rio tinto investor seminar, london - 11 december 2013€¦ · poor returns on some investments made...

Rio Tinto Investor Seminar, London - 11 December 2013

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Slide 1 – Title slide

Slide 2 – Cautionary statement


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Slide 3 – Agenda

(Mark Shannon) Good morning everyone and welcome to the second of our investor seminars.

I’m Mark Shannon, head of investor relations at Rio Tinto.

In a moment, Sam Walsh will make some opening comments about his vision for the company, our strategy and how we’re delivering against our targets.

Chris Lynch will then provide more detail on the levers we’re pulling to improve performance, and drive our free cash flow.

Alan Davies will talk about the actions he has implemented in our Diamonds and Minerals business in response to market changes and Harry Kenyon-Slaney will give you an update on the transformation work he is leading in our Energy business.

Following a short break, Andrew Harding will share with you the details of our breakthrough iron ore growth programme.

Sam and the team will then be happy to take your questions.

Before we start, though, I would be grateful if you could all ensure that your mobiles are switched off.

We will now provide an important safety briefing.


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Slide 4 – Emergency procedure

Slide 5 – Sam Walsh cover slide

Good morning, everyone, it’s a pleasure to be here.

Since becoming chief executive in January, I’ve been re-focusing the business on delivering


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greater value for you, our shareholders.

As you can well imagine, this has meant spending plenty of time focusing on how the business is travelling.

And, I’ve been really impressed by what I’ve seen.

We have great people, tier one operations, a healthy pipeline of projects, and industry leading technologies.

This is a world-class company.

But, to be frank, we had lost focus on what really matters – delivering superior value to shareholders.

My goal is to transform Rio Tinto into the highest performer in our sector.

We are taking decisive action.

We are improving performance, strengthening our balance sheet, and we're delivering results.

But, we have more to do, and driving change across the organisation has my undivided attention.

Slide 6 – Delivering value for shareholders

This year, we’ve achieved substantial cost reductions across our operations, and in our


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exploration and evaluation spend.

Last week,in Sydney, I said that we had achieved $1.8 billion of cost savings to the end of October.

In fact, at the end of November, we’ve now exceeded our targets for 2012.

We have taken more than two billion dollars out of our operating costs, and reduced our exploration and evaluation spend by over 800 million dollars.

At the same time, we’ve set new production records, as we've realised productivity gains across our portfolio.

We’ve enhanced our capital allocation, and we intend to halve our capital expenditure,

over the next three years, to around eight billion dollars in 2015.

Importantly, this is not at the expense of value adding growth.

I really do believe that expanding our world class, high margin Pilbara operations is the most attractive investment opportunity anywhere in the mining industry.

It is right in line with my commitment to be totally focused on only allocating capital to opportunities that will generate the best returns.

The breakthrough pathway we announced two weeks ago combines brownfield expansions with low-cost productivity solutions, and the deferral of greenfield mine development.

As a result of this breakthough, we will deliver the expansion at around three billion dollars less than previously estimated.

And we have already completed the first phase of the Pilbara expansion, to 290 million tonnes a year, four months ahead of schedule and 400 million dollars under budget.

Of course, our achievements are not confined to Iron Ore.

In Energy, we successfully completed the Kestrel mine extension project, and began producing and shipping coal earlier this year.

This will enable us to grow our coking coal volumes by 25% over the next five years.

In Diamonds and Minerals, our transition from open pit to underground at the Argyle diamond mine reached a significant milestone in April, with the official opening of the underground.

And in Copper, we have completed phase one of the Oyu Tolgoi copper-gold mine in Mongolia, where we are now ramping up shipments to match production.

Finally, we are actively re-shaping the portfolio by selling non-core businesses.


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This year we’ve announced or completed sales of 3.3 billion dollars, including the Clermont thermal coal mine for just over a billion dollars.

All of these successes are underpinned by the cultural transformation that I'm driving, to ensure that everyone in this business acts as an owner, taking accountability for their decisions.

Whilst we have more to do, our performance shows we are delivering results.

Slide 7 – Safety culture critical to operating effectively

But before I continue, let’s talk about safety.

We’ve made significant improvements in our safety performance over the last decade.

But, I am not satisfied with our progress.

Tragically, we’ve had three fatalities at our managed operations this year.

Sadly, just last month, a contractor working at our Richards Bay Minerals operation in South Africa, died as a result of a vehicle incident.

A terrible accident, and I extend my condolences and prayers to his family and friends.

I want all of our employees and contractors to go home safe and well at the end of each day.

And so we’re improving the way that we learn from serious near miss incidents, in order to prevent them happening again.


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We are constantly looking for ways to engage our people, in a very personal way, on the impacts of safety incidents.

Because, at the end of the day, safety is about caring for people.

Slide 8 – Copper 4+2 strategy set to create substantial and sustainable value for shareholders

Last week, in Sydney, Jean-Sebastien Jacques and Jacynthe Cote provided an update on our Copper and Aluminium businesses.

Let me briefly recap on the key points, starting with Copper.

Jean-Sebastien set out the strong long-term outlook for the copper market, and he shared the work underway to reposition our Copper assets around a ‘4+2’ strategy.

The ‘4’ of the strategy represents the tier 1 operating assets we currently have.

These long-life, low cost assets are Kennecott, Oyu Tolgoi, Escondida and Grasberg.

The ‘2’ in the strategy represents two world-class greenfield projects, Resolution in the United States and La Granja in Peru.

The strategy focuses on delivering productivity improvements and cost savings at our existing operations, to improve the quality of earnings over the next five years.

This will set a solid foundation to grow the business when the time is right, through phased and prioritised investment in our tier one greenfield projects.


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This strategy is a clear road map to position the Copper group as a first quartile low cost producer.

I have already mentioned the completion this year of phase one of the Oyu Tolgoi copper-gold mine in Mongolia.

This is an outstanding achievement, and a great example of delivering a growth project on time and to budget.

We continue to discuss the pathway forward for the phase 2 underground project with the Government of Mongolia.

It's a constructive dialogue, and we remain committed to resolving the outstanding issues, so that we might all be able to move forward confidently with this project.

Slide 9 – Transforming Rio Tinto Alcan through reducing cost, improving productivity and strengthening the portfolio

Whereas the outlook for Copper is strong, Aluminium faces a set of very different market dynamics.

The Aluminium market is currently in a modest deficit, following several years of oversupply.

At current prices, we continue to see around 25% of the industry’s product capacity operating at below cash breakeven levels.

In alumina, the market is expected to be near balanced in 2014, trading at around the marginal cost of production.

The silver lining is bauxite, with strong growth in Chinese demand.


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And we expect bauxite demand to continue to outpace demand growth for aluminium metal, due to declining Chinese domestic bauxite reserves and grades.

It’s against this backdrop, that Jacynthe and her team have been working to transform our Aluminium assets and take the tough but necessary decisions.

Since 2009, we have closed or curtailed over 600,000 tonnes of aluminium capacity and sold a further 13 non-core businesses.

Most recently, we announced suspension of the Gove alumina refinery in Australia, to focus on the Gove bauxite operations.

I said in Sydney that, after much analysis, including whether a sale, spin or an IPO of the aluminium product group were viable options, we have decided that it remains part of our diversified portfolio.

Within the context of this decision, I will be seeking continued efforts to transform the product group.

And, we’re making headway.

We have a variety of cost saving programmes underway.

These target asset and labour productivity, fixed production and raw material costs, as well as functional support costs.

So far, these have delivered over 450 million dollars of cost savings this year.

By the end of 2014, we expect that these cost savings would have reached our target of one billion dollars.

So, we are improving the business.

But, clearly, it’s a tough place to be.


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Slide 10 – Our businesses are well placed to meet global demand growth

In terms of the global economy, from where I stand, we continue to see market fragility and volatility as underlying structural weaknesses remain unresolved.

The hangover from quantitative easing and austerity programmes remain, and so I believe that we should continue to expect short-term risk for the time being.

Looking to the long-term, the economic growth of China, India and the populous ASEAN countries, will continue to drive demand growth for our products.

In China alone, around 170 million people are expected to move to an urban environment by 2025.

I therefore remain optimistic about the demand for our products, which are vital for the developing world.

And supply will continue to be constrained.

Poor returns on some investments made over the past few years are leading investors to demand higher rates of return, and lower capital expenditure.

This means that the rate of supply growth across some commodities is likely to be lower than many have previously predicted.

And so, the outlook for our business is attractive.


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Slide 11 – A consistent strategy with clear priorities

Now, I can’t control the external world we operate in.

But I can influence how we position our company to meet head-on any challenges the world might present.

With this in mind, I am confident that our strategy to invest in long life, low cost and expandable assets is absolutely right.

And the key for us now is disciplined and unrelenting execution of this strategy.

The goal is to transform the performance of our business and deliver the best results from some of the best assets in the industry.

Today, you’ll hear more about how we are doing exactly that.

Work continues, across the Group, on many different fronts.

I have changed our incentive schemes, and our performance metrics, so that they are directly linked to achieving our targets, such as cost reduction.

Cash generation offices are being set up across the Group, so our leaders have visibility on how the business is tracking.

And, as I’ve mentioned before, I’m changing our mind-set to behave more like owners of this great business.

This makes absolute and clear sense as we look to instill greater accountability and rigour


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across our activities.

In doing so, we’re doing exactly what we said we’d do – reliably and flawlessly executing our strategy.

Now, we have a full agenda.

So, before handing over to our Product Group heads, let me ask Chris to take you through the progress we’re making against our targets.

Slide 12 – Chris Lynch cover slide

Thanks.

As Sam has already mentioned, we’ve taken steps across the business to reduce costs and increase productivity.

Our capital expenditure profile is coming down at the same time as we’re bringing on significant new volumes.

And we’ve announced or completed 3.3 billion dollars of divestments this year.

So, we’ve got some runs on the scoreboard and we expect significant improvement in our free cash flow generation in future periods.

We’ve also taken steps to strengthen and enhance our systems and controls around capital allocation, so that we only invest in the best opportunities.

This will ensure that we generate greater returns throughout the cycle.


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I’ll talk you through some of the thoughts we have in this area.

In summary, we are taking positive action to build a strong and robust balance sheet for whatever range of futures we may face.

Slide 13 – Strong performance on operating cash costs

We continue to make strong progress on our cost reduction programme.

I said in Sydney that we’ve delivered over 1.8 billion dollars of improvement in unit operating cash costs in the ten months to October.

We’ve continued that progress and, at the end of November we’ve now exceeded our target of two billion dollars of operating cost savings for this year.

And you can expect more from us next year, as we progress towards our three billion dollar target for 2014 against 2012.

In addition, we’ve cut our exploration and evaluation spend by more than 800 million dollars.

So, we've already exceeded our targets for both operating cost reductions,

and lower exploration and evaluation spend.

This strong performance comes from over 1,500 separate initiatives which have been implemented across the businesses.

These cover a vast range of activities.


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Let me mention a few examples of the great work underway.

The Copper group has reduced service and support costs by more than 50 million dollars in the first ten months of the year, primarily through reducing headcount and right-sizing the business following divestments.

In Aluminium they’ve been able to increase truck utilisation at the Weipa bauxite mine, through using condition-based maintenance and reducing turnaround times.

Initiatives such as these have allowed them to achieve a 47% increase in labour productivity since 2011.

At the same time, they’ve been able to strip out costs in their procurement spend with a reduction of 14% in materials and services costs since 2012.

At a global level, we’ve taken almost 4,000 people out of the business since June 2012, even after taking into account eighteen hundred new roles to support the iron ore expansions.

And this doesn't include a further 3,000 roles that have gone with divested assets.

So the business is now being run much more tightly, with a real focus on cash generation, and I think you can see that we’re making good progress.

But it’s a journey and we have more to deliver in future years.

Slide 14 – Targeted reductions in exploration and evaluation spend

Our enhanced approach to capital allocation is driving targeted reductions to our exploration and evaluation spend.


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We simply can’t expect to push forward with every opportunity at the same time,

and so have prioritised and sequenced our spend on longer-dated evaluation projects.

As a result, we’ve already beaten our 750 million dollar target reduction for this year,

with a reduction of over 800 million achieved to the end of November.

We’ve roughly halved our spend, and we will sustain this reduced level into 2014.

We have slowed a number of evaluation projects.

They will continue to progress, but at a pace that matches our overall view of investment priorities.

Our central exploration budget, shown in red on the slide, remains at around 200 million dollars a year.

This is a critical activity for us, in order to secure future options.

We are a long-term business that’s been in operation for 140 years.

We intend to continue to develop attractive growth options for future generations.

Slide 15 – Delivering strong growth and lower capital expenditure

As well as reducing costs, we’re getting capex down, well down, from its peak last year.

To give you more colour, let me give you some numbers.


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Between 2006 and 2010, we spent around five and a half billion dollars.

In each of the three years from 2011 to 2013, we spent an average of around fourteen and a half billion dollars.

This most recent step change upwards was just not sustainable.

We will therefore be more disciplined in the allocation of capital in future.

This is most clearly illustrated by the breakthrough growth pathway in the Pilbara that we announced last week.

This is exciting value creation.

By combining brownfield expansions with low cost productivity gains we have been able to reduce and postpone the investment required to grow our mine capacity.

And we are adopting the same mindset to our sustaining capital.

The breakthrough pathway does not increase our rate of spend on new mines to maintain production levels in the Pilbara.

And, across the business, we are reducing sustaining capex that is required to maintain our existing plant and machinery.

Taken together, sustaining capex, including Pilbara sustaining mines, will reduce by over two billion dollars in 2013, to around five billion dollars, and stay around this lower level going forward.

We will still be delivering strong growth, but with lower capex.

So far this year we have completed the Pilbara 290 project, Oyu Tolgoi phase one, Argyle underground, Kestrel mine extension and AP60.

As a result, we have significant volume growth coming through as these key projects ramp up over the next two years and we see the additional benefit of our productivity improvements across the portfolio.

For example, over the five years from 2012 our iron ore volumes will grow by more than 50% and coking coal by more than 25%.

We will continue to expand.

But I believe we can deliver steady growth while reducing total capex.

Next year, our capex will be less than 11 billion dollars, and we expect it to reduce further to around 8 billion dollars in 2015.

This will result in a strong balance sheet, which will allow the Board to make further


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decisions around returns to shareholders and other allocations of capital.

Slide 16 – Capital allocation priorities

We have changed the way we think about capital allocation, and have enhanced the systems and controls we have in place to ensure that we keep our capex at a suitable level, while continuing to invest in the very best projects.

Some of the changes may seem like subtle nuances.

But it’s a fundamental adjustment to the way we look at capital allocation.

Put simply, we no longer consider whether each individual project is a good use of capital.

We are looking at our portfolio of investment opportunities over a number of years to determine what will be the best use of capital.

A key consideration in determining the best use of capital is our progressive dividend policy, and the extent to which we need to strengthen the balance sheet.

As always, relative attractiveness is assessed based on value and returns.

We will only allocate capital to a project where it can generate a return well above our cost of capital, taking in to account a range of potential risks.

And it’s not just about NPVs and IRRs, it’s about much more than that.

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


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For instance, pay-back period, probability distributions, profitability index and industry structure also have their place in our analysis.

Alongside this, we must also consider ways that we can secure our license to operate and de-risk projects without investing vast sums of money upfront, but instead approaching it in a phased way.

And, as I indicated before, the investment parameters have changed.

We want to invest in a sustainable way through the cycle, which means we invest only what we can afford, having consideration of shareholders’ expectations of returns, and the robustness of our balance sheet.

We don’t have a target level of capital investment that we must reach.

If projects are not able to generate a return well above our cost of capital then we won’t invest.

And if we can’t get the returns we demand, and our balance sheet is strong, then we can enhance returns to shareholders, as we have done in the past.

Slide 17 – Progressing non-core asset disposals

As a part of our focus on ensuring that capital is allocated to the best assets, we’ve also been divesting non-core businesses.

This year we’ve divested 3.3 billion dollars of non-core assets.

And we’ve received proceeds of around 2.3 billion dollars to date.


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Most recently we reduced our stake in Constellium, the former Alcan Engineered Products business, for 315 million dollars, and closed out the sale of Northparkes.

The Clermont sale is making good progress and we expect to receive the 1 billion dollars cash proceeds early in the New Year.

So, we’ve been able to capture significant value for assets that no longer fit our strategy.

This is an ongoing process for us and we’ve now divested around 17 billion dollars of assets since 2008.

Slide 18 – Greater returns for shareholders

So, in summary, each of the drivers of free cash flow that we can control is improving.

We’re reducing costs while growing volumes, and divesting non-core assets.

We’ve enhanced our systems and controls, and we’re changing the way we approach capital allocation to ensure that our cash flows are deployed to the very best uses of capital.

We need to have a balance sheet that will be resilient enough to absorb any shocks in commodity markets, or the economy generally, and still give us the flexibility to invest throughout the cycle, and pay strong cash returns to shareholders.

From the end of 2010 to June 2013, our net debt grew from 4 billion dollars to over

22 billion.

It has now started to reduce, and we want to see it come back down to a more sustainable


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level.

For this reason, paying down debt will be the priority for 2014.

We’re also lowering capex to a more sustainable level, with year on year reductions of around 20% in each of 2013, 2014 and 2015.

This is creating a base for generating enhanced growth in our cash returns to shareholders in future periods.

With that, let me hand you over to Alan.

Slide 19 – Alan Davies cover slide

Thanks Chris.

Good morning everyone.

I will now take you through our Diamonds & Minerals business which I expect will become an increasingly significant contributor to Rio Tinto’s earnings.

I will also cover the tier one Simandou iron ore project in Guinea which remains under my leadership.


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Slide 20 – A leader in our markets

Diamonds and Minerals is a portfolio of market-leading businesses, which are well positioned to grow margins in line with increasing demand for our products.

This is driven by the robust, consumer-led macro-economic trends of urbanisation and rising per capita income.

We therefore expect to benefit from later cycle growth in China and other emerging economies.

These commodities have a wide range of end uses and are typically a small proportion of the cost of the end product.

This provides an opportunity to create and capture value through proprietary market insight, customer segmentation, value-in-use pricing, and product innovation.

Our businesses are strong leaders in both cost and market position, and are underpinned by large resource bases and expansion optionality.

We are the number one producer of high-grade titanium dioxide feedstocks globally.

Last year we consolidated our titanium dioxide position through our $1.7 billion investment in Richards Bay Minerals in South Africa, doubling our stake.

This transaction was earnings accretive from day one, and we now control a tier one,

low cost, expandable, highly cash generative asset.

We operate a global integrated diamonds business, producing the full range of rough


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diamonds for both established and emerging markets.

In California we have a tier one borates business, producing over 30% of global supply of refined borates.

We also have three salt fields in Western Australia, which are well positioned to capture the growing demand from Asia.

Lastly, we are advancing Simandou, a tier one iron ore project in Guinea, where progress and alignment with our partners is very encouraging.

Slide 21 – Operating demand-led operations in attractive markets

The Diamonds & Minerals strategy is focused on running safe, demand-led integrated operations in attractive markets.

This means that through our proprietary market insight, we create and enter new markets for our products, and we maintain the flexibility to respond to market changes.

This year, we have experienced softer market conditions for some of our products.

We have therefore taken the opportunity to transform our businesses by simplifying our organisation, reducing costs, boosting productivity, and empowering our people closer to our assets.


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Slide 22 – Long-term demand fundamentals are robust

Let’s first take a look at the long-term fundamentals, which remain very positive.

This is driven by the mid-to-late cycle fundamentals of urbanisation and rising per capita income.

Our products are largely used in consumer and high-end industrial applications, such as jewellery, high quality pigments for paint, glass applications and technology.

We are therefore geared to the rising wealth of emerging economies.

As that wealth increases, demand for our products is set to rise significantly.

To put this into context, for titanium dioxide this demand increase is the equivalent of seven new Richard's Bay Minerals by 2030.

For borates it would equate to two new Boron operations by 2030.


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Slide 23 – A responsive market-driven business

We are using our proprietary market insight to respond to market conditions by aligning production with demand.

Our diamonds business is experiencing strong demand for its range of diamond products, which we will supply from the ramp up in production from Argyle.

On the other hand, at RBM we placed our zircon and rutile production on care and maintenance in February.

We have recently restarted zircon production, but it is not yet operating at full capacity.

At RTFT in Canada we have taken a threefold approach to reduce production given reduced demand:

We took the high grade UGS facility offline earlier this year which has only just restarted, but at reduced capacity.

In July we brought forward a planned maintenance shutdown of one of our nine furnaces. The rebuild will not take place until markets improve.

And we shut the ilmenite mining facilities at Havre Saint Pierre for five weeks during the summer, and a further 6 weeks over Christmas.

In Madagascar, we have shut the mineral sands mining operation for two months over December and January.

And finally, at Boron, we have implemented an extended vacation shutdown through


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December, as we did last year.

We continue to monitor market conditions and flex our operations accordingly.

Coupled with these actions, we are improving the performance of our operations.

This includes system wide optimization to ensure greater focus on just in time management of our inventory positions, the creation of an integrated planning centre, and maintaining our distinctive focus on our customers and reliability for supply.

Further optimization and focus on reducing variability in operating and process controls will be a focus for 2014.

Slide 24 – Driving operating performance by cutting costs, improving productivity and managing capital

We are making good progress on our sustainable cost and productivity improvements.

We expect to complete 2013 with cash operating costs around 9% lower, and capital expenditure around 25% lower than 2012.

We are taking a “back to basics” approach with our operations, getting back to what we do best – running safe, reliable, efficient and process controlled businesses.

We have simplified and streamlined the organisational structure, generating annual savings of around 30 million dollars in support costs alone.

All businesses have significantly reduced their headcount in order to drive productivity gains.


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Since January we have removed over 1000 positions from our business.

These cost and productivity improvements will enhance the structural postion of the business as volumes return.

We have optimised our capital spend to improve free cashflow.

And our development capital in the next few years is expected to be limited to completing projects currently underway.

Slide 25 – Titanium dioxide fundamentals remain strong

Let’s take a closer look at titanium dioxide.

Our key market is the pigment industry, which in turn is driven by demand for paint and coatings, plastics and paper.

Last year In Sydney, I outlined that titanium dioxide markets would enter a period of softness, due to higher stocks in the value chain.

We saw this eventuate and we expect this to persist into next year.

However, we continue to believe that the medium to long-term fundamentals remain very positive.

This is underpinned by pigment demand growth in emerging economies, and a constrained supply side.

Our analysis indicates that Chinese pigment consumption per capita will grow by 34% by


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2020, and double by 2040.

Growth in building and construction, consumer durables, and packaging, are all expected to support this increasing intensity.

Turning to supply, few large-scale projects have been brought on-stream over the last two decades, and clearly new feedstock and pigment production is required to meet this growing demand.

We are continuing to replace long-term contracts with quarterly or spot pricing.

This could potentially result in a 100% pricing uplift on our legacy contracts, based on current market prices.

This will flow directly through to our bottom line.

In 2012, weaker than expected demand, particularly for pigment, resulted in a sharp increase in finished product inventory through the value chain.

Pigment demand increased in 2013, allowing producers to unwind inventories.

Despite reports of increased pigment plant capacity utilisation, demand for feedstocks has been weak through 2013, leading to a substantial build-up of inventory across all segments.

We expect increased pigment production to flow through to higher feedstock demand in 2014, which will help to unwind these feedstock inventory levels.

Our co-products – high purity iron, steel, metal powders and zircon – are expected to account for approximately 50% of Iron & Titanium’s revenues in 2013.

For zircon, we expect 2014 demand to be similar to 2013, with the challenge of continued inventory overhang in some parts of the value chain.


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Slide 26 – Demand-led operating philosophy with flexibility to respond to market changes

So we are taking advantage of this short-term market softness to transform our titanium dioxide business.

The build-up of inventories in 2012 coincided with two of our furnace rebuilds.

And together with actions taken in 2013, we're currently operating at around 25% below capacity.

This operating mindset has been coupled with an extensive transformation programme.

We have been growing our position in ChIna through new warehouse facilities, and expanding our technical presence, to work with our customers to help them extract the most value from our products.

As markets recover, we will be in a great position to participate.

We have maintained our growth options with a number of brownfield and greenfield projects.

This includes progressing the prefeasibility study Zulti South, which will enable us to maintain RBM smelter capacity, and options to expand Havre-Saint Pierre, QMM or develop our greenfield licenses in Mozambique.

These will provide us with the opportunity to grow alongside our customers and the industry.


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Slide 27 – Diamonds are well positioned for profitable growth

Turning now to diamonds.

We made a decision to retain the business in June this year and have always strongly believed in the demand outlook.

This business is in an attractive market, with high quality assets.

Recent capital investment will see our output grow, and the business become highly cash flow generative.

Despite some short-term market challenges, we see strong industry fundamentals driving price appreciation over the medium term.

Supply is expected to be flat due to the lack of new discoveries and the long lead time for development.

We therefore anticipate a supply deficit for some time yet.

We see strong demand growth driven by China and India, with continued demand in the all-important US market.

As these markets grow, we are positioning ourselves as a leading supplier in all diamond market segments.

Our on-going partnership with Chow Tai Fook, the number one jewellery retailer in China, has seen Argyle diamond jewellery placed in over 1000 stores in mainland China and Hong Kong.


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At the operational level, the Argyle underground mine was commissioned in April this year.

The second crusher is now under construction, and expected to be completed in the fourth quarter of 2014.

Underground volumes are being ramped-up, and we expect to produce over 11 million carats in 2014.

And at Diavik we are operating the underground mine at capacity.

We are making significant headway in optimising performance at both sites, through cost reductions and simplification.

As you can see from the graph, unit costs are expected to be reduced by 30 to 40% between 2012 and 2015.

Slide 28 – Aligning borates production to market demand

We also see strong demand growth for refined borates over the medium-term driven by three trends of urbanisation, energy efficiency and agriculture.

We are delivering our MDDK project, which allows for direct dissolving of kernite ores, and will support efficient ore body utilisation over the remaining mine life and will optimize our product mix.

The project is on track for completion in mid-2014, and will enable us to respond to increases in demand with very low capital investment, delivering significant returns.

Over the last year we have been focused on driving cost and productivity improvements


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through the operation.

For example, at the mine, we have improved effective truck utilisation by over 10%.

This has resulted in a reduction of the overall fleet in service, elimination of overtime,

and reduced manpower.

We expect savings to exceed $6 million annually from this initiative alone.

We also have a number of early stage options to expand into the complimentary sectors of potash in Canada, and lithium carbonate in Serbia, at the appropriate time.

Slide 29 – Dampier Salt is focused on building capacity to deliver greater value

Dampier Salt's assets are strategically located in Western Australia, close to the growing Asian demand centres.

Each of the three sites has its own port facility, with our Port Hedland operation occupying space in the Inner Harbour.

We anticipate on-going growth in demand from China and other south-east Asian economies.

We sell into all key Asian markets and we have already locked in more than 75% of our volumes under contract for 2014.

We have also made very good progress in boosting labour productivity during 2013.


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We have adopted a drumbeat process at all sites to drive increased tonnes every shift.

This approach has allowed us to move from a 4 panel roster down to 3 at Port Hedland, leading to almost $4 million in annualised savings.

As a result, we expect tonnes per shift to increase by at least 20% by 2015.

Slide 30- Advancing a tier one iron ore project in Guinea

Moving onto Guinea.

Simandou is a truly world class asset.

It is a rich deposit of over 2 billion tonnes of high grade iron ore.

It can sustain a mine life in excess of 40 years, and will make Guinea one of the world’s top iron ore exporters.

Once operational, Simandou will be positioned in the first quartile of the cost curve.

It will be a simple operation, with no iron ore processing requirements to make a final product.

It will also be the largest greenfield development in Africa, with supporting infrastructure including a 650km multi-user rail line and port facility.

We have a unique development team made up of the Government of Guinea, Chinalco and IFC, with full alignment and commitment between the partners.


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Slide 31 – Require Investment Framework ratification and infrastructure funding plan to accelerate

The project requires Investment Framework ratification, and an agreement on infrastructure funding to accelerate.

Constructive discussions are underway between all parties.

Earlier this year, the Government of Guinea decided not to take up its 51% share of the infrastructure company.

This has created a gap in the funding of the project which now needs to be closed.

As illustrated here, the infrastructure project will be developed as a distinct project.

The focus of Rio Tinto’s investment will be on the mine, which will provide a stable revenue stream for the infrastructure.

The infrastructure development and ownership model will be underpinned by a haulage contact from the mine.

Over a short period of time, we plan to mobilise new investors and infrastructure owners to raise a significant portion of the required capital in equity, with the remainder to be funded by project finance debt.

As these additional investors are brought in, it will reduce the capital funding requirements by the existing Simandou partners.

The full integrated infrastructure and mine project will be governed by the Investment


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Framework.

We are in constructive discussions with the Government of Guinea to progress this to ratification early next year.

Slide 32 – Delivering value for shareholders

In summary, the Diamonds and Minerals product group is a diverse portfolio of sector leading businesses which is delivering value for shareholders.

Our demand led operating philosophy is creating agile and reliable businesses, by leveraging our unique market insight.

We are getting back to running efficient, low cost, profitable operations.

We are extremely well positioned to capture the uplift in consumer led demand, driven by on-going urbanisation, and growing incomes in emerging economic powerhouses, such as China, India and South East Asia.

Our assets provide exposure to these economic drivers and later cycle inflection points, and are underpinned by long life, expandable resources with strong free cash flow and earnings momentum.

We are advancing the world-class Simandou project, which will further position Rio Tinto as the premier iron ore producer in the world.

Thank you, and now over to you Harry.


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Slide 33 – Harry Kenyon-Slaney cover slide

Thank you Alan.

Today I’d like to provide you with an update of our Energy portfolio, which includes coal and uranium assets in Australia, Canada, Mozambique and Namibia.

Slide 34 – Rio Tinto Energy is getting back to basics by reducing costs and delivering value


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You’ve heard both Sam and Chris talk about reducing costs and increasing productivity across the group.

In the energy industry, increasing costs and strong local currencies have resulted in lower productivity.

These, combined with lower commodity prices and weaker markets, have placed the energy industry under significant pressure.

At Rio Tinto Energy, we are transforming our business, and working relentlessly to improve our position on the cost curve, through aggressive cost reductions and productivity improvements.

This has led to $600 million of savings to October 2013, and we’re on track to deliver our targeted $1bn of ongoing cost savings by the end of 2014.

This is essential to ensure our business remains competitive during tough cycles, and is able to deliver greater value to shareholders.

In addition to our cost cutting programme, we are also focussing our efforts on a number of other areas.

Firstly, using technology, including 3D seismic surveys and innovative visualisation techniques, to leverage our significant resource base.

Secondly, maintaining our license to operate, by engaging constructively with communities and governments to deliver sustainable business outcomes.

And finally, continually optimising our portfolio of assets, by divesting those considered

non-core, and investing only in those that will provide attractive long term returns to shareholders.

In October, we reached a binding agreement to sell our Clermont mine which should complete early in the new year.

Whilst a great mine, Clermont is remote from our other operations and therefore our ability to realise synergistic benefits was limited.

At a sales price at over one billion dollars, and costing $660 million to develop,

we believe we have achieved an attractive value for the mine.

Turning now to the market conditions for the Energy business.


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Slide 35 – Around one third of global seaborne thermal coal production has been loss-making this year

Third party data and our estimates indicate that approximately one third of international seaborne thermal coal would be loss making at average 2013 spot prices.

Onerous “take or pay” contracts in Australia will continue to induce uneconomic supply of thermal coal into the market.

In comparison, Rio Tinto Coal Australia’s assets are cash and earnings positive.

In the coal industry, productivity continues to decline and a lack of access to financing is limiting the ability for significant upgrades to existing mine operations.

In Australia, the strong dollar, increasing taxes and regulations, delays in government approvals, and community opposition to mining, have further exacerbated productivity issues.

An example of this is our Mount Thorley Warkworth mine.

We obtained state and federal government consent for an extension after a rigorous three and a half year public process, only to have a state court overturn the decision.

This has created significant uncertainty for all major future investments.

Mining is about long lead times.

In an ever changing global market, in order to invest with confidence and achieve sustainable growth, we need predictability in policy and political certainty.


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Slide 36 – Strong long-term fundamentals for coal demand

Energy demand will continue to rise, driven by economic growth in the emerging markets and further urbanisation and industrialisation in China and India.

Much of this increased demand is expected to be met by coal, as the cheapest and most readily available source of energy.

After two decades of remarkable development and transformation, China is only now reaching world average levels of electricity and energy consumption.

The latest statistics show that China has shifted its position as a net exporter, to a net importer of both thermal and coking coal, and is now the world's largest seaborne coal importer.

It is expected that China will import over 300 million tonnes of coal this year.

India, with low per capita electricity consumption and 300 million people still without access to electricity, requires substantial investment in energy infrastructure to sustain the country’s growth.

With steel demand increasing and an additional 130-150 GigaWatts of coal based power generation planned for the next ten years, India is facing a shortage of domestic thermal and coking coal.

It is expected to depend increasingly on imported coal.

The traditional markets in Japan, Korea and Taiwan continue to be important to Rio Tinto, with Australia as supplier of choice.


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Coking coal is experiencing downward pricing pressure in the current market.

But fundamentals for this product remain strong in the longer run, due to continued steel demand growth in China, India and other emerging Asian economies, as well as underlying global resource scarcity of premium coking coal.

Our Australian coal, due to its quality, supply reliability and location, is well positioned to supply these Asian growth markets.

The future demand for coal is strong, but the industry needs to work hard to reset how it operates to remain competitive.

Slide 37 – Hunter Valley assets are world class resources with transformed cost position

Our resource base, with its premium quality thermal and coking coal, and proximity to existing infrastructure, is unique.

These are large, adjacent and option-rich ore bodies that have the potential to support substantial open cut or underground mines for many decades to come.

It would be difficult, if not impossible, to replicate such a valuable suite of assets.

With our ability to operate our New South Wales operations as a network, and a range of development options not yet realised, there is further potential for our assets to deliver material, long term value to shareholders.

But in order to deliver this value we have to transform our business to be competitive thoughout the cycle.


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Slide 38 – Improving performance through cost reductions and productivity gains

As at the end of October we have delivered $600 million in cost savings, and are on track to deliver $1 billion by the end of 2014.

Most savings have come from our Australian coal operations and include:

• increased labour productivity of 27% through increased production, and fewer roles and contractors;

• gains in truck utilisation of 7% with fewer trucks moving the same amount of material;

• parts substitution, condition-based replacement and price renegotiation delivering a 12% saving in consumables; and

• a further 13% reduction in consumable costs targeted through the use of emerging market suppliers.

There are many other examples.

Aligning maintenance schedules, increasing dragline productivity and conducting repairs and maintenance activities in the most efficient manner have also contributed to the reductions.

The savings, together with strong production performance, will see unit cost reductions at these sites approaching $30 a tonne in 2013 compared with 2012.

As well as the reductions already achieved, we will drive costs down further through a


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number of future initiatives.

These include; at Hail Creek, reprocessing coking coal reject to produce a thermal product, improving operator dig rate performance at Mount Thorley Warkworth, and increasing bypassed coal at Bengalla.

Combined with the sustainable cost reductions already achieved, these projects ensure that the energy group is on track to meet its ongoing costs saving target of $1 billion by 2014.

Improvements have occurred through clear articulation of the size and scale of the challenge by leadership teams, active engagement with and support of employees, incisive analysis of where value is really added, ruthless elimination of waste, and a regular drumbeat of delivery on actions.

The result has been rapid and we believe, sustainable.

We are very proud of this work.

This however is only the start.

Slide 39 – We are improving our position on the cost curve

Our transformation programme has seen an improvement in the position of our assets on the thermal coal cost curve since 2012.

We have 1500 cost savings initiatives in the business.

Here are just a few examples.


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You’ll see from these that no area of our business is immune from this work.

And you can see that this is making a real difference to the unit costs at our operations.

Slide 40 – Rio Tinto Coal Australia has reduced unit cash costs to below 2010 levels while increasing productivity

In an inflationary environment of 12%, our cost cutting program has delivered unit costs that are now 14% lower than September 2010.

However, we are not only focussing on cost reductions to improve the position of our assets on the cost curve.

Productivity is also important.

We have increased our Australian coal production by approximately 11% this year.

Our coal assets must earn the right to further investment, through continuing the aggressive drive to improve productivity, lower operational costs, and maximise the return on invested capital.

The Kestrel Mine Extension, a $2 billion dollar extension adding 20 years to the mine's life, was opened in October this year.

It will increase production of hard coking coal to around 6 million tonnes a year.

It is one of the most advanced and sophisticated underground coking coal operations ever built in Australia.


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A new Development Consent for the Bengalla mine, will extend its life another 21 years beyond the current approval date of 2017, and has the potential to increase production to a maximum of 15 million tonnes per annum.

Our Hunter Valley Operations and Mount Thorley Warkworth mines have introduced improved efficiency measures.

For example, the rate of breakdowns on Mount Thorley Warkworth’s electric shovel fleet has reduced from around 15 per month to 6 through more effective maintenance scheduling.

We are committed to extracting value from the investments in mine expansions and new equipment made over recent years.

Our assets extend much further than just our Australian coal operations.

Slide 41 – We are working to secure a new pathway for our coal business in Mozambique

Our Benga mine in Mozambique has established itself as a premium hard coking coal producer.

We have also been working hard to improve the performance of this asset, by reducing operating costs and increasing productivity.

Through 2013, Rio Tinto Coal Mozambique has delivered an operating cost reduction of $20 per tonne.

It has increased annualised hard coking coal production by 22% compared with 2012, and improved hard coking coal yield by 5%.


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And overall headcount has reduced by more than 25%.

Notwithstanding these improvements, challenges remain due to near to mid-term infrastructure constraints and broader market conditions.

We continue to work with the government on the establishment of a globally competitive coal chain solution for the country.

Slide 42 – The long-term outlook for uranium is positive within the global energy mix

Turning to uranium, where our portfolio is geographically diverse.

It includes several high grade projects, including, Roughrider in Canada, and Ranger 3 Deeps at ERA, as well as existing operations at Rossing and ERA.

Last weekend at ERA’s Ranger mine, we experienced a failure of a leach tank in the processing area, resulting in low grade slurry spilling into containment systems.

This followed a similar incident several days earlier at Rossing.

The containment systems worked as designed, no material left the sites, and there was no impact on the environment.

We continue to work with key stakeholders and regulators.

But it is too early to fully understand what the implications of these incidents will be.

Turning to the market, uranium has an important part to play in the global energy mix.


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The spot market is currently weak and we expect low prices will continue in the near term.

However, we continue to see the benefits from entering in to long term contracts for uranium sales, as these are currently achieving above spot market prices.

We see a positive long term outlook for this commodity, mainly driven by China, which has a very large, low cost nuclear construction programme expected to come online in the next decade.

Other nations, including the UK, United Arab Emirates, India, France and former Soviet Union states, are building or planning to build new reactors, as a way to diversify their fuel mix for base load electricity supply.

We are focussing on transforming our uranium assets.

At ERA, we have achieved total cumulative cash savings of over $100 million of our $150 million targeted reductions.

This is as a result of a number of initiatives, including a 20% fall in headcount, decreases in contractor costs, reducing the truck fleet from 15 to 9, and increased procurement efficiencies through consolidation of vendors and renegotiations of major contracts.

At Rössing, since 2012, we have achieved unit cost savings in excess of 35% through cost savings and increased productivity.

Overall strip ratios have dropped from almost 4:1 to 2:1 as a result of the Phase 3 pushback.

During 2017, the strip ratio is expected to drop further, to below 1:1.

The first high grade ore from Phase 3 is expected to reach the mills late 2014.


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Slide 43 – Our Energy group’s transformation is delivering sustainable results

So, to sum up.

The long run fundamentals for our business remain strong.

Our transformation program ensures we remain competitive through the cycle, and underpins the sustainable turnaround story for our operations.

We are improving productivity and driving out significant costs through:

• An aggressive spend reduction programme, focussed on procurement and support cost reductions and labour productivity.

• A business wide improvement programme to maximise the performance from operations, and

• Reduced capital expenditure.

We’ve achieved a significant $600 million in cost savings up to October this year, and have identified areas where we can deliver more.

To be clear, these are ongoing, sustainable cost reductions.

We are taking a "whole of business" approach, which goes beyond cost savings and includes a focus on labour and asset productivity and mine planning.

This will enable us to continue to transform our operations, and maximise the value from our Energy assets for shareholders.


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Mark, over to you.

Slide 44 – Break

We will now take a 20 minute break.

Slide 45 – Andrew Harding cover slide


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Welcome back.

It wasn’t that long ago that some of you were on our tour to the Pilbara, seeing first-hand the great advances that we are making in our iron ore business.

The rapid progress continues both on-site, and in the planning strategies being developed by my team, in order to optimise the value of our industry-leading integrated operations.

This morning I will give you a full update on these efforts, including, our breakthrough growth pathway that will ultimately fully utilise the infrastructure capacity currently being developed.

Slide 46 – Sector leadership continues to deliver strong returns

My clear priority is to maximise the value of our iron ore business.

We continue to build our sector leadership through a range of key activities, to ensure that:

• We remain the lowest cost producer, with sector leading operational performance across our full supply chain

• We are delivering leading sales and marketing strategies,

• We are well ahead in the development and utilisation of innovative, new technology, and

• We continue to build on our long track record of delivering expansions on or ahead of time and under budget.


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We have a relentless focus on driving continuous productivity improvements and cost reductions, as well as optimising the pace and cost of our major growth programme.

Slide 47 – Breakthrough Pilbara growth pathway provides a $3 billion saving in growth capital

Let me start with some insight into our breakthrough Pilbara growth programme, announced two weeks ago.

We have taken one of the industry’s most attractive growth projects and made it even better.

By identifying significant low cost brownfield growth and productivity gains we will be able to maximise the value of our expanded infrastructure as it comes on stream in the first half of 2015.

This provides opportunities for deferring greenfield mine development, maximising free cash flow and optimising value.

We have consistently said that we will have mine capacity to utilise our expanded infrastructure.

The question was how to do this and when to do it.

Back in September we had a broad range of mine capacity options.

This range has been considerably narrowed, as we have developed an optimised plan.

The new mine development pathway leads us to more than 350 million tonnes of


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production by 2017.

It is based predominantly on 40 to 50 million tonnes of brownfield expansions,

supported by the new Silvergrass mine.

These brownfield tonnes will be added at the marginal cost of production at each mine.

The breakthrough pathway equates to more than a $3 billion saving in growth capital over the next 3 years with the deferral of the Koodaideri mine.

It provides continued flexibility on greenfield mine decisions, with options to grow more quickly if warranted.

The total capital cost of this new pathway, including both the infrastructure and the new mine capacity is optimised at an ‘all- in’ capital intensity between 120 and 130 dollars per tonne, on a 100% basis.

This pathway will see us grow from an annual production rate of 290 by the end of the first half 2014, to delivering 330 million tonnes in 2015, and then to more than 350 by 2017.

Let me re-emphasise ‘more than’ 350 million tonnes.

We are currently looking for, and I expect we will find, further brownfield mine growth, to fully utilize the 360 million tonnes a year infrastructure capacity we will have available.

Our track record suggests that we will be successful, and this increase will also be achieved at very low cost.

We will continue to optimise our short term mine plans to defer large capital expenditure for as long as possible, and at the moment we do not expect our sustaining capital to change.


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Slide 48 – Infrastructure development to 360 Mt/a is progressing on budget and schedule

Now, stepping through the detail.

We approved the port and rail infrastructure expansion in June last year, and it is scheduled for completion by the first half of 2015.

Suffice to say that work continues ‘flat out’ and across a broad front and we remain on track to achieve our schedule on budget.

Port dredging and wharf construction, including nearly all the wharf topside modules,

have been completed.

We now have both new stackers, a reclaimer and two dumper cells on site.

There is still 18 months to go, but I am optimistic that work will continue to progress as per our past track record, and at least be delivered on time and on budget.


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Slide 49 – Brownfield expansions and productivity improvements at less than $15/t

Turning to the mine capacity growth.

The core of our new breakthrough expansion pathway is growth from existing mines.

These are already producing and will quickly bring on incremental tonnes.

There are multiple initiatives across our existing operations that add the required tonnage, at an average mine production capital intensity of less than $15/t.

This includes, for example, Brockman 2, Nammuldi, West Angelas, Paraburdoo and Yandi.

The rebased capacity of the mines relies on a combination of new work scopes and newly identified resources.

New work scopes include activities such as plant modification of chute design and belt speed, extra trucks and diggers, and the use of mobile crushing and screening plant.

In support of the brownfield expansions, we have approved $400 million of capital expenditure for plant equipment and modification, and additional heavy machinery for use at various mine sites in the Pilbara.

Better resources have also been identified, not only in close proximity to existing infrastructure, but also with less pre- strip and reduced strip ratios.

We expect current strip ratios to continue for the next 5 years.

Around half of the additional tonnes for these brownfield expansions will come from these


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newly identified resources.

It is fair to say that the introduction of multiple small brownfield projects changes the execution strategy and risk profile.

I am confident that we are well equipped to handle this.

To be clear, our mine plans are constantly evolving as we find further productivity improvements and resources.

This is being achieved without compromising the grade or quality of our Pilbara Blend products.

We will continue to challenge our engineers and squeeze more from our assets.

Slide 50 – Opportunities to defer greenfield mine development reduces medium term capital expenditure

Whilst the brownfields opportunities will allow us to grow quickly and at a low cost, new greenfield mine capacity will inevitably be required to sustain production at these higher volumes.

As such, Silvergrass is required as a greenfield growth mine in the ultimate pathway to 360Mt/a.

It is located only 12km from the Nammuldi mine and will share the same rail infrastructure.

Development of this mine has not been approved as it is not yet required.


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The identification of additional ore within the Brockman/ Nammuldi area now allows the deferral of a final decision on Silvergrass.

As we continue to evaluate the optimal development plan for Silvergrass, we have been able to increase the nameplate mine capacity from 16Mt/a to 21Mt/a, while reducing the planned capital costs by more than 10%.

The big advantage under the breakthrough is that the Koodaideri mine, with associated 180km railway line, is now not required in the medium term.

It will be developed at some point, but first production is not needed before 2019.

Slide 51 – Pilbara operations and 290 Mt/a ramp-up in top gear

At the same time as developing the most attractive iron ore growth pathway in the industry, we are running hard at our existing operations.

We continue our hunt for improvements from better planning and co-ordination, debottlenecking and productivity enhancements.

We had a record January - September Pilbara production of 184.1 million tonnes, 4% higher than the first nine months of 2012.

And Q3 provided new records for production of 64.3 million tonnes, and for tonnes railed and shipped.

The Pilbara operations reached a significant milestone in August with the first shipments from the Cape Lambert 290 Mt/a expansion which was brought in 400 million dollars under budget and four months ahead of its original timetable.


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Full 290Mt/a mine, rail and port operations will be achieved during the second quarter of next year, well ahead of the original schedule.

The related Nammuldi below water table mine remains on schedule for commissioning in the fourth quarter 2014, but we are able to ramp up to 290 in advance of this commissioning.

Over the last two years, bulk stocks have increased across the operations to assist in matching additional mine capacity with the expansion of port, rail and other infrastructure.

With the ramp up to 290, approximately one third of these stocks will be drawn down over the next 12 months.

The draw- down will continue through 2015 and 2016, to complement the rate at which we grow beyond 290.

Slide 52 – Pilbara operations achieving sustainable cost reductions

Turning now to cost management.

We maintain a strong focus on controlling our cash operating costs and remaining the lowest cost producer in the Pilbara, which is fundamental to our continued competitive advantage.

While we have seen the pressures of a local ‘hot’ environment ease considerably, we are also making large gains in a range of operational areas, concentrating on what we can control.

Take for example, our mining operations.


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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 $24.50.

I am expecting unit costs to continue to decline in the longer term, once we have bedded down the expansion projects.

We stand by our objective to continue to lower the cost of production in the Pilbara.

Slide 53 – Driving productivity through a large number of target improvement initiatives

When you look at opportunities to improve productivity, anyone who is familiar with our business will understand just how many there are in such a complex and integrated system.


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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 2015.

Slide 54 – Iron Ore Company of Canada integrated mine to port production system

Beyond the Pilbara, at our Canadian operations, our focus is on maximising the returns we achieve on recent investment by improving productivity and reducing costs.

The Concentrator Expansion Project, or CEP, was initiated in 2010 to remove system bottlenecks and grow production.

CEP1 adds truck and train capacity along with an overland conveyor to deliver ore to the concentrator.

The second stage adds spiral capacity and power infrastructure along with additional mining equipment.


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The key is to now ensure that our operational performance matches capacity as quickly as possible.

While we have demonstrated performance approaching nameplate capacities, there is considerable system variability which is being targeted to maximise production from the new assets.

By achieving the volume increase, unit costs will decline to historically low levels.

IOC has a consistently high quality product with the lowest phosphorus in the industry.

Slide 55 – Chinese resurgence in steel demand this year, with further steady growth ahead

Let me now turn to the market, where we continue to see an attractive demand and supply outlook.

Much of this story continues to be driven by China and a resurgence in steel demand this year.

Steel demand in China is estimated to rise by 7.5% to approximately 700 million tonnes.

This demand acceleration has been driven by an expansion in credit and a revival in infrastructure spending.

We also see positive signs for demand for iron ore coming out of the recent Chinese Plenum.

Urbanisation will remain a priority, and the recent trends in housing and infrastructure are likely to continue.


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China’s steel demand growth post 2020 will be driven less by investment in infrastructure and more by increased domestic consumer consumption due to rising standards of living.

This will lead to greater demand for steel to feed the automotive and machinery sectors.

China is also likely to maintain or increase its international competitiveness in industrial sectors like transport and machinery.

Our assessment remains that China will reach 1 billion tonnes of crude steel production by 2030.

Slide 56 – Other developing regions should ensure a strong long-run demand for iron ore

Demand for iron ore and steel is not just a China story.

There are many other contestable iron ore markets that are likely to develop over the coming decades, such as India, the Middle East and the ASEAN countries.

With a combined population exceeding 600 million, the ASEAN countries have already experienced rapid growth in steel demand and will become increasingly significant as Chinese demand plateaus.

In India, steel consumption forecasts have moderated based on recent UN population forecast revisions.

However, its growth profile remains robust, with crude steel production expected to increase to around 140 million tonnes by 2020, nearly double 2012.


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Slide 57 – On-going constraint to the development of new iron ore supply

And it’s not just about demand growth.

Supply continues to be constrained.

We have consistently reflected over the last few years how difficult it has been for much of the seaborne iron ore industry to grow in line with increased demand.

The reasons are clear - volatile and uncertain global markets; reduced sources of project financing; protracted approval processes; high capital costs; and the challenges of working in remote locations.

It is a situation that we don’t see getting any easier.

We have also seen that Chinese domestic iron ore is highly price sensitive.

As reserves are depleted, grades continue to decline, and labour and power costs increase, it is inevitable that China’s domestic iron ore cost base will continue to rise.

Even if we assume an anticipated increase in supply, we believe that our continued expansion makes sense as the lowest cost large volume producer in the world.

We are a very low cost producer and continue to deliver new tonnes ahead of time and on budget - the consistent aim is to have the next best iron ore expansion option.


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Slide 58 – Rapid uptake of 2014 off-take opportunities with unfilled demand for Rio Tinto iron ores

So, our volumes are increasing to serve a growing market.

Long term customer relationships remain an integral component of our marketing strategy and term contracts will continue to represent the majority of our sales portfolio.

Pilbara Blend products continue to be the product of choice for Asian steel producers.

Our objective remains to provide our customers with reliable, long-term supply with stable quality.

Pilbara Blend is an industry benchmark, with Pilbara Blend Fines by volume the single largest traded ore brand in the world.

Of our 2014 Pilbara volume, approximately 60% is committed under existing long term contracts that were in place prior to the start of 2013.

During 2013 we implemented a targeted contracting strategy which includes renewed or new long term contracts of around 80 million tonnes a year.

At least 15% of production will be left unallocated to be sold in the spot market.

By increasing participation in the spot market we will help ensure that pricing indices more accurately reflect the market clearing price of our products.


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Slide 59 – Sector leadership continues to deliver strong returns

In summary, our iron ore business has long been one with considerable optionality.

The latest re-assessment leading to our breakthrough pathway is another example of this, and takes full advantage of incremental brownfield resources.

We retain competitive advantages across a suite of leadership positions as:

• the lowest cost producer with proven operational performance across our full supply chain

• the leader in sales and marketing strategies; and

• as the premier developer in the utilisation of innovative and, new technology.

And we have continued our long track record of delivering expansion projects ahead of time and budget.

Today I have discussed the next steps on our pathway to 360.

Very low cost brownfields expansions will be supported by timely greenfield development, allowing us to save more than three billion dollars of growth capex.

The future timing of the greenfield developments will be informed by our increasing knowledge of the existing assets and resources, and can be adjusted to fit market conditions.

This pathway provides for a Rio Tinto share capital intensity of low one hundred dollars per


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tonne.

The pathway is exciting.

It is real and achievable.

It reflects our team’s commitment and dedication to retaining its edge as an industry leader.

Thank you and now back to you Sam.

Slide 60 – Sam Walsh cover slide


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Slide 61 – A diverse portfolio of sector leading businesses

Before we move to your questions, I’d like to make some closing remarks.

Today, you have heard about some of the assets we have across a diverse range of commodities.

We have some of the best assets across a range of sectors.

And each will have their time in the sun as economies evolve.

Our iron ore business is the best in the industry by far.

Andrew Harding has shared with us further insight as to how we will maintain our position as the lowest-cost, large-volume iron ore producer in the world.

Some sectors, such as energy and aluminium, are facing market challenges of over-supply and lower prices.

We are running both of these businesses for cash, to improve returns on the capital already invested.

We don’t expect to invest new growth capital in either product group in the near future.

Within this context, Harry Kenyon-Slaney has shown us how the Energy group are tackling costs and improving productivity.

Lastly, Alan Davies has taken us through our Diamonds and Minerals group,


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which is a collection of high quality businesses.

Each has their own attractions but they all share the same focus on market driven operations, productivity and cost.

Slide 62 – Delivering greater value for shareholders

In short, we are delivering on the commitments we made to you back in February.

We are cutting costs and, at the end of November, we’ve now exceeded our targets for 2013.

We have taken more than two billion dollars out of our operating costs, and we are on track to achieve the three billion dollar targeted cash cost reduction for 2014.

We stand firm on this commitment.

We’ve reduced our exploration and evaluation spend by over 800 million dollars this year, and will sustain this lower rate of spend into 2014.

We are improving productivity and setting new production records.

At the same time we’re reducing capex, with spend in 2015 expected to be less than half the rate of spend last year.

And we’re completing our approved projects, such as Oyu Tolgoi phase 1, and the Pilbara 290 expansion, on time and on budget.

Our breakthrough low capital growth pathway for our iron ore business is a stand out


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example of our ability to deliver exceptional value from our projects, through continuously optimising and improving our mine planning, to generate the best returns.

And we continue to re-shape our portfolio, with 3.3 billion dollars of non-core asset sales announced or completed so far this year.

I am certain that we are well on the way to significantly transform Rio Tinto into the highest performer in our sector, and in doing so, deliver value for you, our shareholders.

And with that, we’ll now take your questions.

SAM WALSH (Group Chief Executive):

Now if you’ll allow me time to make it to my seat, we’ll move to questions. Now we have some questions online but firstly I’ll take three questions in the room.

QUESTION

Thanks Sam. Just to pick you up a bit on the last point, the goal to be the highest performer in the sector. I assume you mean total shareholder returns and what time-frames do you personally strive to be there?

And secondly, you’ve talked a lot about the change, the refocus on shareholder value. Can you talk a bit about what this means in terms of your financial management? Are you moving more – and I guess this is more for Chris – in terms of protecting the shareholder returns? Are you looking more at hedging, for instance? And notably absent from the discussion today and last week was the term Single A Credit Rating, so in terms of the way you are looking at debt? Can you comment on that as well? Thanks.


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SAM WALSH:

Okay, three questions. Let me briefly try and answer the first one. Look we are very focused on TSR, it is an important element. Exactly how that flows through in terms of dividends – we are committed to our progressive dividend policy – but as it flows through in dividends or buy-backs, I mean that rests with the Board and that’s a Board decision.

What we as a management team are doing are creating options for the Board that they can consider in due course and how that flows out. For those of you who have done your modelling, this is an incredible story. This business does generate significant amounts of cash, we are reducing our costs vividly, we are reducing our capital, it puts us in an incredibly strong position.

But, Chris, why don’t you move on and talk about shareholder value?

CHRIS LYNCH (Chief Financial Officer):

Look I think the key thing that made the point in my presentation was that 2014 is going to be very much focused on paying down debt with any surplus cash that we generate there and I think that’s probably going to hold true through that year. That’s after we have whatever the Board decide about the progressive dividend in February, but I would expect there be a solid increase in that progressive dividend.

You also asked a question about the hedging proposals. The short answer to that is “no”. We figure that whilst a lot of the correlations that have been historically may have sort of been disturbed a little bit over the last couple of years, at the end of the day we are better to stay open to those exposures and so we won’t changing that policy.

And then you also raised the issue about Single A. That’s something we think, we are actually doing things, that make sense for this Company and our shareholders and my personal belief is that ought to be supportive of a Single A, but at the end of the day that’s the domain of other people’s decision-making and that will be what it will be. But our path is well and truly set here now, we are actively paying down debt.

Our debt peaked about the middle of the year at about $22 billion of net debt, it will end the year more likely where it started back down around the $19 billion levels, but it will be paid down progressively and once we’ll get it down a bit further then we’ll be in a position to be talking more about further cash returns to shareholders in the fullness of time.

SAM WALSH:

Good. We had another question sort of midway down, or has the question disappeared?

QUESTION:

Could you maybe give an update on the IOC disposal process? And of the 60 per cent of iron ore that is under contract for next year, can you just remind of the pricing formula?


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SAM WALSH:

Yes, I’ll let Andrew in a moment talk about the details of contract.

Look there is lot’s of speculation about future divestments and what’s been worked on and we’ve taken a policy, I guess following the decision we made on Pacific Aluminium and Diamonds, to put those on the market, we found that as soon as we’ve announced it every 10 minutes somebody rings us to say, ‘Well, what’s going on? What happened today? Or what do you expect?’. So we decided that we would actually work behind the scenes on what we may or may not be doing in relation to divestments.

I promised you back in February there would be significant divestments this year. We have delivered on that, $3.3 billion is significant. I know there is a lot of media speculation about what may be happening behind the scenes or not. Let me just assure you as shareholders that this is not about reshaping for reshaping sake, this is about if somebody values an asset more than we do because of synergy or because of some other driver of their calculations then we are interested in exploring that.

If people are not going to deliver value, then we are not going to proceed with divestments and I think the action that we took in relation to PACAL and Diamonds showed that very starkly. I am pleased with the divestments we’ve made this year. It has helped us, as Chris has mentioned, to strengthen our balance sheet.

Let me assure you that if something breaks and there’s some momentous decision, you’ll be the first to hear, but at this point in time the business is actually travelling well, we are getting our debt back under control, that’s a nice position to be in.

In relation to our contract mix for iron ore, Andrew, you are the resident expert.

ANDREW HARDING (Chief Executive, Iron Ore):

Thank you, Sam. So the key issues are that the contracts are priced off indices and they are then reflected either in a pricing formula, it’s either quarterly lagged, quarterly actual or a month, and the important thing I said in my presentation to take note of is why we targeting a 15 per cent spot next year, is to increase the reliability of the indices -making process through more sales into that area.

SAM WALSH:

Okay, another question in the room and then we moved to the telephones. I understand there’s nobody, no question on the line at the moment, but hopefully we can encourage the shy ones on the telephone.

QUESTION:

First of all, on your sort of capex profile, it’s obviously very impressive, arguably better than BHP in terms of getting down to $8 billion. But how much visibility do you have on that?


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How can we as investors trust that it’s going to be $8 billion in 2015 or is that going to be $9 billion or $10 billion because Simandou gets the go-ahead or something like that? And how does capex look beyond 2015? Maybe that’s sort of the next generation, I’m not sure, but how do you think it will profile beyond that?

And then in terms of cost cutting as well, clearly the momentum is very strong at the moment but you not upgrading sort of the billion dollars of savings for 2014. When do you expect to upgrade it, or do you see significant upside potential, and when will you give us a bit more visibility on that?

SAM WALSH:

Okay, let me make some comments and then pass to Chris. In relation to our competitors, look I’m not so focused on what they’re doing and they seem to be more focused on what we’re doing – well, that’s terrific. But we have got a game plan, we are sticking to the game plan, we are delivering, that is what’s physically important to me.

I have learnt over the many years of my career if you want to emulate somebody then you’ve actually got to look at the best in the world. In some areas it may be in mining, in other areas it is in manufacturing or aerospace or oil and gas or whatever. That’s what I’m focused on beating or achieving rather than necessarily what my colleagues in the industry may or may not be able to achieve.

In relation to the last part of your question, in relation to cost reduction, yes, it is intriguing because there is rolling momentum in terms of what we are doing but, quite frankly, Chris and I in terms of how we are driving the Company we certainly have our ideas internally. Externally, I would rather over-deliver against our promises rather than sort of constantly giving new heady targets.

I think the $3 billion that we announced this time last year and then I confirmed in February, I think that was a heady target for this Group to have and the fact we are delivering on it is a credit to my team, a credit to the entire organisation. We have a very high calibre team, as I mentioned. Once you’ve clarified the direction, once you’ve engaged, once you’ve involved people, the momentum is significant.

Look I hope you are right that we will over-deliver on that promise not just because it sets us up better in terms of the balance sheet, but importantly it will mean that our businesses are being driven very effectively and very efficiently. But perhaps if I could get Chris to talk about the capital profile and what’s going to happen beyond 2015, which he is very interested in.

CHRIS LYNCH:

Clearly if we intended to publish beyond 2015 we would have. To that point, look I think the key thing really is around there has been quite a significant shift in the mindset within the Company and I guess in the past it has been very much a case of NPV positive was a project that was worthy of funding and it was also looked on the basis expecting every business to grow.


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Whilst I think it is incumbent on each of the guys heading up the businesses to provide options for growth, they need to then compete for what we are now regarding as scarce capital. So without publishing a number, you should be comforted that I think it will stay in very conservative levels, but that’s as far as I’ll go with it.

The other thing with regard to the costs and the second question, or the second part of the question, costs across a Company like this, it is much, much easier to see the cost reductions and be very specific about them and able to sort of see them all the way through to the bottom line in the more static businesses.

So if you go to Harry’s business, for instance, when we talk about the full year result you will be able to see very clearly in that business where it started, where it finishes and virtually off of stable production. If you go to Alan’s business, where he has had to make a lot of market adjustments about production levels, you’ve still got a very, very good story to tell on cost but it doesn’t necessarily come through in the metric the way that we are currently measuring the $5 billion or the $2 billion plus $1 billion metric.

And the same is true in Andrew’s business where he is ramping up production fairly dramatically. So the other businesses, when you look in Aluminium, more static, easier to see. And Copper again ramping up.

We won’t be making sort of outlandish targets, what we will be looking to do is a little bit like the Australians in Adelaide, put runs on the board - I couldn’t not say it, I’m sorry - and then put the challenge out there on the scoreboard and talk about what’s happened rather than what’s sort of going to happen in Perth.

SAM WALSH:

I’m not sure I would gone there. Yes, just in relation to Simandou, which is the latter part of your question, look we have made a decision there that we will go to third-party infrastructure, that is the bulk or the lion share of the capital for Simandou.

It is a multi-user rail, it is going to be carrying sort of grain and livestock and people, and you name it. That’s not our business. So we are focused there on talking to infrastructure operators and financiers about that line and, quite frankly, I can’t say this too loudly in front of Alan, but the mine part of it is actually the simpler part of the project.

There are no questions online. We have got very shy people on the telephone, but we do have a question in the room.

QUESTION:

One for Andrew. I am just looking at the $3 billion that you’ve pulled out of the growth capex. Can you help us understand to what extent we should think about this as being permanently gone rather than just deferred? Have we had a mindset change in that business?


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And then a question for Harry, you made some slightly mysterious comments there about the potential impact on uranium output. Maybe you could give us a little more ‘colour’ on the extent to which those tanks are critical to your production of uranium?

SAM WALSH:

Okay, let’s get Andrew to answer first. Look there has been some incredibly good work there in terms of optimising the project and looking for other options to deliver tonnes. But, Andrew, why don’t you comment?

ANDREW HARDING:

Sure. What you’ve basically got at the moment with the presentation is sort of work-in-progress. We’ve still got a lot of work going on looking at near mine resource opportunities, so further brownfield-type activities, and of course every day we are working on some sort of productivity improvement. So the list of opportunities that are put forward and called the “optimised pathway” has very much got further work to be done and it’s further work to be done to the upside.

So you want to believe, and I can support your belief, that there is a long list of other things that we haven’t included currently either because they may not be as immediately attractive or because we just know enough about them at this moment in time, so more work will get done on that, and that’s why I had to present the pathway as to a plus 350 Mt/a when the magic number was 360 Mt/a. I’d be quite confident that we can go somewhat further than that, but that’s another day, and I go back to Sam’s rider that I am not meant to over-promise so I will avoid over-promising.

The reality is if we hit 360 Mt/a through the brownfield sort of optimised pathway approach in the next phase, in the next year or so, then your Koodaideri mine becomes one of, or potentially it can become one of, the sustaining capex, or indeed if not all of it most of it becomes a sustaining capex type mining operation. That’s kind of how I would be thinking of it at this moment in time.

The reality though is, just as a sort of rider on everything, you will ultimately have to open new mines. They do run to an end and you know, we’ll try and squeeze it for a long as we can, and I am quite optimistic on how far we can get, but at the end of the day we do actually have to open mines and sustain the production that is coming out of the Pilbara.

SAM WALSH:

But at this stage, Koodaideri, we would not review an investment decision until 2016. Silvergrass, as Andrew mentioned, we will not need to make a decision really until the latter part of 2015, but we will look at it in 2014 to see whether the market dynamics indicate that you might bring that on.

Harry, why don’t you talk about leach tanks and uranium output?


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HARRY KENYON-SLANEY (Chief Executive, Energy):

Thank you, Sam. Leach tanks are used at the early stage of the process of extracting uranium from ore at both ERA and at Ranger. I mean clearly these incidents are very disappointing. We are focused at the moment in providing support to both ERA and Rössing, to the boards of those companies, to ensure that full and detailed investigation is conducted. It’s too early at this stage. The boards of the respective companies will advise the impact in due course and what we are focusing on now is to make sure that the support is provided.

There was no impact on the surrounding environment at either mine and the containment systems worked as designed, as I said, and our focus is very much now providing support to the leadership teams on-the-ground and to the boards so that they can ultimately provide guidance on what the impact is going to be and also on what the outcomes of the investigation ultimately are.

SAM WALSH:

And in terms of your inventories and sales?

HARRY KENYON-SLANEY:

In due course, we clearly have an inventory pipeline, we have material at the different converters around the world but the two companies will provide guidance in due course on what the impact is. We have a number of leach tanks at both sites, there are twelve at Rössing and there are four at ERA and in each case one was affected. We need to let the investigations continue and we will provide support to both companies to ensure that they have full investigation as swiftly as possible and they can then in due course advise what the impact is going to be.

SAM WALSH:

Yes, thanks Harry. Look, I mean the key issue there is that the safeguarding of the environment worked, the bunding and catchment areas worked and the clean-up work is underway. There was no safety issue, there was no significant impact on people. It’s been handled as best as we can and, as Harry said, we need to investigate to understand exactly what happened.

I understand we have got a question online. Let’s take that and then we take the question at the back of the room.

QUESTION:

I have just got two questions. The first is for Alan. Your zircon production is currently 35 per cent below capacity and you also see demand to be similar in 2014 as it was this year. With more supply coming on next year, for example, from Mineral Deposits bringing on 100,000 tonnes of zircon from their grand coke project, how does this impact your ability to rebalance the market?


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And the second question is for Harry. You’ve delivered $600 million of cost cuts so far and you talked about some of the initiatives you have got to achieve the $1 billion. Could you just talk through a bit more detail on these initiatives?

SAM WALSH:

Okay, Alan, why don’t you start with the first part of the question?

ALAN DAVIES (Chief Executive, Diamonds & Minerals):

Thanks Rachel. I was waiting for the first zircon question.

You are right that there will be some additional zircon production coming onstream this year. When we consider what production levels we will operate our assets at, I mean clearly there’s our position in Richards Bay which is a very advantaged cost position and our position in China which is great visibility in terms of our customers, and what we find is what our customers want is really high quality and reliable supply which frankly all suppliers in the industry don’t give.

So there is a supply and demand balance that will need to be struck because we do operate in a market that does need balancing. There is some surplus zircon of different grades, not all grades that are actually being used in China at the moment, so there are some surplus zircon stocks in grades that aren’t the main grade that gets used in China. That will have to burn off over time and we would expect 2014 and perhaps a little bit beyond on some of those grades, it will need to burn off through the system.

There is some high cost zircon production that we would expect will not be economic to despatch. If you look back over the last several years, when the zircon prices elevated to a very heady level in 2012, that did stimulate a couple of things in the market, some was some demand destruction as some substitution came in.

I think that’s been through the system, so we are getting good visibility on what the demand actually is, but also it did sort out what the cost structures were in the industry and we have seen a lot of that demand destruction being accommodated by higher cost producers.

So, look we’ll assess it, we have invested in a lot of industry analysis and market intelligence. We’ll make our own decisions as we see how our customers want their product, how our customers are buying, how our customers are stocking, but we are conscious of the whole industry picture. But we will make our own decisions as we move through the year.

SAM WALSH:

Thanks Alan. Now, Harry, we probably don’t need to go through the 1,500 cost reduction initiatives you have got, but why don’t you give us a high level feel for what’s in the pipeline?


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Sam, I was looking forward to going through them one by one.

Look the results that we have achieved so far I think have been terrific and we are very proud of them. They’re spread all across the business; all facets of all of the sites are involved. The focus is on identifying the opportunities, developing them through to delivery and then actually delivering on them.

We have the “war room” in Brisbane, we have a cadence and a rhythm of delivery which is very intense and we are focusing on areas like maintenance tactics, consolidation of contractors, looking to find opportunities to purchase consumables and materials and supplies from other lower cost locations. We are looking at the support costs to make sure we don’t have unnecessary work going on that we can do without.

We have had a ruthless focus on waste elimination. We are looking at mine planning optimisations to see whether we can extract more material, more finished product, by moving less coal. The ability to move more material with less equipment has meant we have been able to take a significant amount of fleet out of operation and where it’s on hire hand it back to those who own it.

The result of all of this is that there’s an energy and a focus across all of the sites where we look at every piece of equipment, every pit, every mine and every business on a weekly and monthly basis to ensure that it remains cash flow positive.

There is an energy underlying this whole process and it really flows to Sam’s request to ask us to look at our businesses as though we are the owners of them, and that’s what we are doing. So this is a whole of business transformation, which has gathered a very firm and very clear cadence around delivery.

SAM WALSH:

Yes thanks, Harry, for your answer and thanks, Rachel, for the question. I spoke briefly about the cash generation offices that we’ve set up around the Company and this is focused on transparency, it’s focused obviously on engagement, it is focused on providing trends.

Normal accounting data is terrific, it is looking backwards, and it’s pretty hard to drive a car if you’re looking in the rear vision mirror, and idea of the cash generation offices is to provide the transparency, for it to be driven bottom-up in terms of focusing people on the opportunities. And Harry’s “war room”, which I have seen in Brisbane, is a great example of tracking, monitoring, the focus, discipline, accountability and operating a business as if it was your own.

Do we have another question in the room? Yes, why don’t we take the question here? We do have time for other questions, so don’t panic.


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QUESTION:

First, a question - I’m not sure if you have commented on the sort of newspapers articles that suggest you may not be able to process bauxite at Gove if you close down the alumina refinery?

And then just going to both Alan and Harry’s divisions, both divisions have got several short-life operations: Argyle, Diavik and the two uranium producers. Should we look at those divisions as run-out divisions or should we be looking at investment kind of post maybe the 2015 period?

SAM WALSH:

Okay, let me start with Gove and then pass to Alan and Harry on the life of their businesses. Look Gove is probably the toughest decision that we’ve made in the near term, and it really was driven by the economics of the refinery, the effect of lower alumina prices, the effect of a high Australian dollar, and the fact that the refinery was losing a large amount of money.

We are having productive discussions with the Federal Government, with the Northern Territory, the State Government, on the business going forward. Clearly we have rights under the State Agreement in relation to ongoing bauxite operation, but the relevant question is, can you actually physically increase the bauxite exports beyond where we are today?

At the end of the day, if you step back from it, it is a very emotional time. There has been a lot of media speculation. But the best thing for Gove is to physically ensure the future of the bauxite operation and to ensure that it can actually expand to offer more jobs. That’s the very best option for Nhulunbuy. We have made the decision to mothball or curtail. I know there was some confusion by some people over the actual decision.

So there is the option there physically for us to bring the operations back if the dynamics physically change. We are offering to our employees the option of either relocation or fly-in/fly-out to other operations, and clearly that will provide them with the option to retain their housing and retain their lifestyle in Nhulunbuy, but it also would provide us with the opportunity of having a cadre of people who had operated the refinery within the business.

Alan, why don’t you talk about Diamonds and the life?

ALAN DAVIES:

I might go through Argyle to start with. We are putting a second crusher in at the moment. The block cave that we are doing is the first part of going underground, so this is the first underground level of what is quite a large orebody that continues going into the ground. There are other mineralised zones on the Argyle lease that we’re doing some local review of that might give us some opportunity.


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I have concentrated, bringing the Diamonds business back, I have concentrated the activity back on, how do you work out what is the optimal shell for Argyle, for example, and there are other methods we use to go underground that aren’t just a big block cave. There is a sub-level caving, that we are actually using in Diavik, so the team there, Jean-Marc and Kim are looking at whether they can use those techniques to be efficient in continuing the life of Argyle.

We expect to be beyond 2020 at the moment but there is some optionality to continue. There is a bit of work required in the near term to fully flesh those out and clearly I will be able to update once that work has been through our processes internally here.

With Diavik, we have been operating there for a while. We are in probably the final part of the underground, but again I’ve concentrated the activity in Canada around some exploration leases we’ve got near Diavik and around Canada. But again really focusing the local management on, what happens after 2023 which is continually where we would expect mining to continue, and we’re using sub-level caving which is a very capital-efficient way of continuing the ore reserves going.

Then on that type of bridlestone, we do have Bunder, which is continuing in India, which will provide diamonds over time, but we are working with the Indian Government and the Madhya Pradesh Government on taking that forward as well.

SAM WALSH:

Thanks Alan. But you certainly raise a general issue for the industry on where is diamond supply going to come from going forward? It makes it a highly attractive segment for us to be in.

Harry, why don’t you talk about uranium mine life?


We have a range of options in our uranium portfolio because, as you know, a number of our operations are going through a transition. ERA has been a large and significant player in the industry for quite a number of years but the Ranger 3 mine has now completed and is in the process of being rehabilitated. So the focus of the ERA board over the last couple of years has been on identifying what the opportunity is to try and develop an underground mine that’s known as Ranger 3 Deeps.

That work is ongoing, a decline is under construction, and the board will inform the market in due course of the results of the exploration drilling programme which is designed to confirm and hopefully prove-up that opportunity, and particularly to prove-up the analysis that has already been obtained from surface drilling work.

Elsewhere in the portfolio, obviously the Hathor acquisition a number of years is a very early stage opportunity. It is in an order of magnitude phase of development at the moment.


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We have a very large land holding in what is a very attractive region, the Athabasca Basin, but we have barely scratched the surface yet. Exploration work is continuing and in due course when that’s complete we’ll advise the market. We’ve conducted 58,000 metres of drilling over the last couple of years and that all needs to be interpreted and understood and then the future options identified.

At Rössing, well Rössing is a very large but very low-grade deposit. It has been running since the early 1970s. As I said in my talk, we have options there. We have conducted a significant pushback over the last year and strip ratios will fall. But clearly the uranium market at the moment is weak and all of our focus at both of the operations is to ensure that these businesses remain viable. We are getting costs down and we are improving productivity, so hopefully we can take those opportunities in the future.

SAM WALSH:

Thanks Harry. We had a question towards the back of the room, in the corner.

QUESTION:

I’ve some questions for Andrew about the iron ore growth and the iron ore market. I guess most of the volume you are going to be bringing on line, up to 350 million tonnes, will be the Pilbara fines product, so I am wondering first how you expect your ratio of lump versus fines to change and then how you expect the market premium for lump pricing to develop over the period?

And secondly, also just a comment about how grades will develop over time as you’re bringing this capacity on line. Will grades be significantly lower in 5 years time than they are today or are they going to be roughly flat with where they are today? Thanks.

SAM WALSH:

Look I think there’s been some very good work in the Iron Ore Group on both the medium and long-term mine plans which I think will give Andrew some confidence in his answer.

ANDREW HARDING:

Thanks very much Sam, and Chris for your question. One of the criteria that was used to guide the development of the optimised plan was we would not have an impact on the Pilbara brand product. So the answer that you have seen presented is an answer that actually has no impact on the Pilbara brand product itself. That was just one of the core tenants of the actual work that was done.

On the development of lump premium, probably the most attractive thing that could happen is the fact that, at the moment, pollution is not very attractive in China. So there is a lot of social pressure being brought to bear on the Government and the Government members themselves don’t like living in the air quality situation that they have.


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So while my understanding is that you are not going to see immediate, big steps, there will be, over time, more and more work to curtail sintering plants etc. in and around the Hebei Province and the like and/or accumulate better technology over time as well in different areas. The net result of that, as far as I can tell, and our analysis allows us to, is that we should see a bias towards an improving lump premium as a result of that. How you interpret my words and turn that into a number I’ll leave to you.

And I answered the grade decline issue in the earlier answer.

SAM WALSH:

Okay, thanks. I’ll take a question on this side of the room, just here, so it’s third row back.

QUESTION:

A question in two parts, if I may. The first part, given that Vale is putting over $2½ billion into Mozambique and the railway coming onstream in the second half of 2015, easy expansion being referred to, to $30 million, what’s the medium term possibility of developing the Riversdale assets from your side?

SAM WALSH:

Yes, I’ll get Harry to answer your question, but let me just pre-empt his answer by saying Riversdale in Mozambique has been a pretty tough environment for us. I think Harry and his group have done a lot of good work in terms of improving the cost base and looking for development and other options. But Harry, why don’t you respond?


Thanks Sam. The focus over the last year, as I said, was absolutely on getting the costs down and getting the yield up, getting the productivity up on what, at the moment, is a very small operation. The much broader issue for this asset is to ensure that there is a globally competitive coal chain solution to allow the coal to be moved out of the country. That work is ongoing, led by the Government.

We are in very active dialogue with the Government on what that might look like, but ultimately the various parties in Mozambique need to determine how they are going to develop a coal chain solution that is sufficiently low cost and efficient to ensure that these operations, which are about between 500 and 600 kilometres from the coast at the shortest point, are delivered in a competitive manner. That work is ongoing.

QUESTION:

If I may follow on from that, given that you’ve potential medium term developments there, you have the possibility of Simandou 2015 onwards coming onstream, and you have got Oyu Tolgoi underground development, and you put that into a context of riskier environments in terms of the blend within your capex growth spend, how are you thinking about that as a Board medium term?


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SAM WALSH:

Look we have revised our Investment Committee processes, as Chris alluded, in terms of strengthening those processes so that, in essence, we are focusing on the very best opportunities in front of us. We are a mining company and we are very focused on tier one deposits, we are focusing on being in the first cost quartile for our operations and it means that, yes, we do need to go to out-of-the-way places to develop operations.

I think where we are sitting today we are not looking to increase our focus into non-OECD, perhaps with the exception of La Granja in Peru, which is a few years down the track. But it is a tier one deposit; it is something that is highly prospective.

But in terms of how we go forward with our capital, in response to the question we had earlier about how firm is the $8 billion, for example, for 2015? Well, of course exchange is a factor, but that’s really as a result of us looking at what are the development options and scheduling those so that we do look sensibly as we go forward.

We had another question towards the back here.

QUESTION:

A question on your thermal coal business. It’s obviously a very small contributor at the moment and you’ve sold an asset, so is it something that you are committed to being part of the portfolio longer term or do you think there is the potential for JV structures or further divestments down the line?

SAM WALSH:

Look I think there has been some very good work done in Harry’s area and, as he mentioned, we have achieved $600 million costs out during this year and I think that has improved the economics and competitive nature of the business.

I know that one of our competitors is out and about and talking about the possibility of joint ventures and so on.

Let me just come back to the comments I made before about divestments, that we are very focused on delivering value. This is not about “fire sales” or market day at the grand bazaar or what-have-you. If somebody wants to come to us with a proposal that physically makes sense and values our assets accordingly then of course we will look at it, but at this point in time we don’t. We are not in that position of having something that is interesting to us in terms of taking that forward.

We are running short on time. Perhaps one more? There are lots of questions. Look we’ll stay around and respond to your questions. But blue tie, third row, you have been very patient, why don’t we have your question? Sorry, it was the one in front. Sorry about that – you were close.

QUESTION:


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You mentioned that one of the ways that you could reduce capex and costs even further was by using more emerging market suppliers, but could you give us more detail on how big a proportion they already are used at your Company and to what level you hope to grow? And also could you talk about in which areas you find their quality compelling and what typical cost savings would be by using them instead of traditional suppliers?

SAM WALSH:

Look we have done some very good work through our centralised Rio Tinto Procurement Group in exploring opportunities for emerging market purchases. We have been purchasing from China, India particularly, but also through South East Asia. I think I am right in saying China last year we were close to $2 billion worth of purchases and in India I think it’s around a billion dollars of purchases.

It tends to be sophisticated purchases, which sort of is a little bit intriguing, but we have brought in thousands of ore-cars into our iron ore operation, we have brought in ship-loaders, stackers, re-claimers. We have brought in some haul-trucks from China as we sort of explore what are the opportunities for those, and there is a range of operating suppliers.

Harry was recently in China exploring some opportunities and he went to an explosives manufacturer and found some bags that had the name of one of our more traditional suppliers on it. So there are lots of opportunities there and whilst some people may say, ‘Well, is that putting the business at risk?’ - we have a very rigid scoping and specification process and inspection to ensure that we are delivering.

Funnily enough, when the original ore-cars came in and we evaluated those against the traditional supplier the quality was actually much higher. Instead of spot welds, for example, on the sheet metal they were actually continuous welds. And in relation to cost, well, it depends on what you are physically talking, but it is significant otherwise we wouldn’t be doing it.


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Slide 64 – Final closing comment

Look, I think that’s the end of today. Thank you very much for being here. I really appreciate that. Thank you very much for your questions and interest in our business. Look, it really is always a pleasure to share with you sort of how we’re travelling and how we’re progressing on the journey to become an even stronger company delivering real value to you.

It is a good story. It is a story that is continuing to evolve. As I mentioned to you there is rolling momentum and I have got an organisation that is strongly committed to improvement and to taking the business forward.

rio tinto investor seminar, london - 11 december 2013€¦ · poor returns on some investments made...

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