Rio Tinto and China: partners for growth Sam Walsh Chief executive Iron Ore & Australia Metal Bulletin conference 28 February 2012
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Timeline of relationship 1960s aluminium trade 1973 iron ore pioneer 1983 China office 1987 Channar JV 2002 BaoHi JV 2002 Shougang in HIsmelt 2002 Exploration JV Gansu 2005 Suzhou Metal Powders Plant 2008 Chinalco largest shareholder 2010 Chalco JV Simandou 2010 Channar JV Extension/strategic cooperation 2010 Chow Tai Fook diamond partnership 2011 Chinalco Exploration JV 28 February 2012 3
Population growth and urbanisation to drive steel demand for coming decades World urban population growth (Billion people) Building height categories (Steel intensity, floors kg/m 2 ) Floors < 100 F The world is set to urbanise close to another 3 billion people by the middle of the century < 50 F < 32 F < 18 F < 12 F < 8 F Steel intensity of different power technologies (tonnes of steel/mw) Solar Hydro Gas-fired Nuclear Coalfired Wind Source: UN, McKinsey, Rio Tinto 28 February 2012 4
The China steel story has a long way left to run, with India and others to follow Steel intensity and GDP 1900 2011* (Kg/capita crude steel production) Number of years of steel production above 500 kg/capita 1,400 1,200 China exceeded 500 kg/capita level Korea of crude steel production for first time in 2011 US 30 years 1,000 800 600 400 China (actual) 1950 2011 Japan China (forecast) 2012 2040 Germany USA Japan 44 years (continuing) Germany 45 years (continuing) Korea 27 years (continuing) 200 India 0 0 10,000 20,000 30,000 40,000 GDP per capita (PPP basis, $2005) 1940 1960 1980 2000 2010 China 0 years Note: Stylistic representation Source: Correlates of War, Maddison, Global Insight, Rio Tinto 28 February 2012 5
Challenges of bringing on new supply Announced and completed iron ore production capacity (global) (million tonnes) Over the next 8 years, global supply additions need to be at the rate of at least 100 Mt each year: 600 Mt to satisfy expected demand growth 200 Mt to replace expected high cost supply exits We expect to add ~ 25% of required supply We have a proven project expansion delivery model - scope, time and budget Announcements from others do not necessarily translate to supply capacity Reduced sources of project financing Approvals processes Shortage of specialist mining skills Working in remote locations Rising resource nationalism We will maintain a low and advantageous first quartile cost position and product portfolio Source: UNCTAD, Rio Tinto analysis 28 February 2012 6 6
Continued iron ore price volatility; value-in-use an important consideration Platts IODEX (62% Fe, $/dmt, CFR North China) Iron ore prices remain high by historical standards Prices impacted by: Chinese credit tightening, stock draw downs and pressure of steel mill margins A weaker outlook for the US and Eurozone affecting market sentiment Portfolio approach for customer sales Iron ore is not homogeneous; customer needs are important value-in-use consistency and reliability Source: Platts 28 February 2012 7
Pilbara operations: an integrated network of mines, rail, ports and associated infrastructure 14 mines 1,500km of rail 3 port terminals 9 berths 3 power stations Other associated infrastructure 28 February 2012 8 8
Global iron ore growth options without equal Pilbara expansion projects in scope, on time and on budget 5 Mt this quarter will increase Pilbara capacity to 230 Mt/a 283 Mt/a expansion fully approved 353 Mt/a accelerated to 1H 2015 2069 mine plan and strong nearterm resources and reserves Drilling >600,000m a year for the next 4 years IOC concentrate expansion currently being commissioned Solid progress at Simandou Cape Lambert expansion 28 February 2012 9 9
IOC has a strong pipeline of high grade growth options to meet market demand IOC concentrate capacity (Mt/a) 28 February 2012 18 26 High grade concentrate stockpiles Sept Iles, Quebec 50 CEP phase 1 to 22 Mt/a on track for delivery in Q1 2012 and phase 2 to 23.3 Mt/a in 2013 CEP phase 3 will take concentrate production to 26 Mt/a Consistently high quality products with the lowest phosphorus in the industry High grade resource base in excess of 2 billion tonnes 1, with an extensive 2012 drill programme Line of sight on options for expansion to 50 Mt/a through sequential mine developments 1 Note: Meas = 202Mt @ 39.3 %Fe, Ind = 754Mt @ 38.2 %Fe, Inf = 1,417Mt @ 37.8 %Fe Source: Rio Tinto Annual Report 2010 10
Strong co-operation with our partners is enabling solid progress to be made at Simandou Largest integrated mining project in Africa, supported by in-country management team Secured tenure and full support of Government of Guinea and Chalco Committed US$3 billion 1 to date, with over US$2 billion allocated to mine-related expenditure Stage gate process for approvals and development Geotechnical drilling at the port is underway Early works contracts being issued and significant rail work tenders released 1 Includes US$700 million settlement payment 28 February 2012 11
Mine of the Future TM advanced leadership in next generation technologies for mining operations Operations Centre Autonomous haulage Autonomous drilling Smart explosives truck Autonomous trains High Precision GPS Machine supervision and control 28 February 2012 12
The leading Iron Ore business Fully integrated production platform and diversified sales and marketing strategy Focus on managing Pilbara costs and improving productivity in an environment of strong inflation and a high Australian dollar Pilbara 283 Mt/a expansions remain in scope, on A$ budget and on time, with options for phased expansion Industry-leading advantages in port options, quality and location of mineral resources, and innovation and technology 28 February 2012 13
We are actively pursuing sourcing in China 110 active suppliers from all over China 35 current and over 120 potential projects Around 50 sourcing professionals $1.2bn in 2011 Potentially $1.5bn in 2012 28 February 2012 Note: 1. Staff includes ECL and RTP procurement staff headcount 2. Spend includes both RTP and marine spend with Chinese suppliers 14
CP Consent Statement The information in this report that relates to IOC Mineral Resources is based on information compiled by Tim Leriche who is a member of Member, Canadian Institute of Mining and Metallurgy (CIMM). Tim Leriche is a full-time employee of IOC and has experience which is relevant to the style of mineralisation and type of deposits under consideration and to the activity which they have undertaken to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Minerals Resources and Ore Reserves. Tim Leriche consents to the inclusion in the report of the matters based on their information in the form and context in which it appears. 28 February 2012 16