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Resource challenges: navigating through
volatility to create long-term value
Tom Albanese,
Chief executive
November 20, 2012
Research Institute of Economy, Trade and Industry (RIETI) BBL seminar
©2012, Rio Tinto, All Rights Reserved
Discussion topics
The global economy
With a particular look at how we see China and the rest of Asia in terms of
growth and commodity demand
Supply side challenges
Supply side challenges for resource sector
Rio Tinto and Japan
Fifty year partnership
Long term partnerships
Partnerships for sustainable growth
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©2012, Rio Tinto, All Rights Reserved
3
Short term market uncertainty and
volatility continue
• Continued deleveraging and austerity in OECD
Synchronised slowdown underway
Purchasing Managers Index – Manufacturing
65
• Rate of growth in our markets in China is robust
but is decelerating
Above 50 = Expansion
60
55
50
45
40
US
China
35
30
25
Jan-08
Eurozone
Japan
• Expect a sequential pick-up in Q4 with signs of
improvement in property market
Below 50 = Contraction
Jan-09
Jan-10
Jan-11
Jan-12
Monthly new home sales growth in China
% change year on year
• Impacts of stimulus extended out vs previous
estimates: to be felt after Party Congress
100%
• Market to remain volatile
80%
60%
40%
20%
0%
Jan-08
-20%
-40%
Source: CEIC / NBS
Jan-09
Jan-10
Jan-11
Jan-12
©2012, Rio Tinto, All Rights Reserved
The long term demand outlook
remains attractive
• ~2 billion additional people to urbanise by 2030
Global commodity demand trajectories
Index (2012 = 100)
200
• Global steel consumption expected to grow by
2 per cent per annum
180
• China to remain key driver until mid-2020s
160
• China GDP per capita currently
19% of USA levels
140
• India and South East Asian economies more
than offset flat and then falling consumption in
China
120
100
2012
2015
2018
Aluminium - Primary
Hard coking coal
Thermal coal
Source: Rio Tinto analysis
2021
2024
2027
Copper - Primary
Iron ore
TiO2
2030
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©2012, Rio Tinto, All Rights Reserved
Japan as a key market for Rio Tinto
• Second-largest market in terms of
revenue
10
31
• $10.6B in 2011, 16% of Rio Tinto global
revenue
13
• Approximately half of global mining
machinery and equipment procured from
Japanese companies
14
• Japanese ships and shipping lines used
for seaborne trade
16
16
China
Japan
Other Asia
• Japanese joint venture business partners
in Rio Tinto operations around the world
United States
Europe
Other
• Gross sales revenue in 2011 = $65 billion
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©2012, Rio Tinto, All Rights Reserved
Japanese steel industry underwrote Pilbara
development nearly five decades ago
First official train departing Tom Price, 1966
Hamersley Iron official opening, 1966
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©2012, Rio Tinto, All Rights Reserved
The industry supply response
is increasingly challenged
• Cost escalation and rising capital intensity will
increase pressure on marginal project returns
Local Chinese iron ore supply is working harder
80%
60%
• Scarcity of highly skilled labour, access to
financing
40%
20%
0%
02
04
06
08
10
Implied Domestic Fe %
Domestic iron ore % market share
Source: World Steel Association /GTIS/Rio Tinto analysis
Global iron ore fines cost curve 2012 (CIF China)
Source: Macquarie
• Rising threat of resource nationalism
• Recent high profile project deferrals
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©2012, Rio Tinto, All Rights Reserved
Evolving technological relationship with Japan: from
hardware to high-tech
Parker Point car dumper construction, 1965/6
Rehabilitation forests, Richard’s Bay, South Africa
Komatsu Autonomous Haulage System
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Fe
Parker Point car dumper construction, 1965/6
Iron ore used to build the cities of the future
Komatsu Autonomous Haulage System
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©2012, Rio Tinto, All Rights Reserved
Rio Tinto and Mitsui & Co. joint venture in Laos
Parker Point car dumper construction, 1965/6
Komatsu Autonomous Haulage System
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©2012, Rio Tinto, All Rights Reserved
We drive step change innovation
Our Mine of the Future™ is shaped by four significant value levers
Find
Develop
Mine
Recover
• Find future tier one
ore bodies
• VK1 in initial flight trials
• Complex testing programme under
way
• Develop future block
cave mines safer,
faster, better
• Tunnel boring system trials to
commence at Northparkes during
H2 2012
• Optimise resource productivity
• Expansion of driverless truck fleet to
150
• Operations Centre
• Smart drilling and
blasting
• Autonomous trains (AutoHaul™)
• Recover more from mineral
deposits
• NuWave™ copper sorting pilot
plant being commissioned at
KUC
Innovation networks created through long term strategic alliances
Protection of Intellectual Property is key to sustaining competitive advantage
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©2012, Rio Tinto, All Rights Reserved
Mine of the Future™ - surface operations in action
Remote Operations Centre, Perth
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©2012, Rio Tinto, All Rights Reserved
Mine of the FutureTM
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©2012, Rio Tinto, All Rights Reserved
Questions and Answers
14