2011 full year results

Transcription

1 2012 Rio Tinto, All Rights Reserved full year results 9 February 2012

2 Cautionary statement 2012 Rio Tinto, All Rights Reserved 2 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 presentation includes forward-looking statements. 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 forwardlooking 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 include, among others, 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 Annual Report on Form 20-F filed with the United States Securities and Exchange Commission (the "SEC") or Form 6-Ks furnished to 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. 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 Continued improvements in safety 3 Injury frequency rates Per 200,000 hours worked Lost time injury frequency rate All injury frequency rate

4 2011 highlights 4 Record underlying earnings, EBITDA and cash flows from operations Higher prices, stronger currencies and input cost pressures Record iron ore volumes; grade and weather challenges elsewhere Net earnings reduced by aluminium impairments Organic growth programme continues to ramp up Acquisitions completed creating further growth options Progressive dividend increased by 34%; $7 billion share buy-back almost complete $ billions Movement Underlying EBITDA % Underlying earnings % Net earnings % Cash flows from operations % Capital expenditure % Dividend per share 108 cents 145 cents +34%

5 Iron ore: record production, shipments and earnings Iron ore underlying results US$ billions Record prices during the year, with all product sold Production and shipment records achieved in the Pilbara, despite severe weather in Q Continued evolution of sales contract portfolio Incremental debottlenecking achieved on time and budget Maximised concentrate production at IOC in late 2011 in response to market demand 5 Underlying EBITDA Underlying earnings

6 Global iron ore growth options without equal 6 Cape Lambert construction, Australia Capital expenditure on time and on local currency budget Next 5mt due Q will increase Pilbara capacity to 230Mt/a 283Mt/a expansion fully approved 353Mt/a accelerated to first half 2015 Pilbara mineralisation to last over 50 years even on elevated production volumes IOC concentrate expansion currently being commissioned Solid progress at Simandou

7 Rio Tinto Alcan: second half margin squeeze 7 Rio Tinto Alcan underlying results US$ billions Onwards Excludes Pacific Aluminium, Lynemouth, Sebree, Gardanne refinery, and European specialty alumina Estimated 2.5mt of production ex- China is loss making at current prices Chinese capacity growth in the west Industry margins impacted by lower prices and higher input costs for raw materials EBITDA margin of 20% in Underlying EBITDA Underlying earnings

8 Rio Tinto Alcan: strategic focus on transforming the aluminium business Yarwun refinery, Australia Kitimat smelter, Canada 2012 Rio Tinto, All Rights Reserved Disciplined portfolio management Deliver cost and productivity improvements Focus on high return production creep and modernisation projects Focused strategy will reshape the aluminium business Best bauxite and energy positions in the aluminium industry Lowest carbon footprint Modern, large-scale, long-life assets First and second quartile positions on the industry cost curve Leading AP Technology position 8

9 Copper: recovery of copper grades expected in second half of 2012 Copper underlying results US$ billions Rio Tinto, All Rights Reserved Copper market finely balanced and highly sensitive to supply disruptions Lower volumes in 2011 from anticipated dip in grades at all three major operations Recovery in copper production expected from second half of 2012 Gold and moly expected to be lower in 2012, recovering from 2013 Palabora divestment process underway 9 Underlying EBITDA Underlying earnings

10 Investment in copper projects continues 10 Oyu Tolgoi, Mongolia Oyu Tolgoi progresses Project 70% complete Power remains the critical path item Majority ownership of Ivanhoe secured La Granja pre-feasibility funding KUC extension feasibility study Escondida growth options Resolution land exchange Resolution, US

11 Energy: recovery from significant weather events in Australia Energy underlying results US$ billions Coal prices were volatile with global disruptions to supply and demand Coal and uranium operations in Australia were impacted by significant wet weather in late 2010 / early 2011 Privatisation of Coal & Allied in partnership with Mitsubishi ERA equity rights issue completed Rössing grades to improve Underlying EBITDA Underlying earnings *2008 underlying EBITDA and earnings include $0.5 billion (pre and post-tax) profit on disposal from Kintyre includes $0.4 billion (pre-tax) and $0.2 billion (post-tax) profit on disposal from Maules Creek and Vickery

12 Significant growth options across the Energy group 12 Australian growth options supported by improving coal chain capacity Benga, Mozambique Successfully completed acquisitions of Riversdale in Mozambique and Hathor in Canada First coal from Benga in first half 2012 Long term mine and infrastructure studies are ongoing Hathor: an emerging high grade resource Mount Thorley Warkworth, Australia

13 Diamonds and Minerals: supply tightness reflected in price momentum Diamonds and Minerals underlying results US$ billions * Underlying EBITDA Underlying earnings *2009 underlying EBITDA and earnings include $0.8 billion (pre and post-tax) profit on disposal of undeveloped potash properties Supply tightness in TiO 2, sustained pricing for borates, diamond long term fundamentals remain strong Recovery in diamond production following floods at Argyle Additional $0.5bn capital approval for underground: delays from record wet season and stronger A$ Steady growth in TiO 2 earnings: long term contracts continue to unwind Signed potash JV, progressed lithium-borate project and sold talc Doubling stake in RBM to 74% 13

14 14 Guy Elliott Chief financial officer

15 Record underlying earnings 15 Underlying earnings 2010 vs 2011 $ millions 25,000 20,000 15,000 10,000 5, , underlying earnings 6,675 Price (998) Exchange Rates (502) Volume (376) Inflation (249) Energy (2,096) Cash costs (796) Explor'n & Eval'n (96) Interest, Tax & Other 15, underlying earnings Note: Exploration and evaluation variance includes $229 million decrease due to gain on undeveloped property sales realised in 2010

16 Net earnings reduced by impairment 16 Reconciliation of underlying to net earnings $ millions 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, ,549 Underlying earnings (9,290) Impairment charges 167 Profits on disposal of businesses (57) Net exchange & derivatives loss (342) Deferred tax asset write off (201) Other 5,826 Net earnings

17 Cash cost performance was driven by rising input prices, lower grades and weather events Breakdown of cash cost variance $ millions Site transition and readiness $546 M Other production and oneoffs $330 M Grade related volume $445 M Input prices and other inflation $514 M Weather related volume $261 M Cost efficiency adversely impacted by lower grades in copper and diamonds Input price pressure, notably in aluminium Maintenance costs and volumes affected by weather in the first half Increasing labour costs Investments in operational readiness and ramp up of production at new operations Ongoing focus on productivity improvement 17

18 Record cash flow generation Cash flows US$ billions Cash flows from operations US$ billions Increase in net debt and other inflows: $7.1bn Other: ($1.6bn) Net interest ($0.6bn) Tax: ($6.2bn) Dividends from EAUs Cash flow from operations: $27.4bn Dividends: ($2.2bn) Buy-back: ($5.5bn) Acquisitions: ($6.1bn) Cash flows from consolidated operations 10 Capex: ($12.3bn) Inflow Outflow

19 Capital expenditure focused on the highest quality options Capital expenditure US$ billions Sustaining Pilbara sustaining Approved growth Other $16 billion capital expenditure approved for 2012 Further project approvals, mainly in the Pilbara, are likely to increase 2012 spend Disciplined capital approval process Major projects progressing well Allocating cash for investment through cycle Phased approach to major capital projects 19

20 Capital expenditure diversified across geographies and products Capital expenditure by country Per cent of total spend 2012 Capital expenditure by product Per cent of total spend Australia United States Other Canada Mongolia Iron ore Aluminium Diamonds & Minerals Copper Energy Other Excludes equity accounted units Excludes equity accounted units

21 Challenges of bringing on new supply 21 Announced and completed iron ore production capacity (global) (million tonnes) Announced for Completed by Q Certain Probable Possible Rio Tinto Other Announced for Completed by Q Shortage of specialist mining skills New tier one ore bodies are in remote locations Technical challenges increasing Rising resource nationalism Reduced availability of project finance A risk to new supply of all commodities Source: UNCTAD, Rio Tinto analysis

22 Balancing growth with returns to shareholders 22 Investment in value adding growth >$16 billion of value adding investments in 2012 Cash from operations Prudent balance sheet management Single A credit rating Capital returns Progressive dividend increased by 34% Strong balance sheet and regained single A credit rating More than $33 billion of major capital projects underway A rich portfolio of unapproved project options $7 billion share buy-back almost complete Progressive dividend provides sustainable long term returns to shareholders 34% dividend increase reflecting confidence in long term prospects

23 23 Tom Albanese Chief executive

24 Short term outlook expected to remain volatile 24 Commodity market prices Daily spot index (1 January 2010=100) Prices at 3 Feb 2012 $137/t $98/bbl $1.08 $3.87/lb $2,209/t Higher average prices in 2011 but finished year lower than started Macroeconomic outlook volatile in the near term Eurozone risks remain high Chinese GDP to grow by >8% in 2012 Physical demand remains resilient for most products Short term constraints continue to disrupt supply Source: LME, SBB, Metal Bulletin, Reuters Ecowin, globalcoal

25 Our belief in the long term demand story is unchanged 2012 Rio Tinto, All Rights Reserved 25 Demand for metals increases in line with increasing income Global copper supply vs. demand outlook 1 (Mine output, kt Cu) 2011 population distribution World average income per capita 30% India China 25% 20% 15% 10% 5% 0% 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 Copper Iron ore Expenditure per capita US$ (2011 terms) GDP per capita (in 2011 US$) Aluminium Hard coking coal Probable - Greenfield Probable - Brownfield Highly Probable Base Case Demand Source: Global Insight for population distribution; Rio Tinto estimates for commodity expenditure profiles. Note: Expenditure profiles are based on Rio Tinto estimates of global income and consumption relationships and average real terms prices between Iron ore and hard coking coal expenditure calculated based on crude steel demand projections, assuming all met by blast furnace production at historic average export prices. 1. Brook Hunt A Wood Mackenzie Company. Assume 100% Base Case and Highly Probable, 70% Probable Brownfield and 50% Probable Greenfield production

26 Our strategy is consistent and unchanged 26 Change picture To maximise total shareholder return by sustainably finding, developing, mining and processing natural resources Invest in and operate large, long term, cost competitive mines and assets Driven by the quality of each opportunity Our expertise in sustainable development is an important part of our approach to creating value for shareholders

27 >$33 billion of major capital projects underway 27 Project timeline (1) % Complete $ Capex (2) Production Dampier Ph 2 IOCC Ph 1 & 2 Hope Downs 4 Pilbara 283 Marandoo Escondida EOA MAP Oyu Tolgoi Ph 1 Eagle ISAL Yarwun 2 AP 60 Kitimat Benga Bengalla HVO & MTW Kestrel Argyle U/G $284m +5mtpa $763m +5.3mtpa $2.1bn 15mtpa (3) $9.7bn +53mtpa $1.1bn 15mtpa (3) $166m (4) Access high grade ore $340m (5) 30mlb Ph1, 60mlb Ph2 (capacity) $6bn +100ktpd ore $469m (5) +17kt Ni, 13kt Cu per annum $487m +40ktpa $2.3bn +2mtpa alumina $1.1bn +60ktpa $3.3bn 420ktpa $516m +1.6mtpa coking, +0.8mtpa thermal $184m +2.1mtpa $260m +6mtpa $2.0bn +1.3mtpa $2.1bn 20mcpa capacity (1) Represents timing of project completion and initial production (2) 100% unless otherwise stated (3) Sustaining production at Pilbara total capacity (4) RT share of capex (5) Budgets and schedule are under review

28 Embedding industry leadership in exploration, technology and innovation Planned expansion of driverless truck fleet from 10 to 150 trucks Further options for automation Continued development of innovative recovery technologies Tunnel boring system to be prototyped at Northparkes in 2012 Operations Centre continues to deliver improvements Exploration to find the next generation of tier one ore bodies 28

29 Executing our strategy 29 Record underlying earnings, EBITDA and cash flows from operations Strong balance sheet Growing established operations Identifying, acquiring and developing the next generation of tier one orebodies At the forefront of exploration, innovation and technology Sustainable long term progressive dividend

30 full year results 9 February 2012

31 High quality tier one projects in advanced study 31 Project Product Total indicative capex (1) Rio Tinto funding of indicative capex Indicative first production Indicative production (1) Pilbara 353 Iron ore $$$ $$$ mtpa IOCC Phase 3 Iron ore $ $ mtpa Simandou Iron ore $$$$ $$ mtpa Oyu Tolgoi Phase 2 Copper, Gold $$$ note (2) ktpd ore KUC extension Copper, gold, moly $$ $$ 2015 Extend LOM to 2028 Weipa South of Embley Bauxite $ $ mtpa Mt. Pleasant Thermal Coal $ $ mtpa $ <$2 billion $$ $2 $5 billion $$$ $5 $10 billion $$$$ >$10 billion (1) 100% basis unless otherwise stated (2) Oyu Tolgoi capex is funded by Ivanhoe Mines. Rio Tinto has a variety of funding arrangements with Ivanhoe Mines

32 A rich portfolio of strong earlier stage projects provide options for further quality growth 32 Iron Ore Pilbara 453mtpa IOCC expansions Orissa Copper Resolution La Granja Escondida options KUC North Rim Skarn Northparkes expansion Aluminium Energy Diamonds & Minerals AP60 Phase 2 Sarawak Cameroon brownfield and greenfield Benga phase 2 and Zambeze Hail Creek expansion Hunter Valley options Valeria Bunder (diamonds) Diavik A21 (diamonds) Jadar (borates, lithium) Winchester South Rössing heap leach ERA Ranger 3 Deeps Ilmenite mine expansions TiO2 smelter expansions

33 Reconciliation of underlying earnings to net earnings 33 $m Underlying earnings 15,549 13,987 Impairment charges net of reversals (9,290) (739) Profits on disposal of interests in businesses Gain on consolidation of Oyu Tolgoi 445 Loss after tax from discontinued operations (10) (97) Exchange and derivative gains / (losses) Exchange (losses)/gains on US dollar net debt and intragroup balances (147) 434 (Losses)/gains on currency and interest rate derivatives not qualifying for hedge accounting Gains/(losses) on commodity derivatives not qualifying for hedge accounting (19) (61) Deferred tax asset write off (342) Other exclusions (191) 39 Net earnings 5,826 14,238

34 Breakdown of price variance 34 Earnings impact from price variance $6,675 million $US million 4,000 Traded 3,784 Non-traded 3,500 3,000 2,500 2,000 1,500 1, Copper Aluminium Gold Other Iron ore Th coal Met coal Uranium Ind mins Diamonds Other

35 Breakdown of volume variance 35 Earnings impact from volumes $502 million $US millions Copper Aluminium Gold Moly Iron ore Coal Industrial minerals Diamonds Other

36 Modelling earnings 36 Earnings sensitivity 2011 average price/rate 10% Change Impact on full year underlying earnings ($m) Copper 400c/lb +/-40c/lb 340 Aluminium $2,395/t +/-$240/t 510 Gold $1,571/oz +/-$157/oz 70 Iron ore +/-10% 1,720 Coal* +/-10% 280 A$ 103 Usc +/-US10.3c 910 C$ 101 Usc +/-US10.1c 300 *For both thermal and coking coal

37 Iron ore 37 Movement in underlying earnings 2010 vs 2011 $US millions 3,747 (274) 187 (91) (82) (515) (264) (44) 10,189 12,853 FY, 2010 Price Fx Vols CPI Energy Other cash Expl'n Eval'n Other FY,2011 Record global iron ore shipments of 239mt/a despite first half of year weather conditions Record global iron ore production of 245mt/a In the fourth quarter approximately 60% sold on a short term basis Pilbara expansion projects obtain further funding approvals Simandou project development has been accelerated

38 Aluminum 38 Movement in underlying earnings 2010 vs 2011 $US millions 574 (282) (12) 17 (90) (329) 611 (27) (20) 442 FY, 2010 Price Fx Vols CPI Energy Other cash Expl'n Eval'n Other FY,2011 Tight physical markets offset by macroeconomic concerns resulted in average prices rising by 10% year on year Continued higher prices for key raw materials Heavy rains in Australia impacted alumina refiners Second phase of the transformation: Reduced cost structure and business improvement initiatives Disciplined portfolio management Step change through capital investment in major projects

39 Copper 39 Movement in underlying earnings 2010 vs 2011 $US millions 738 (23) (548) (45) (66) (560) 2,530 (182) 88 1,932 FY, 2010 Price Fx Vols CPI Energy Other cash Expl'n Eval'n Other FY,2011 Lower grades at Kennecott Utah Copper, Escondida and Grasberg as previously announced. Industrial action impacted production at Escondida and Grasberg Increased ownership of Ivanhoe to 49% in 2011, with 51% majority stake in Ivanhoe assumed in January 2012 Construction of Oyu Tolgoi progressing to 70% in January 2012 Exploration and evaluation work continued at the Resolution project in Arizona and the La Granja project in northern Peru

40 Energy 40 Movement in underlying earnings 2010 vs 2011 $US millions 955 (241) (71) (90) (26) (244) (13) (383) 1,187 1,074 FY, 2010 Price Fx Vols CPI Energy Other cash Expl'n Eval'n Other FY,2011 Lower volumes following adverse weather conditions in the first half of 2011, with force majeure declared at four Queensland mines and ERA processing plant closed from January to June Improved pricing environment in response to tight supply due to constrained production from Australia High Australian dollar have impacted costs and projects Rio Tinto acquired 100% of Riversdale Acquisition of Hathor Exploration completed January 2012

41 Diamonds & Minerals 41 Movement in underlying earnings 2010 vs 2011 $US millions 442 (21) (72) (39) (9) (203) (32) (142) FY, 2010 Price Fx Vols CPI Energy Other cash Expl'n Eval'n Other FY,2011 Higher prices and improved market conditions for all products TiO 2 pricing reflects existing multi-year contracts which are being replaced with alternative pricing mechanisms as they mature giving increased exposure to current market conditions Argyle production and cash costs impacted by weather, grade and equipment failure Other costs higher primarily as a result of the absence of tax benefits received in 2010, higher depreciation and amortisation and absence of Talc earnings in the second half of 2011

42 Other 42 $millions FY, 2010 FX/ price Inflation Sales Vols Energy Cash Costs Epl'n Aval'n Interest, Non tax & Cash other FY,2011 Intersegment (15) Other operations (21) (83) (99) (240) (120) Central exploration (net) (52) (1) (49) (102) Interest (474) 245 (229) Other (554) (9) (146) 116 (593) Intersegment includes insurance proceeds Other operations comprises mainly Pacific and Other Aluminium(1), Areas under Management and Engineered Products (including Cable and Constellium). Exploration rebuilding portfolio and higher divestment proceeds Interest charge has fallen 52% mainly reflecting an increase in capitalised interest in 2011 Other includes higher corporate costs, offset by currency movements on non-usd funds (1) Other Aluminium comprises Lynemouth, Sebree and Speciality Alumina

43 Provisional pricing 43 Open shipments (million lbs) 31 Dec 2011 Provisional pricing effect (US$m) 31 Dec Escondida (58) 132 Northparkes (2) 12 Grasberg JV/Other 2 29 (1) (1) (61) : driven by the 28% increase in copper 3 month forward price between the end of 2009 and the end of 2010, resulting in a favourable earnings impact of $143m 2011: driven by an 18% decline in the copper 3 month forward price and a 33% decrease in tonnes provisionally priced at the end of 2011, resulting in an unfavourable earnings impact in 2011 of $61m The variance between the two years approximates $201m

44 Earnings reconciliations Energy Resources of Australia US$m Earnings per ERA press release (A$54m) (56) Increase depreciation of closure asset (14) Tax and unwinding of discount 1 Less: Minority interests 24 Other (8) Underlying earnings as reported by Rio Tinto (53) Palabora US$m Earnings per Palabora press release (R1,464m) 202 RT share of interest and FX gain/loss on net debt (net) (47) Tax effect on above items 13 Tax on unremitted earnings 6 Less: minority interest (42.3%) (74) Underlying earnings as reported by Rio Tinto 100

45 Variance analysts methodology 45 Price = Change in commodity price x prior year sales volumes Exchange = (Change in exchange rates x Prior year cost of sales) + Relative movements in exchange gains and losses on working capital Inflation = Inflation rate x Prior year cash cost of sales Volume = Change in sales volumes x Current year margins Cost = cash cost variance + non cash cost variance + impact of energy price changes + one-off costs Energy = change in input price x prior year usage Cash cost = Change in cash unit costs x Prior year sales volumes Non cash cost = Change in non cash unit costs x Prior year sales volumes