Rio Tinto Investor Seminar Sydney 3 December 2013

Transcription

1 Slide 1 Title slide Slide 2 Cautionary Statement 1 P a g e

2 Slide 3 Agenda Good morning everyone and welcome to our investor seminar. In a moment, Sam Walsh will make some opening comments about his vision for the company, the global economic view and what it means for the industry, 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, drive our free cash flow, and strengthen our capital allocation processes. Jean-Sébastien Jacques will talk about our strategy for Copper and how we delivered our Oyu Tolgoi project this year - on time and to budget - and Jacynthe Côté, will give you an update on the transformation work she is leading within our Aluminium business. Following a short break Andrew Harding will share with you the details of our breakthrough iron ore expansion 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. Chifley Tower security will now provide an important safety briefing. 2 P a g e

3 Slide 4 Emergency procedure Slide 5 - Sam Walsh cover slide 3 P a g e

4 Good morning. It s great to be back in Sydney, the sun is shining, the business is travelling well and the outlook for commodities remains robust. Since becoming chief executive in January, I have been re-focusing the business on delivering greater value for you our shareholders. I ve been spending time with our people around the world doing precisely this. In my travels, I ve been hugely impressed with what I have seen. The quality of our people, operations, projects, and technologies is beyond doubt. This is a great company. But, to be frank, we had lost focus on what really matters - delivering superior value. My goal is to transform Rio Tinto from where we were, to where we must be - the highest performer in our sector, delivering greater value to our shareholders. And I have set a clear direction. We are taking decisive action and we re advancing at pace. In short, we are improving performance, we are strengthening our balance sheet, and we're delivering results. Progress speaks for itself. Don t get me wrong, we do have more to do and driving change in the organisation has my undivided attention. 4 P a g e

5 Slide 6 Delivering greater value for shareholders In the first ten months of this year, we have achieved substantial cost reductions across our operations and in our exploration and evaluation spend. At the same time we ve set new production records, as we achieve higher productivity across our portfolio. We have enhanced our capital allocation, and we are aggressively reducing our capital expenditure to strengthen the balance sheet. Capex this year will be more than 20 per cent lower than in It will then reduce to below 11 billion dollars in 2014, and to around eight billion dollars in Importantly, this is not at the expense of value adding growth. This is clearly demonstrated by our breakthrough Pilbara iron ore expansion, which we continue to optimise and improve. Expanding our world class, high margin Pilbara operations represents the most attractive investment opportunity in the sector. 5 P a g e

6 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 last week combines brownfield expansions with low-cost productivity gains, and the deferral of greenfield mine development. It means we will deliver the expansion at an estimated capital cost which is more than three billion dollars below previous expectations. This decision not only shows our absolute discipline in how we allocate capital, but also how we are delivering on our priorities. The first phase in the Pilbara expansion is now up and running. It was delivered four months ahead of schedule and 400 million dollars under budget, in one of the most heated operating environments in the mining sector. I should point out that our achievements are not just confined to iron ore. In Mongolia, our Oyu Tolgoi copper-gold mine began producing and shipping concentrate earlier this year. This is an outstanding achievement, and another great example of delivering a growth project on time and to budget. And, we are creating new opportunities for the future, building on our established strengths. Finally, we are actively re-shaping the portfolio by selling non-core businesses. This year alone we have announced or completed sales of 3.3 billion dollars, including the sale of Northparkes, which completed this weekend. 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 advancing at pace and we are delivering results. We have a clear strategy and we re taking the necessary steps to ensure our business is well placed for long-term success. Over the course of our two investor seminars, here in Sydney and in London, members of 6 P a g e

7 my executive team will set out exactly what they are doing to deliver value for you, our shareholders. Slide 7 Safety culture critical to operating effectively But before I continue, I d like to talk about safety. While we have made significant improvements in our safety performance over the last decade, I am not satisfied with our progress this year. Tragically we have had three fatalities at our managed operations. 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. Earlier this year we held a global safety pause, where employees, in their teams, stopped work for thirty minutes, to reflect on how split second decisions can have life changing impacts for individuals, their families and friends. This was a powerful and deeply moving experience. 7 P a g e

8 Slide 8 Our businesses are well placed to meet global demand growth Let me now share with you my perspectives about the global economy. From where I stand, we continue to see market fragility and volatility. The impacts of decisions like quantitative easing and austerity programmes, are still washing through markets around the world. Underlying structural weaknesses remain, and may lead to sudden financial shocks. As long as the USA s position in relation to tapering remains unresolved, I believe we should realistically expect short-term risk to continue. But it is a mixed story because, despite this uncertainty, we are also seeing modest economic recovery. In the US, we saw GDP growth of one and a half per cent in the nine months to September, and in Europe we have seen greater stability over the past year. In China, the decisions from the Third Plenary Session of the Chinese Government, reflect an ambitious yet pragmatic approach to continued reform. Strong and consistent leadership is absolutely critical to creating stability, and the 8 P a g e

9 outcomes from the plenum suggest a level of renewed confidence. Importantly for us, the outcomes confirmed our expectation of gradual change, which reduces the likelihood of a large and sudden economic downturns. Of course, China s urbanisation will continue, with around 150 million people expected to move to an urban environment during the next decade. And the economic development of other markets, including India, the ASEAN countries, the Middle East, the Former Soviet Union, South America and Africa, will also contribute to ongoing demand for our products, as their growth continues apace. Therefore, I 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. 9 P a g e

10 Slide 9 A consistent strategy with clear priorities Now, while I can t control the external world we operate in, 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 and operate 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. In order to support this goal, we have changed the way we reward and incentivise our people. I am changing our culture to encourage people to act as owners of this great business. Some people think that this is easy stuff. They don t understand cultural change and they don t know just how hard it is to get people to think, and act, differently. I want to tap in to the entrepreneurial spirit that is often hidden under layers of 10 P a g e

11 bureaucracy. So we are de-layering our leadership structures to foster greater accountability and discipline. Work continues across the Group from cost reduction to cash generation, to employee engagement - in order to get our business back in shape. In doing so, we re aiming to show you that we are a business doing exactly what we said we d do - reliably and flawlessly executing our strategy. Slide 10 A diverse portfolio of sector leading businesses Shortly, you will hear from some of my executive team about the diverse range of businesses within our portfolio. But let me just make a few points. I believe our iron ore business is the best in the industry. The team is continuing to refine and optimise the Pilbara growth programme, to take full advantage of the productivity gains that we are achieving. This will lead to an unrivalled growth plan for Iron Ore, maintaining and improving on our 11 P a g e

12 position as the lowest cost iron ore producer in the Pilbara. In Copper, we are focusing on a smaller number of truly core low cost assets. We have successfully disposed of a number of non-core businesses this year for good value. Going forward, we will take a phased and structured approach to future investment. This will lead to lower annual capex, but with further steady growth. Of course, each of the sectors in which we operate are different. We need to make choices and run our businesses according to the industry dynamics, and their context. Some sectors, such as aluminium and energy, are facing market challenges of over-supply and lower prices. I believe we own some of the world s best aluminium assets. But the outlook for that sector remains challenging over the medium term. We are taking the hard decisions to address uneconomic assets, such as the recent decision to suspend production at the Gove refinery, and the closure or sale of five other aluminium assets this year. After much analysis, including whether a sale, spin-off or an IPO of this product group were viable options, we have decided that Aluminium remains part of our diversified portfolio. We are making good progress on the transformation programme in Aluminium, to drastically improve performance by driving out cost, improving productivity, and divesting non-core assets. In Energy, we also need to improve the cost position of all our businesses by seeking productivity gains and cutting costs. Both of these product groups will find it hard for new capital to be allocated to them. We need to run these businesses hard for cash, to improve returns on the capital already invested. Diamonds and Minerals is a collection of high quality businesses. Each have their unique attractions, and all are focused on productivity and cost. 12 P a g e

13 Demand for these products tends to be consumer based, so these businesses will benefit greatly from rising income levels in China and elsewhere. For example, in China alone, we estimate the diamond jewellery market will grow by around 15 per cent on average every year over the next decade. Now, before the Product Group heads share their plans for putting our strategy into action, let me ask Chris to take you through the progress we re making against our targets. Slide 11 - 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 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. 13 P a g e

14 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. 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 12 - Strong performance on operating cash costs We continue to make strong progress on our cost reduction programme. We ve delivered over $1.8 billion of improvement in unit operating cash costs in the ten months to October. So, we re tracking well against our target of $2 billion for this year. In addition, we ve cut our exploration and evaluation spend by more than 800 million dollars. This strong performance comes from over 1,500 separate initiatives which have been implemented across the businesses. 14 P a g e

15 These cover a vast range of activities, and you ll hear the product group CEOs talk about some examples from their areas. But let me mention a few examples of the great work underway. The Energy group has begun to source some replacement parts from emerging market suppliers, rather than original equipment manufacturers. Items such as track pads and truck trays from Indonesia and China, are all being trialed. Savings of up to 50 per cent are being achieved, and we are also seeing signs of incremental productivity improvements from the new equipment. Also in Energy, we re tackling contract labour costs on a range of fronts. Actions, such as renegotiating, contractor agreements, challenging traditional time based maintenance tactics and aligning maintenance schedules across our sites is allowing us to better manage overall peak contractor demand. As a result of this and other work, we expect contractor costs in our Australian coal business to come down by around 20 per cent compared to last year. The Diamonds and Minerals group has experienced softer market conditions for some of its products this year, and so has made a number of decisions to adjust production levels. At the same time it has de-layered and simplified its organisation structure, leading to annualised savings of around 30 million dollars in support costs alone. 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 does not include a further 3,000 roles that have gone with divested assets. A major driver of this has been a reorganization of our Group-wide service and support functions, including the Finance group. This has led to around fourteen hundred fewer roles, many of them from our higher cost office locations such as London, Montreal, Melbourne and Brisbane. 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. 15 P a g e

16 Slide 13 Targeted reductions in exploration and evaluation spend Our enhanced approach to capital allocation is driving targeted reductions to our exploration and evaluation spend. 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 812 million achieved. We ve roughly halved our spend, to around 850 million dollars in the first ten months, 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. 16 P a g e

17 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 14 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. In the ten years following the merger of RTZ and CRA in 1995, we spent an average of one and a half billion dollars on capex a year. In each of the next five years, from 2006 onwards, we spent around five and a half billion in capex. In the three years from 2011 to 2013, we spent an average of around fourteen and a half billion dollars each year in capex. This most recent step change upwards is just not sustainable. We will 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 17 P a g e

18 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 is not expected to affect our rate of spend on new mines that 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 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 decisions around returns to shareholders and other allocations of capital. 18 P a g e

19 Slide 15 - 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 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. 19 P a g e

20 We have to look at a broad suite of data and metrics to quantify the risk and relative quality of the opportunity. 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. 20 P a g e

21 Slide 16 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 of $3.3 billion of non-core assets. We ve received proceeds of around $2.3 billion to date. Most recently we reduced our stake in Constellium, the former Alcan Engineered Products business for $315 million, and closed out the sale of Northparkes this weekend just passed. The Clermont sale is making good progress and we expect to receive the $1 billion 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 P a g e

22 Slide 17 Greater returns for shareholders So, in summary, each of the drivers of free cash flow that we can control are improving. We re reducing costs while growing production volumes, and making divestments of 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. Since the end of 2010, our net debt has grown from 4 billion dollars to over 22 billion. We want to see it come back down to a more sustainable 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 per cent in each of 2013, 2014 and P a g e

23 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 J-S. Slide 18 Jean-Sebastien Jacques cover slide Thanks Chris. Good morning everyone, I am Jean-Sébastien Jacques, chief executive of Rio Tinto s Copper group. Since coming into the role in February this year, I have been impressed by the quality of our assets, and the people we have in the copper group. I am confident we are building a business that will be well positioned to make the most of the strong opportunities the industry has to offer. In order to leverage our strengths, I have recognised the need to re-position the business to increase the value we deliver to shareholders and to drive the business for cash. With this in mind, I have prioritised four key areas this year: 1. Refocusing our portfolio of copper assets and reviewing the strategic fit of our 23 P a g e

24 businesses - to that end, this year, we have secured five disposals for a value of US$1.8bn. 2. Secondly, reducing costs and driving productivity improvements. We have achieved material headcount reductions in 2013 whilst increasing production levels. 3. Next, delivering our growth projects - Oyu Tolgoi is now operating at full capacity and we celebrated the first shipment of ore with the Prime Minister of Mongolia in July. 4. And my priority is to drive these changes while continuing to improve our safety performance. In 2014 and beyond, we will build on this solid progress to work towards delivering our long term strategy. We have a clear ambition and road map to drive the business forward with value at the centre, and I would like to share my plans with you today. Slide 19 Strategy set to create substantial and sustainable value for shareholders 24 P a g e

25 In the next 20 minutes, I will cover Rio Tinto s long-term perspective on the copper market and define how we are positioning our business to deliver value. I will cover four main topics: The outlook for the copper industry Our progress in 2013 The long-term value proposition for our shareholders And last but not least, our priorities in the coming year Slide 20 Strong long-term fundamentals driven by supply gap and increasing demand Let s start with the copper market and its prospects. While we expect volatility to continue in the short-term, the long term fundamentals for the copper industry remain strong. We estimate that between 2012 and 2025, the industry will need to add an incremental two million tonnes of annual capacity just to maintain current production levels. This is driven by structural grade decline at existing operations, and mine closures. 25 P a g e

26 But, with demand continuing to increase - mostly driven by China and other emerging markets - we predict that the supply gap could actually reach 9Mt of annual capacity by In that context, we will require the equivalent of ten new mines the size of Escondida by 2025, or one new major mine ramping up every 14 months, to keep pace. Slide 21 - Solid progress on repositioning the copper business in 2013 Against these market dynamics, I believe Rio Tinto s Copper business is well placed to create real value for Rio Tinto shareholders and, in 2013, we have made solid progress towards repositioning the product group. First, we have driven significant improvements in our safety performance, with the average number of injuries per month declining from 13 in 2012 to 5 in Q3 of this year. Second, we are making solid progress with the strategic review of our copper assets. This year we have completed $1.8 billion of divestments including Palabora, Eagle and, most recently, Northparkes. And let me be clear - these proceeds are given back to the centre to be recycled as Sam, Chris and the Board see fit. 26 P a g e

27 I am also pleased with our progress at Kennecott Utah Copper. Following the 150-million-tonne landslide at the mine in April, recovery work is proceeding well and is ahead of schedule. The heavy haul road is now complete, months ahead of plan. In mid-2013, we started shipping concentrates from Oyu Tolgoi and it is now operating at nameplate capacity. However, we have paused the underground development phase of Oyu Tolgoi as we progress discussions with the Government of Mongolia on a range of issues. We remain positive about the outcome of our discussions and we are confident we will find a solution that maximizes value for all stakeholders of the project. Overall, in 2013, we have delivered a 13 per cent increase in production compared to 2012, despite the challenges at Kennecott, Oyu Tolgoi and factoring in the divestments. In parallel, we have substantially improved our cost base position through material headcount reductions in the order of 25% of the workforce. Slide 22 Strong focus on cost management and productivity improvements 27 P a g e

28 In 2013, one of the key priorities for the Copper business has been on taking out costs. To drive these savings, I have been focusing on five key areas: 1. Portfolio management and divestments. Effectively we are replacing high cost operations with low cost ones 2. Productivity, leading to significant headcount reductions 3. Reducing support costs. In 2013, we have successfully redesigned and centralized key support functions, leading to material cost savings in excess of $50 million year-to-date. 4. Mine plan optimization 5. And lastly, disciplined and prioritised capital spending In the short term, the work I am doing to reposition the copper business yields a significant contribution to the cost savings that I have committed to deliver. At the end of October, we had already realised more than US$350 million. 28 P a g e

29 Slide 23 Long term value creation roadmap underpinned by four key assets + two projects Before I talk about the copper strategy in more detail, let me tell you first about our mission, which is to become the industry s most trusted partner of choice, driven by value maximization. This is how we believe we will differentiate ourselves from our competitors. With this in mind, we have developed a strategy aimed at positioning our Copper business to maximize the greatest value opportunities in an attractive industry. Critical to achieving this is a core portfolio of four tier-one, long life and low cost operating asset Kennecott, Oyu Tolgoi, Escondida and Grasber and two world-class greenfield projects, Resolution and La Granja. The 4 of the 4+2 strategy represents the tier 1 operating assets we have today. The 2 in the strategy guarantees a healthy pipeline of greenfield projects to bring on new supply at the right time, when the market needs it. The intent is to maintain flexibility and optionality, ensuring growth is managed with market, resource and capital constraints in mind. 29 P a g e

30 Our value proposition is to re-establish strong competitive advantage by positioning Rio Tinto Copper as a 1 st cost quartile producer. This is underpinned by two elements: Re-focusing our portfolio on low cost assets, and reducing costs to improve the quality of our earnings over the next five years Prioritising growth opportunities, staging project development to manage capital and risk exposure Key to the execution of our strategy is a focus on building trust with all of our stakeholders. We are therefore ensuring that we have the capability and skills to work with a range of stakeholders across the world to secure a strong license to operate in all geographies. This will help us manage risk effectively, reduce uncertainty and ensure value for our shareholders. Slide 24 Kennecott recovery well underway with a focus on improving long term cost position Let s move on to discuss each of the strategic assets in turn, the growth opportunities they 30 P a g e

31 present, and the value they will deliver for shareholders. As I mentioned for Kennecott, the recovery of the slide is well underway, and progressing quicker than we expected. In October, we completed the heavy equipment access road, which gives us renewed access to the whole of the open pit. The concentrator is now operating at close to full capacity. In addition to the recovery effort, we are focused on driving the business for cash through material improvements in productivity, cost savings and disciplined capital allocation. The long term plan is to take the operation from a third quartile cost position to the second quartile of the cost curve. Accessing higher ore grades and extending the life of the mine is part of that process, and we continue to make investments in the Cornerstone project. This involves pushing back the south wall of Bingham Canyon to gain access to more than 500 million tonnes of ore at 0.79 per cent copper. The project is progressing well, with 15 per cent of stripping completed to date. In parallel, we have paused the North Rim Skarn and MAP projects while we assess all development options, including for the underground. 31 P a g e

32 Slide 25 Following Oyu Tolgoi s first shipment to customers, priority is now to maximize value At Oyu Tolgoi, we are focused on maximizing value from the initial open pit operations investment of $6.2 billion. As I mentioned earlier, the concentrator is now operating at nameplate capacity and we are progressively resolving issues associated with border delays that prevented delivery to customers. The true value of the Oyu Tolgoi project lies underground and we have already invested 800 million dollars in the underground project. We are committed to unlocking this value by resolving key stakeholder issues, working to secure a comprehensive funding plan for the underground development, obtaining all required permits and concluding the feasibility study. In Mongolia, as in all countries and regions where we work, we must build sustainable partnerships with the Government and with local communities. We achieve this with a comprehensive and organized approach to working with local communities and governments to support the socio-economic development of the region. Today, more than 90 per cent of Oyu Tolgoi s workforce is made of Mongolian nationals. 32 P a g e

33 In 2012, we partnered with more than 1,300 local suppliers and this year, we have already procured more than US$200 million worth of goods and services in country. The project is bringing critical infrastructure to the region, including an international standard airport, construction of power lines, and paved roads. To sum up, we are focused on maximising value from the open pit operations and continue discussions with the Government of Mongolia to unlock the value of the underground project. We are positive that we will reach a position that will maximise the benefits from the project for equity shareholders in line with the Investment Agreement. Slide 26 Escondida and Grasberg investments drive long term value for Rio Tinto Our non-managed joint ventures, Escondida and Grasberg, are making important inroads to improve productivity and extend mine life, which will drive real value for Rio Tinto in the medium and long term. At Escondida, production increased in 2013 as a result of the Escondida Ore Access and Laguna Seca de-bottlenecking projects. Escondida expects to complete its Organic Growth Project in the first half of P a g e

34 The project includes construction of a new 152 thousand tonne per day concentrator that will increase throughput, and provide access to higher-grade ore. In addition, Escondida will construct a new dynamic leach pad to maintain current levels of oxide leaching. We expect the project to be complete in mid These investments will sustain current production levels for the next ten years. Whilst we do not operate the Escondida mine, we do have considerable influence in its management through established relationships and representations on boards and committees. It is a strong partnership, delivering value for all shareholders. At Grasberg, Freeport continues to develop the large-scale, high-grade underground ore bodies located beneath the Grasberg open pit. Our commercial agreement gives us access to 40% of all of Grasberg production from Given the value of our investment, it provides a low cost entry into a world-class underground mine. 34 P a g e

35 Slide 27 - La Granja project is one of the largest undeveloped greenfield copper projects in Latin America Turning now to our two greenfield projects. Our objective is to maximise value, while managing risk and capital exposure and maintaining optionality. This will be achieved by prioritizing capital expenditure across the range of opportunities and by staging the development pathway of these high quality projects. Let s start with La Granja. Located in northern Peru, La Granja has the potential to be the largest undeveloped greenfield copper project in Latin America. It has the potential to be a very large, long-life operation, and one of the Group s highest value opportunities, with expected production peaking at 500kt p.a. at a very low cost. The project strategy is focused on delivering a risk-managed and phased entry into a world-class mine. We are managing social, environmental and technical challenges by addressing the risks first, starting at a small scale and preserving options to grow the project over time. 35 P a g e

36 A pre-feasibility study for Phase 1 is underway and we expect to have it completed by the first quarter of Slide 28 Resolution project is the world s third largest undeveloped copper resource At Resolution in Arizona, we are working to unlock the value contained in the world s third-largest undeveloped copper resource. Once fully developed, the mine will peak at 600kt of copper per year with low operating costs, presenting an attractive long-term growth option. We are looking at options to develop the project using a multi-phased approach. This year, we will complete the Pre-Feasibility Study, with a focus on progressing the tailings site solution. We will also submit a General Mine Plan of Operations to initiate federal permitting on the project and improve on the existing social license to operate. 36 P a g e

37 Slide 29 Five key priorities for 2014 As we look to 2014, I see five key value drivers for the Copper business: 1. Continue to drive safety, building on this year s performance. 2. Build on productivity gains and cost savings across all of our copper businesses. 3. Maximise value from our operations, in particular from the open pit at Oyu Tolgoi, the management of outbound logistics in Mongolia and from the sustained recovery at KUC. 4. Continue discussions with the Government of Mongolia to agree a pathway forward for the OT underground project. 5. And finally, continue with the phased and structured investments in our two greenfield projects, maintaining optionality. 37 P a g e

38 Slide 30 Strategy set to create substantial and sustainable value for Rio Tinto shareholders To sum up, while we expect to see some continuing volatility in our markets in the short term, we believe our business is well placed to take advantage of the strong long term industry fundamentals. I have a clear ambition to create significant value for Rio Tinto shareholders. In the next 5 years, as I reposition the business, the focus will be on maintaining current levels of production whilst building on the progress made this year to improve the quality of our earnings - divesting high cost operations and ramping up low cost operations, driving material cost reductions, prioritizing capital expenditure, and extracting maximum value, and cash, from our operating assets. In the long term, it is about leveraging this solid platform to grow the business in volume, and execute our strategy, focused on phased and prioritized investment in tier one assets. These are assets that are large, long life, low cost in geographies where we can secure and sustain a strong license to operate. This will position us as a 1st quartile producer, critical to delivering significant and sustainable value for shareholders. 38 P a g e

39 My focus is to build a resilient and agile business to deal with future economic downturns, and one that is able to generate significant cash flows to finance our growth options in an industry full of opportunities. Ladies and gentlemen, thank you for your time and attention. Let me now hand over to Jacynthe. Slide 31 - Jacynthe Cote cover slide 39 P a g e

40 32 - Transforming Rio Tinto Alcan through reducing cost, improving productivity and strengthening the portfolio Thank you, J-S. I m very happy to be here in Sydney today, to explain how we continue to transform Rio Tinto Alcan into a leaner, more efficient, low cost business. So far this year we have delivered more than $450 million of cost improvements. We have continued to strengthen the product group to focus on the highest margin businesses. Since 2009, we have closed or curtailed over 600 thousand tonnes of aluminium capacity, and sold a further 13 non-core businesses. Last week, we announced that we would suspend alumina production at Gove, and focus on the bauxite operations. Sadly, the 2.6 million tonne refinery is no longer a viable business in the current marke t environment. I should highlight that the Gove bauxite resource is a high quality asset. 40 P a g e

41 I am confident that a more focused bauxite business will have a successful long term future. And, we are delivering our approved projects. This year we produced first metal from our new AP60 plant, demonstrating the success of our next generation smelting technology. So, we are achieving a great deal. But it is against the backdrop of a tough industry outlook, and so much more work is still needed. Slide 33 - Aluminium market in modest deficit but expansions in China could reverse the trend Following several years of oversupply, the aluminium market is currently in a modest deficit. This follows continued strong demand growth, and recent curtailments and disruptions to primary metal production capacity. Aluminium inventories are high, and expected to remain so for the time being, as financial deals continue to be attractive. 41 P a g e

42 However, recent LME warehousing rule changes could, over the medium to long-term, soften regional premiums from their record levels. As metal is released from inventories, premiums may move towards a range more in keeping with historic levels. This will take some time. At current prices, we continue to see around 25 per cent of aluminium industry production capacity operating at below cash breakeven levels. So, with many high cost producers continuing to operate at a loss, and the large inventory overhang, the aluminium industry remains under pressure. And this is, of course, compounded by the risk of further new supply from Northwest China. Slide 34 Market conditions maintain pressure on prices and margins for alumina and aluminium In alumina, the market is expected to be near balanced in 2014, trading at around the marginal cost of production. This is a 100 million tonne a year market. Suspension of production at the Gove alumina refinery will see 2.6 million tonnes of annual 42 P a g e

43 capacity exit the market over the coming months. On the demand side, Chinese imports of alumina have declined from 2012 levels in favour of importing bauxite. But it is clear that value creation in the aluminium industry is continuing to move upstream. Slide 35 - Bauxite: strong Chinese demand and Indonesian supply risk continue to provide upward price pressure Bauxite demand growth in China has been strong. We expect it to continue to outpace demand growth for aluminium metal, due to declining domestic bauxite reserves and grades. There is also risk to supply from Indonesia, which is currently the largest exporter of bauxite to China, due to continuing uncertainty around secondary processing obligations. Rio Tinto Alcan, as the largest Australian bauxite exporter, is well placed to capitalise on this increase in bauxite demand. The quality and scale of our resources means we have excellent options to grow our bauxite business at the right time, through projects like the South of Embley expansion of 43 P a g e

44 our Weipa mine. Slide 36 - Improving performance through cost reductions and productivity gains Against this backdrop, we have implemented a variety of cost saving programmes. These target asset and labour productivity, fixed production and raw material costs, as well as functional support costs. These have delivered more than $450 million of cost savings this year. This is despite the adverse impacts of around 60 million dollars from the tropical cyclones which affected our Queensland bauxite and alumina production in the first half. 44 P a g e

45 Slide 37 - Substantially lower functional costs and reduced global employee headcount Across the group we have reduced headcount to lower our cost base and improve productivity. In particular, we have focused on head office and support costs, which have reduced by 28 per cent since This has mainly been achieved by reducing functional headcount by one third. Overall, our employee base has shrunk by just over a fifth since Around 2,400 people have left the business through targeted headcount reduction measures to right-size the organisation. The trend has accelerated this year. We ve taken more than 1,700 people out of the business in the nine months to September as a result of productivity improvements. This equates to a ten per cent reduction. This is an important metric, but as you will see in the next few slides, there is much more happening on the ground. 45 P a g e

46 Slide 38 - Productivity improvements in bauxite mines We ve been taking many steps to increase productivity. For instance at Weipa, our largest bauxite mine, we have been steadily increasing truck utilisation. We ve achieved this by improving condition-based maintenance plans, and reducing turnaround times. This increase in truck availability, together with higher production and reduced headcount, helped us to realise a 25 per cent increase in labour productivity in We expect a further 18 per cent increase this year, giving us a cumulative improvement of almost 50 per cent. Similar cost reduction initiatives are underway across the entire aluminium portfolio. 46 P a g e

47 Slide 39 - Productivity improvements in alumina refineries We ve also attacked our cost base in the alumina division, in our search for savings. We lowered our refinery fixed cost base by 16 per cent in 2012, again through headcount reductions and lower maintenance costs. We expect a similar percentage reduction in This equates to an almost one third reduction in our refinery fixed cost base per tonne since We ve also targeted variable cost reductions, and have been able to reduce the quantity and quality of inputs required to make the same product. For example, we have reduced our coke and caustic procurement spend by over 15 per cent in the first half of this year. We ve seen a progressive improvement in labour productivity at our refineries. Overall, we ve generated a 17 per cent increase in tonnes per employee despite the significant weather impacts. If it wasn t for the weather, it would have been more like a 32 per cent improvement. 47 P a g e

48 Slide 40 Further productivity gains at smelters Our cost reduction efforts extend across all areas of our business. Our smelters have been focused on lowering the cost of materials and services. At year end, we expect to deliver a 14 per cent reduction in these costs, through various procurement initiatives on goods and services pricing, as well as a reduction in contractors. As you can see, Pacific Aluminium has realised significant improvements in labour productivity with 19 per cent more metal per employee. With the reintegration of Pac Al, we will ensure that we continue to share best practices across the entire aluminium group, such as the robust procurement cost reductions obtained in PacAl and the strong cash management focus in RTA. So we will continue to deliver further improvements as we move forward. 48 P a g e

49 Slide 41 - Strengthening the portfolio: continue focusing on moving to the low quartile cost assets We continue to refocus the portfolio on the highest quality businesses through divesting and curtailing assets that are non-core. We ve made steady progress on this front over the past five years. In fact, since 2009, Rio Tinto has realised over 4.4 billion dollars in proceeds from aluminium divestments. This includes the Packaging and Engineered products divisions, and the sales of the Sebree and St Jean smelters announced earlier this year. We are also closing or curtailing businesses that are not economic. In August this year, we announced the curtailment of 100,000 tonnes of primary metal capacity at Shawinigan. All in all, over the last five years, we ve closed or curtailed 600,000 tonnes of high cost smelting capacity. 49 P a g e

50 Slide 42 Gove alumina refinery Last week, we announced our intention to suspend production at the Gove alumina refinery. This was an extremely difficult decision, and we recognise it will have a significant impact on our employees, the local community and the Northern Territory. We are now working in partnership with the Northern Territory and Australian Governments, the broader community, and Traditional Owners, to identify new opportunities for the people of Nhulunbuy. We do have a firm belief in the potential of the bauxite operation, which is a quality asset with a long-term future Establishing a long-term plan for the bauxite operation and its employees will be the key to retaining a sustainable business in the local area. 50 P a g e

51 Slide 43 - Delivering our key projects Strengthening our portfolio also requires the successful delivery of our approved projects. We have been progressively completing our brownfield and modernisation projects. These take full advantage of our low cost hydro and bauxite positions in key strategic assets. Last year we completed the expansion of our Yarwun refinery on time and budget. The expansion more than doubled the refinery s annual capacity to 3.4 million tonnes of alumina, and also significantly reduced our average cost of production. This year we produced first metal from our AP60 plant, which represents the next generation of our smelting technology. This will produce 40% more metal per cell than the previous AP technology. Our Kitimat modernisation project is progressing and first metal is expected by the end of This will move Kitimat to the first decile of the aluminium cash cost curve. 51 P a g e

52 So we are completing projects that are already approved and underway. But you shouldn t expect any significant investment in new alumina or aluminium growth projects for the foreseeable future, given the challenging market conditions. Slide 44 - Best bauxite reserves in the industry and unrivalled position in renewable power So, where does this leave us? Today, Rio Tinto Alcan has access to the largest and best quality bauxite reserves in the industry. We have an interest in three of the four largest bauxite mines in the world, and a number of potentially attractive bauxite growth opportunities in Australia, Guinea and Brazil. We are therefore well placed to benefit from increased bauxite demand from China and the Middle East. As well as our unparalleled bauxite position, we have an unrivalled hydro position. Over 70% of our power comes from hydro, which provides clean, carbon-free electricity. And almost two thirds of it is self-generated. This compares positively with an industry average of almost 40 per cent. 52 P a g e

53 It gives us superior control over a key component of our input costs. These advantages, along with the quality of our assets and our technology position, will support our capacity to continue driving improvements. Slide 45 - Rio Tinto Alcan continues transformation In summary, the broader aluminium market continues to be challenging. Bauxite demand from China is strong as domestic reserves and grades decline. We expect this trend to continue, and are well placed to take full advantage of the increase in seaborne bauxite demand. We continue to transform our business through reducing costs and increasing productivity, strengthening the portfolio, and delivering our approved brownfield and modernisation projects. We have come a long way on our transformation journey. And we are making good progress. But we still have more to do to ensure that Rio Tinto s aluminium business delivers greater value to shareholders. 53 P a g e

54 Slide 46 Break (Mark Shannon) We will now take a 20 minute break 54 P a g e

55 Slide 47 - Andrew Harding cover slide 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. 55 P a g e

56 Slide 48 - 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. 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. 56 P a g e

57 Slide 49 - 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 last week. 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. 57 P a g e

58 The new mine development pathway leads us to more than 350 million tonnes of production by It is based predominantly on 40 to 50 million tonnes of brownfield expansions, supported by the new Silvergrass mine. These tonnes will be added at the marginal cost of production at each mine. It provides continued flexibility on greenfield mine decisions, with options to grow more quickly if warranted. The breakthrough pathway equates to a saving of more than $3 billion in growth capital over the next 3 years with the deferral of the Koodaideri mine. 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 per cent 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 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. 58 P a g e

59 Slide 50 - Infrastructure development to 360Mt/a is progressing on budget and on 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, has 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. 59 P a g e

60 Slide 51 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 60 P a g e

61 infrastructure, but also with less pre- strip and reduced strip ratios. 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. Remember, Tom Price is still in operation after more than 40 years. We will continue to challenge our engineers and squeeze more from our assets. Slide 52 - 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. 61 P a g e

62 Development of this mine has not been approved as it is not yet required. 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 per cent. 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 53 - Pilbara operations and 290Mt/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 per cent higher than the first nine months of P a g e

63 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 $400M under budget and four months ahead of its original timetable. 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 54 - Pilbara operations achieving sustainable cost reductions 63 P a g e

64 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. 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. 64 P a g e

65 Slide 55 - Driving productivity through a large number of targeted 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. 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 P a g e

66 Slide 56 - 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. 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. 66 P a g e

67 Slide 57 - 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. 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. 67 P a g e

68 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 58 - 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 P a g e

69 Slide 59 - 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 69 P a g e

70 budget - the consistent aim is to have the next best iron ore expansion option. Slide 60 - Rapid uptake of 2014 off-take opportunities with unfulfilled 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. 70 P a g e

71 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. Slide 61 - 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. 71 P a g e