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Citigroup sales force briefing, Tom Albanese, 30 September 2009
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Citigroup sales force briefing, Tom Albanese, 30 September 2009

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Citigroup sales force briefing, Tom Albanese, chief executive, 30 September 2009

Citigroup sales force briefing, Tom Albanese, chief executive, 30 September 2009

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  • Spot metals prices are 40 to 100% above first quarter cyclical lows but remain well under previous peaks The pattern of recovery for each commodity has differed because of important specific drivers in each market. Have been six broad sources of strength. Strong demand from China related to its enormous public infrastructure spending package. Contrast with weak OECD markets where apparent demand has seen double digit percentage declines Stocking and or an end to destocking across a range of metals and minerals Production cut backs by high cost producers Signals that the decline in global economic activity has bottomed out Speculation related to concerns that project finance constraints arising from the global financial crisis will impede near and medium term commodity supply growth Low interest rates and below normal returns in other sectors, which have reduced the opportunity cost of speculating in commodity markets.
  • Now turning to our key priorities for the next 12 months. The Group has been able to refocus its attention following the completion of the $15bn rights issue in July. Operational delivery or as Tom has referred to “ the business of the business ” is the first of three key objectives With cost reduction programmes and optimisation of operations, notably in Aluminium group, together with prioritisation of capital projects forming part of this first objective Delivery of the prodn JV with BHP is second objective And the continuation of the divestment programme , on which more later, is the third
  • Success of our rights issues in July has meant that our net debt decreased by $14.8 billion after the 30 June balance sheet date In April we successfully priced $3.5 billion of fixed rate 5 year and 10 year bonds enabling us to term out some of the shorter term debt Rights proceeds were used entirely to pay down Facilities A and B of the Alcan debt Group’s gearing has declined to 42% on proforma basis, compared with 67% at the end of June. Ratings agencies have taken note of the positive impact the rights issue has had on our financial risk profile, stronger liquidity and lower leverage. In July, Standard & Poor’s raised its long- and short-term credit rating to BBB+/A-2 with a stable outlook from ‘BBB/A-3’.
  • We have made considerable progress so far this year in meeting our operating cost reduction target After stripping out uncontrollable items and adjusting for changes in production levels between the two periods, we reduced our pre-tax cash operating costs by $770 million Therefore well underway in meeting our target, set in December last year, of reducing controllable operating costs by $2.5 billion in 2010. Reflects a wide variety of cost reduction initiatives across the Group, in particular reduced employee and contractor numbers and lower spend on exploration and evaluation projects In headcount terms, we have already exceeded our 14,000 headcount reduction target by nearly 2,000 roles, encompassing both contractors and employees. expect to see further cost savings in the second half of the year from lower input costs, particularly in our aluminium business. For capex, intention was always to adjust expenditure to market conditions whilst maintaining growth options. Cut our first half capital expenditure by 22 per cent to $2.8 billion and now expect capex for the full year to be around $5 billion. Currently reviewing our capital expenditure plans for 2010. Possible that the outcome of the review will be higher expenditure than the $2.5 billion sustaining capital expenditure previously guided.
  • In June we announced the formation of a major iron ore production joint venture in Western Australia with BHPBilliton. Efficient development of one of the world’s greatest resource provinces, from the optimisation of resource utilisation, and current and planned infrastructure development. Estimate the potential synergies to be derived from the joint venture will total in excess of US$10 billion in net present value. Three workstreams actively working on the JV (i) definitive agreement (ii) regulatory approvals (iii) implementation Detailed agreements are currently being drawn up with BHPBilliton and we are preparing a joint approach to the regulatory authorities. Subject to regulatory approval, we aim to finalise the joint venture in mid 2010
  • Longer term the fundamental drivers of developing world industrialisation and urbanisation will cause our markets to grow rapidly Great scope for substantial increases in demand for all our products and here we show some projected scenarios for aluminium demand Our central case is for aluminium demand to grow by just over 4% over the next two decades. This represents the equivalent of one Saguenay system (1mtpa capacity) every nine months Challenge for the supply side to keep up with this pace of growth particularly as worldwide tens of billions of dollars of project capital has been deferred by the industry since the start of the downturn. The long run investment case for the sector – particularly those with asset lives capable of spanning this period – continues to be attractive.

Transcript

  • 1. Citigroup sales force briefing 30 September 2009
  • 2.
    • This presentation has been prepared by Rio Tinto plc and Rio Tinto Limited (“Rio Tinto”) and consisting of the slides for a presentation concerning Rio Tinto. By reviewing/attending this presentation you agree to be bound by the following conditions.
    • Forward-Looking Statements
    • This presentation includes forward-looking statements. All statements other than statements of historical facts included in this presentation, including, without limitation, those regarding Rio Tinto’s financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to Rio Tinto’s products, production forecasts and reserve and resource positions), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Rio Tinto, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
    • Such forward-looking statements are based on numerous assumptions regarding Rio Tinto’s present and future business strategies and the environment in which Rio Tinto will operate in the future. Among the important factors that could cause Rio Tinto’s actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, levels of actual production during any period, levels of demand and market prices, the ability to produce and transport products profitably, the impact of foreign currency exchange rates on market prices and operating costs, operational problems, political uncertainty and economic conditions in relevant areas of the world, the actions of competitors, activities by governmental authorities such as changes in taxation or regulation and such other risk factors identified in Rio Tinto's most recent Annual Report on Form 20-F filed with the United States Securities and Exchange Commission (the "SEC") or Form 6-Ks furnished to the SEC. Forward-looking statements should, therefore, be construed in light of such risk factors and undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this presentation.
    • Nothing in this presentation should be interpreted to mean that future earnings per share of Rio Tinto plc or Rio Tinto Limited will necessarily match or exceed its historical published earnings per share.
    Cautionary statement
  • 3. Current market conditions and outlook
    • Spot metals prices are 40 to 100% above first quarter cyclical lows but remain well under previous peaks
    • Stimulus spending, loans growth and stocking activities in China provided initial basis for recovery
    • Could see some ‘pay-back’ for this in coming months but may be offset by resumption in growth in developed economies
    • Uncertainty remains about the underlying strength and durability of the global economic recovery. Customers remain cautious about restocking.
  • 4. Source: LME, SBB, Reuters Ecowin * Iron ore CFR China, prices from Dec 04 Source: SBB, LME, Energy Publishing Cycle here is defined as the period from January 2004 to Mid 2008. Highs and lows of monthly prices are taken. Current prices sit between cyclical low and high prices since 2004
  • 5. Key strategic priorities for next twelve months
    • Our priorities have changed following the $15 bn recapitalisation
    • Focus is now on operational delivery
      • Drive further cost reductions
      • Optimise operations
      • Prioritise capital allocation
    • Deliver Western Australia iron ore production JV
    • Divestments
    • China
  • 6. Recapitalisation gives us greater flexibility
    • Net debt reduced by $14.8 billion following successful rights issues in July
    • $3.5 billion bond issue in April
    • 100% of Facilities A and B are now paid down
    • Gearing reduced and credit rating stabilised
    Debt maturity profile 2009 - 2017 ($bn) post rights issue Acquisition facility Bond Other Commercial paper
  • 7. Good progress being made against operating cost reduction targets
    • Targeting a reduction in controllable costs by $2.5 billion by 2010
    • Controllable pre-tax cost reductions of $770m achieved in the first half
    • Completed 16,000 role reductions in first half exceeding target by 2,000
    • Additional savings from lower input costs to come in second half
    • Capex expected to be approximately $5 billion in 2009
    • Capex adjusted to reflect current conditions
    • Intention is to retain growth options
    • 2010 capex plan currently under review
  • 8.
    • Great opportunity to capture long term value through efficient development of large scale iron ore province with BHP Billiton
    • Value created by optimisation of resource development and present and future infrastructure efficiencies
    • Combination offers unique competitive advantages
    • Estimated synergies from JV totalling in excess of US$10 billion NPV
    • Joint approach for required regulatory approvals
    • Finalisation of joint venture targeted for mid 2010
    Western Australian iron ore production joint venture
  • 9.
    • Kintyre, Greens Creek, Cortez sold in 2008 for c $3 billion
    • Ningxia smelter divested for $125 million in January 2009
    • Potash and Corumbá divested for $1.6 billion in February and September 2009
    • Jacobs Ranch divested for $760 million in March, expected close in H2 2009
    • Bemis offer in July of $1.2 billion for Packaging Food Americas – expected close in H2 2009
    • Amcor offer in August of $2.025 billion received for majority of Alcan Packaging – expected to close within six months
    • Cloud Peak Energy S-1 registration statement filed on 12 August
    • First steps taken in divesting Engineered Products with Cable and Composites announcements ($350 million) in September
    Closed sales, agreements and binding offers totalling $9 billion since early 2008
  • 10.
    • Current market conditions are a blip in the longer term
    • Ongoing development in emerging markets will drive metals demand
    • Scope for significant increase in per capita metals consumption
    • Our base case is for 4.1% growth in aluminium demand over the next two decades
    • One Saguenay system required every nine months
    • Supply side will struggle to keep up
    Long run story continues to be attractive