riot into 20121009
TRANSCRIPT
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Oyu Tolgoi, Mongolia
Investor seminar London / New York
9 October 2012
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Tom Albanese
3
Chief executive
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©2012, Rio Tinto, All Rights Reserved
Agenda4
Introduction, outlook and strategy Tom Albanese
Capital allocation and performance Guy Elliott
Technology & Innovation Preston Chiaro
Break
Copper Andrew Harding
Summary Tom Albanese
Q & A
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All injuryfrequency rate
Lost time injuryfrequency rate
Injury frequency rates 2003 – Aug 2012Per 200,000 hours worked
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Safety remains our core value
Testing safety equipment
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Overview
• Short term outlook is uncertain and volatile
• Focus on balance sheet discipline and single A credit rating
• Strong operational performance under tough conditions
• Significant reductions in operating and evaluation costs and sustaining capex
• Long term industry fundamentals remain attractive
• Rio Tinto is well positioned
• Strategy is unchanged – large, long life, cost competitive assets
• Disciplined and rigorous capital allocation and prioritisation• Allocating capital to projects with highest returns in the most attractive sectors
6
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• Continued deleveraging and
austerity in OECD
• Rate of growth in our markets in
China is robust but is decelerating
• Expect a sequential pick-up in Q4
with signs of improvement in
property market
• Impacts of stimulus extended out vs
previous estimates: to be felt after Party Congress
• Market to remain volatile
Short term market uncertainty andvolatility continue
7
Synchronised slowdown underwayPurchasing Managers Index – Manufacturing
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30
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50
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60
65
Jan 08 Jan 09 Jan 10 Jan 11 Jan 12
US Eurozone
China Japan
Above 50 = Expansion
Below 50 = Contraction
Monthly new home sales growth in China% change year on year
-40%
-20%
0%
20%
40%
60%
80%
100%
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Source: CEIC / NBS
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• ~2 billion additional people tourbanise by 2030
• Global steel consumption expectedto grow by 2 per cent per annum
• China to remain key driver until mid-2020s
• China GDP per capita currently19% of USA levels
• India and South East Asianeconomies more than offset flat and
then falling consumption in China• Consumption-led growth will benefit
TiO2 and Aluminium
Global commodity demand trajectoriesIndex (2012 = 100)
8
The long term demand outlookremains attractive
Source: Rio Tinto analysis
100
120
140
160
180
200
2012 2015 2018 2021 2024 2027 2030
Aluminium - Primary Copper - Primary
Hard coking coal Iron ore
Thermal coal TiO2
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• Significant urbanisation to continue
• China’s cumulative steel
consumption per capita remains wellbehind developed world
• This is despite substantial growthover the last decade
• We estimate four per cent growth insteel demand this decade – but off ahuge base
• Crude steel production in China
expected to peak towards 2030
Continued urbanisation will drive Chinese steeldemand growth
9
Source: Rio Tinto analysisNote: Steel stock refers to the level of cumulative steel consumedwithin an economy over a 20-year period
Total steel demand over respective 20-year period(tonnes per capita)
0 5 10 15 20
China 2010-30
China 1990-2010
South Korea 1990-2010
Japan 1980-2000
Germany 1970-90
US 1960-80
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• ~100 million tonnes of mostlyChinese iron ore production is
unprofitable today• Evidence that a large proportion of
this already curtailed
• Cost escalation and rising capital
intensity will increase pressure onmarginal project returns
• Scarcity of highly skilled labour,access to financing
• Rising threat of resource nationalism• Recent high profile project deferrals
The industry supply responseis increasingly challenged
10
Local Chinese iron ore supply is working harder
Global iron ore fines cost curve 2012 (CIF China)
Source: Macquarie
0%
20%
40%
60%
80%
02 04 06 08 10
Implied Domestic Fe % Domestic iron ore % market share
Source: World Steel Association /GTIS/Rio Tinto analysis
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Within this context, our fundamentalstrategy is consistent and unchanged
• To maximise total shareholder return by sustainably finding,
developing, mining and processing natural resources
• Invest in and operate large, long term, cost competitive minesand assets
• Maintain a strong balance sheet and single A credit rating
• Allocate capital to the highest return opportunities
• Investments driven by the attractiveness of commodity sectors,and the quality of each opportunity
11
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Our strategy is focussed on finding,developing and operating tier one assets
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Tier 1
Lower costHigher cost
Higherexpandability
Lowerexpandability
Grow and protectFocus of new investment
Improve,divest
or close
Identifyexpansion
options
Implement operatingenhancements
Optionality/
expandability/life extension
Total cost position• Operating costs and sustaining capital
• Capital intensity of growth
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We are taking constant steps to improve thequality of the portfolio
13
Iron ore
Diamonds & Minerals
Copper
AluminiumBubble size represents medium,high and very high value (RioTinto share)
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Tier 1
Cashcows
Cost position
Leveragedplays
Lower costHigher cost
Higherexpandability
Lowerexpandability
Optionality
Marginalassets
Energy
Under review / recent divestment
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A clear and consistent strategy
• The long term demand outlook remains attractive
• Post GFC effects continue to drive short term market uncertainty and volatility
• Increasingly delayed industry supply side response
• Rio Tinto’s fundamental strategy remains unchanged
• Allocating capital to those projects offering the highest returns
• Targeting investment in the most attractive sectors
• Constantly improving the portfolio in line with our strategy
14
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Guy Elliott
15
Chief financial officer
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• Prudent balance sheet and single Acredit rating in a volatile environment
• Progressive dividend providessustainable long term returns toshareholders
• Disciplined and rigorous approach to
capital allocation• Investment programme focused on
highest quality opportunities
• Return surplus cash to shareholders
Balancing value adding investment with returnsto shareholders and a prudent balance sheet
16
Cash returns to
shareholders
Progressivedividend
increased
by 34% at FY2011
$7 billionbuy-backcompleted
Prudentbalance
sheetmanagement
Single A credit
rating
Averageborrowingmaturity
of 9 years
Disciplinedinvestment
in highest valueopportunities
$10 billion of
non-sustaininginvestments
in 2012
Cash from operations
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Integrated strategy and planning process setsthe key elements of our capital framework
Single Acredit rating
Progressivedividend
Existing capitalcommitments, planned
divestments
Single Acredit rating
Progressive dividendsand other cash returns
Prioritisedcapital budget
Capital
boundaries
Integratedstrategyandplanningprocess
Capitalplan
• Set strategic framework• Assess performance metrics• Identify operating improvements
• Develop investment opportunities• Growth• Cash returns to shareholders
• Assess and prioritise opportunities
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Risk Management Committee; Board
Macro-economic
18
Distinctive strategic investment themes and standard
evaluation criteria drive our investment approach
NPVValue enhancement
Price assumptions
Asset• Large, long life, low cost• Export markets
Board / Exco
Set evaluation criteria
Economics and Business Evaluation teams
Set ranking criteria
Board / Exco
Jurisdiction
Discount rate assumptions
Project evaluation guidelines
IRR/ROI, EBITDA marginWhere are the highest returns?
Level of payback in first five yearsWhen do we realise the return?
What risks are involved?
• Competitive advantage• Market structure
Sector “sieves”• Market size, demand• Performance
Developinvestment
themes
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Our capital allocation process ensures we aremaking good decisions
Developinvestmentthemes
Setevaluationcriteria
Set rankingcriteria
Opportunitydevelopment
Project
reviewandranking
Investment Committee
BoardFinal decision
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• Capex programme managed withinlimits of target single A credit rating
• Rio Tinto’s proportionate share of 2012 capex is $13.7 billion
• Three significant projects in threecommodities to come on line within
the next 18 months− Yarwun 2 currently ramping up− Oyu Tolgoi phase 1− Pilbara 283 expansion
• Level of sustaining capex under
review with material reductions likely
• Flexibility around further major project approvals
Approved1 capital expenditureUS$ billions
20
Capital expenditure is being prioritisedon the highest quality projects
1 Approved capital expenditure includes probable capital likely to beapproved for Pilbara sustaining mines, Pilbara 283 and Pilbara 353
expansion
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Shaping the portfolio in line with our strategy
• Capturing value from assets that no longer fit our strategy− >20 divestments worth a total of $12bn completed since 2008− Various strategic review and divestment processes underway
21
Significant acquisitions and divestments since 2011
Acquisitions
Control of Turquoise Hill Resources Oyu Tolgoi: tier one copper resource with average production of 425ktpa copper and460kozpa gold
Doubling stake inRichards Bay Minerals
High quality, low cost resource with production capacity of c. 1Mtpa TiO2
feedstock and>20 year mine life
Acquisition of Riversdale Highly prospective, tier one coking coal resource with first production mid-2012 andobjective of 25Mtpa high quality coking coal by 2020
Acquisition of Hathor Exploration Proven high grade uranium deposit in highly prospective, low risk geography
Divestments in 2012 and assets announced as under review
Alcan Cable, Specialty Aluminas, ZAC Non-core aluminium and coal assets; not “large” or “long life”
Diamonds business Insufficient market size in context of broader Rio Tinto portfolio
Pacific Aluminium Non core
Palabora Mining Non core
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• Aim to maintain a single A creditrating
• Long term and smooth debt maturityprofile
• Weighted average maturity of over nine years
• $5.5 billion of bonds issued in2012 with a weighted averagematurity of around 12 years andcoupon of 3.6%
• $1.7 billion of bonds falling dueover next 18 months
• Approximately two thirds of grossdebt at fixed interest rates
Proforma gross debt maturity profile at 30 June20121
(US$bn)
22
Prudent balance sheet management
1 30 June 2012 maturity profile adjusted for $3 billion bond issue August 2012 and $0.5 billion bond maturity September 2012
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Strong operational performance;further significant cost reductions planned
23
Rio Tinto
Peer grouprange
Source: IPA
90
100
110
120
130
140
150
160
170
180
190
Australian CPI
Typical Mine + MineralProcessing Facility -
Australia (IPA)
Australian capital cost inflation(2000 = 100)
EBITDA margin by product2012 first six calendar months
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Copper Aluminium Iron Ore Coal
Aluminium based on Rio Tinto Alcan operations only, including tradingactivities. Peer group comprises BHP Billiton, Vale, Anglo American, Xstrata,Freeport, Alcoa
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A disciplined approach to capital allocation
• Prudent balance sheet and single A credit rating in a volatile environment
• Clearly defined approach to capital allocation
• Investment programme focused on the highest quality opportunities
• Progressive dividend provides sustainable long term returns toshareholders
• Return surplus cash to shareholders
• Shaping the portfolio in line with our strategy
• Strong operational performance with further significant cost reductionsplanned
24
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Preston Chiaro
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Group Executive, Technology and Innovation
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Technology and Innovation makes
Rio Tinto operations best in sector
Major capital
project delivery Helping to deliver on time and on budget projects
InnovationDelivering value through the design andimplementation of step change innovations
OperationalImprovement
Optimising our operating assets
TechnicalAssurance
Understanding and managing technicalrisk in major capital allocation decisions
T&I partners with, supports, and challenges Rio Tinto Product Groups and functionsto deliver industry leading performance in strategically critical areas, including:
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Optimising our operating assets to achieve
industry leading performance
• World leading centralised model of technical expertise
• Distinctive capabilities and unique processes in critical disciplines
• Strategic Production Planning group identifies optimal resource development
• Identify and implement productivity improvements
• Sharing leading practice in operational performance• Developing capabilities in core technical skills
27
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0
200
400
600
800
1000
1200
1400
1600
2008 2009 2010 2011 YTD 2012
• Improve the performance of physicalassets
• Global metrics for standardisedreporting and performance revealsbest practice
• Centralised model efficiently sharesleading practice
• Training programmes to buildcapability
• Development and ownership of
standard technical systems: mobileasset health, reliability improvementtools
Pre-tax cash flow savings from better AssetManagement (US$m)
28
Standardised global asset management
processes drive down costs
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• Increased haul truck availability hasresulted in 18 trucks not beingrequired
• T&I has supported improvementthrough standardised metrics
• Advanced modelling identifiesbenefits for critical assets
• Consistent methodology appliedacross the group
Haul truck availability(%)
29
Unique processes and systems deliver value
550
600
650
700
750
800
850
900
950
1000
82%
83%
84%
85%
86%
87%
88%
2006 2007 2008 2009 2010 2011 2012
HTA (LHS) No. Trucks (RHS)
Decline in number of trucks in 2010 dueto sale of Rio Tinto Energy America assets
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• Mean Time Between Failures (MTBF)is an indicator of reliability...how oftendoes an asset breakdown
• Across the group Mean Time BetweenFailures has increased by 50%
• Rio Tinto average payload as apercentage of maximum payload
increased from 99.3% in 2008 to 100%in 2011, from levels below 97% prior toimplementing global measurement
• Increased payload has resulted in atleast 6 trucks not being required
Improved performance of critical
assets reduces operating costs
30
Mean time between failuresHaul Truck MTBF (Utilised Hours)
Average Payload Average Payload (% of Target)
35
40
45
50
55
6065
70
2006 2007 2008 2009 2010 2011 2012
97%
98%
99%
100%
101%
2008 2009 2010 2011 2012
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Centralised major projects capabilities
shares best practice
Achieve repeatable success on major projects:
Central capability supports Product Groups• Consistent methodologies lowers project costs
• Regional and commodity based delivery hubs deliversexpertise where it is needed
• Talent pipeline centrally managed
Challenges
• Rising capital intensity across the globe
• Difficult to attract and retain skilled people
• Loss of experience when demobilising a group
• once a project finishes
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We drive step change innovation32
Our Mine of the Future™ is shaped by four significant value levers
Find Develop Mine Recover
• Find future tier oneore bodies
• VK1 in initial flight trials• Complex testing
programme under way
• Develop future blockcave mines safer,faster, better
• Tunnel boring systemtrials to commence atNorthparkes duringH2 2012
• Optimise resourceproductivity
• Expansion of driverlesstruck fleet to 150
• Operations Centre• Smart drilling and
blasting
• Autonomous trains(AutoHaul™)
• Recover more frommineral deposits
• NuWave™ copper sorting pilot plant beingcommissioned at KUC
Innovation networks created through long term strategic alliancesProtection of Intellectual Property is key to sustaining competitive advantage
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• Structured control and governance
• Data management and security
• Rigorous investment proposals
• Freedom-to-operate
• Patent families and walls
• Trade secrets, copyright andtrademarks, individual contracts
Systematic approach to innovation34
Innovation without intellectual propertyprotection is philanthropy
IdeaProof ofConcept
Pilot Demo Deploy Support
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An integral part of our riskmanagement and capital allocation
Activities and groups involved include:
• Technical guidance and duediligence of investment opportunities
• Support of resource and reserve
governance
• Governance and oversight on areasof strategic risk
• Global leaders on energy and water
management issues
T&I is central to managing technical risk35
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Summary
Major capital
project deliveryHelping to deliver on time and on budget projects
InnovationDelivering value through the design andimplementation of step change innovations
OperationalImprovement
Optimising our operating assets
TechnicalAssurance
Understanding and managing technicalrisk in major capital allocation decisions
T&I partners with, supports, and challenges Rio Tinto Product Groups and functionsto deliver industry leading performance in strategically critical areas, including:
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Oyu Tolgoi, Mongolia
Investor seminar London / New York
9 October 2012
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Oyu Tolgoi, Mongolia
Andrew HardingChief executive, Copper
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Electrification of large emerging marketswill support demandPer capita electricity consumption (GWh/capita) 1970-2010
39
Long-term demand drivers remain positive
While sectors such as automotive have significantgrowth potentialPassenger vehicle ownership/1000 people*
*2009 except China which is 2011
0
2.000
4.000
6.000
8.000
10.000
12.000
14.000
16.000
18.000
0 10.000 20.000 30.000 40.000 50.000
USA China Japan South Korea Germany India
0
100
200
300
400
500
600
0 10.000 20.000 30.000 40.000 50.000
GDP/Capita 2005 US$GDP/Capita 2005 US$
China
USA
Germany
High income
mature markets
Emergingmarkets
Middle-incomeindustrialising
High incomedensely
populated
Mexico
Hong Kong
India
©2012 Ri Ti t All Ri ht R d
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Declining grades and mine closures
impact supply
40
1.8Mt production loss between 2012-2016due to closures
The industry requires 1.6Mt Cu as a result of gradedeclines from 2012-2016
Continued project development is necessary to meetmedium term demandCopper mine supply-demand outlook (Mt)
0
5
10
15
20
25
30
35
40
2008 2013 2018 2023
Base production Highly probable projectsProbable projects Possible projectsPrimary demand
Source: Wood Mackenzie Q3 2012
-1.6 Mt
-0.05%
-2.7 Mt
-0.11%
-1.5 Mt
-0.09%-0.5 Mt
-0.01%
1997-2001 2002-2006 2007-2011 2012-2016
506
473
319
144
3222012
2013
2014
2015
2016
Production loss due to closures kt Cu
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• Over 13% CAGR in copper to 2015
• Production impacted byunfavourable grades and smelter shutdown in 2012
• Production volume and gradeimprovement in 2013
• Investment focused on key assets
and retaining developmentoptionality on high quality assets
• Focus on business improvement todrive productivity and unit costperformance
−Delivery of 15% reduction inoverhead costs
− EBITDA margins remain strong
Production profile – Rio Tinto share2012–2015 production forecast
41
Higher grades improve unit cost and business
performance compared to 2012
0
100
200
300
400
500
600
700
800
20152014201320122011
GoldCopper
Kt Cu/ Koz Au
+13%CAGR
Production data excludes Palabora
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• Project over 97% complete
• Sales contracts for 75% of concentratein place
• Physical construction of all power transmission infrastructure complete
− Commercial negotiations continue
• Transitioning to 90% Mongolian
operations workforce
Countdown to first production at Oyu Tolgoi43
EventTimelinefrom Power
First ore through SAG mill 6 weeks
First concentrate production 3 months
Commercial production(30 days at 70%)
6-8 months
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, , g
• DIDOP feasibility study H1 2013
• Optimising production schedulethrough use of Strategic ProductionPlanning
• First production planned for 2016and completed by 2018
• Operating rates up to 85,000t/pd
• Underground ore grade to increaseby 4x compared with open pit
The next phase will take Oyu Tolgoi
underground
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• Unit costs reduced by gold, silver andmolybdenum by-products
• US$660m approved for additional HME and
facilities to extend mine life to 2029− 515mt of ore at 0.79% CuEq
− Unit cost per tonne of material moved inline with 2011
− Production 180kt of copper, 185koz of
gold and 13.8kt molybdenum from 2019
• Moly Autoclave commissioning H1 2013
• Kennecott operations consistently a leadingindustry benchmark
• Well positioned to test new technologiesand innovations – TBS trial and Copper NuWaveTM ore sorting technology
Kennecott 100% owned, large,
long life, low cost
©2012, Rio Tinto, All Rights Reserved 46
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Conceptual underground sequencing
Deep Moly1Highland BoySouth West Caves
East Cave Fortuna SkarnNorth RimSkarn
Alternatives for Kennecott underground
development are being considered
Cornerstone
North Rim Skarn
Block caves and other pushbacksSouth pushback – extend mine life
Underground skills and experiencePlatform for further development
Extend life of operationsSafely access higher grade deposits
Strategicenabler
Kennecott resourcedevelopment
• US$165m approved for North Rim Skarn pre-feasibility studies to 2014• Continued focus on evaluating underground options
LOM 2018 2029 2050+
1) Source: Rio Tinto Moly Exploration Target Fact Sheet
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• +40 year mine life with phased approachto development
• Starter mine in pre-feasibility with first
production in 2017− Significant capital investment delayed
until after first production− Application of leaching technology to
maximise recovery
−Open pit with low technical risk
− 80kt heap leach trial underway atKennecott
− Social project commenced
• Orebody knowledge continuing to
positively evolve− Part of broader porphyry district− Significant upside potential
Unlocking value through phased
development at La Granja
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• Drilling continues to confirm a worldclass orebody
− 1.47% copper with significantmolybdenum
• Land exchange bill approvedin US House of Representatives
• Progressed shaft 9 and 10development and ongoing of resource and geotechnicalconditions
• Pre-feasibility studies being
extended to allow a completeanalysis of mining andprocessing options
Resolution a major future
underground operation
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Investment for organic growth in our operations
Escondida Grasberg
• Improved recovery through advancingleaching technology, productivityimprovements and debottlenecking
− Organic Growth 1 Project
− Oxide Leach Area Project
− Escondida Ore access
• Investment in the transition to a major underground operation with plannedtonnage at 240ktpd mill throughput
− Grasberg Block Cave
− Deep Mill Level Zone (DMLZ)
• 40% of production in 2022
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Technology and capability key to delivering
our strategyCopper NuWave™ (ore sorting technology)
Rio Tinto Block Cave Knowledge Centre Automated Underground loaders
Tunnel Boring Machine
• Plant constructed andpilot underway
• Increased concentrator throughput
• Ability to recover copper from wastestreams
• Commissioning at NPM• Potential to reduce
Undergroundconstruction by ~40%
• 50% more effective thandrill and blast methods
• NPM centre opened August 2012
• Partnership withUniversity of NSW
• State of the artlearning technology
• Leading edgetechnology deployed atNorthparkes
• 40% of extraction level
currently automated• Productivityimprovements andsignificant safetybenefits
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Tom AlbaneseChief executive
©2012, Rio Tinto, All Rights Reserved
O f d t l t t i i t t d
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Our fundamental strategy is consistent and
unchanged
• To maximise total shareholder return by sustainably finding, developing,mining and processing natural resources
• Invest in and operate large, long term, cost competitive mines and assets
• Maintain a strong balance sheet and single A credit rating
• Investments driven by the attractiveness of commodity sectors, and thequality of each opportunity
©2012, Rio Tinto, All rights reserved
©2012, Rio Tinto, All Rights Reserved
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Executing our strategy
• Long term industry fundamentals remain attractive
• Rio Tinto’s strategy remains unchanged – large, long life, low cost assets
• Disciplined and rigorous capital allocation and prioritisation
• Strong operational performance with further significant cost reductions planned
• Technology and innovation delivers substantial value
• Focused on maximising total shareholder return
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