far. Andrew Harding has shared with us further insight as to how we will maintain our position as the lowest-cost, large-volume iron ore producer in the world. Some sectors, such as energy and aluminium, are facing market challenges of over-supply and lower prices. We are running both of these businesses for cash, to improve returns on the capital already invested. We don t expect to invest new growth capital in either product group in the near future. Within this context, Harry Kenyon-Slaney has shown us how the Energy group are tackling costs and improving productivity. Lastly, Alan Davies has taken us through our Diamonds and Minerals group, Page 64 of 81

65 which is a collection of high quality businesses. Each has their own attractions but they all share the same focus on market driven operations, productivity and cost. Slide 62 Delivering greater value for shareholders In short, we are delivering on the commitments we made to you back in February. We are cutting costs and, at the end of November, we ve now exceeded our targets for We have taken more than two billion dollars out of our operating costs, and we are on track to achieve the three billion dollar targeted cash cost reduction for We stand firm on this commitment. We ve reduced our exploration and evaluation spend by over 800 million dollars this year, and will sustain this lower rate of spend into We are improving productivity and setting new production records. At the same time we re reducing capex, with spend in 2015 expected to be less than half the rate of spend last year. And we re completing our approved projects, such as Oyu Tolgoi phase 1, and the Pilbara 290 expansion, on time and on budget. Our breakthrough low capital growth pathway for our iron ore business is a stand out Page 65 of 81

66 example of our ability to deliver exceptional value from our projects, through continuously optimising and improving our mine planning, to generate the best returns. And we continue to re-shape our portfolio, with 3.3 billion dollars of non-core asset sales announced or completed so far this year. I am certain that we are well on the way to significantly transform Rio Tinto into the highest performer in our sector, and in doing so, deliver value for you, our shareholders. And with that, we ll now take your questions. SAM WALSH (Group Chief Executive): Now if you ll allow me time to make it to my seat, we ll move to questions. some questions online but firstly I ll take three questions in the room. Now we have QUESTION Thanks Sam. Just to pick you up a bit on the last point, the goal to be the highest performer in the sector. I assume you mean total shareholder returns and what time-frames do you personally strive to be there? And secondly, you ve talked a lot about the change, the refocus on shareholder value. Can you talk a bit about what this means in terms of your financial management? Are you moving more and I guess this is more for Chris in terms of protecting the shareholder returns? Are you looking more at hedging, for instance? And notably absent from the discussion today and last week was the term Single A Credit Rating, so in terms of the way you are looking at debt? Can you comment on that as well? Thanks. Page 66 of 81