Presentation To North American Fixed Income Investors 29 31 March 2010


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Presentation to North American Fixed Income Investors, 29-31 March 2010

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  • Our corporate aim has been to always remain investment grade and despite recent downgrades our aim is to improve to an A rating in the near future We are always speaking to ratings agencies to ensure they are aware of our ability to generate cash via our quality operations
  • The current global downturn is the most severe since the Second World War. Yet the longer term drivers of industrialisation, urbanisation and productivity remain intact. Over the next fifteen years, consumption trends will lead to a doubling in iron ore, aluminium, and copper demand and will require a significant supply response. To put this in perspective by 2030 this will be equivalent to adding one Pilbara system every 5 years, one Saguenay system every nine months, and one Escondida every year. With Rio Tinto’s large suite of low cost, large scale, long life assets and expansion options along with core skills in operating excellence, exploration, technology and innovation, we are very well positioned to meet these challenges
  • Rio Tinto’s core strategy remains to invest in and operating large, long life, low cost mines and assets Quality of asset not choice of commodity Superior profits delivered by high quality assets Strong performance sustainable over long term To deliver Group will continue to concentrate on Tier 1 assets that will operate profitably at every stage of the commodity cycle. Strengthening our balance sheet and striving toward a single ‘A’ credit rating is key, tempered by our need to grow to meet future demand Operate in an ethical and socially responsible matter putting sustainable development at the heart of everything we do
  • Presentation To North American Fixed Income Investors 29 31 March 2010

    1. 1. Presentation to North American Fixed Income Investors 29-31 March 2010
    2. 2. Cautionary statement <ul><li>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. </li></ul><ul><li>Forward-looking statements </li></ul><ul><li>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. </li></ul><ul><li>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 &quot;SEC&quot;) 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. </li></ul><ul><li>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. </li></ul>
    3. 3. <ul><li>Section 1: Company Overview </li></ul><ul><li>Section 2: 2009 Highlights </li></ul><ul><li>Section 3: Economic Outlook </li></ul><ul><li>Section 4: 2010 Priorities </li></ul><ul><li>Section 5: Financial Management </li></ul>Agenda
    4. 4. Company Overview
    5. 5. Company Overview Aluminium <ul><li>#2 in Global Aluminium Production 2 </li></ul><ul><li>#4 in Global Alumina Production 2 </li></ul><ul><li>25% of 2009 Sales Revenue 8 </li></ul>Coal <ul><li>#6 Market Share in Export Coking Coal 1 </li></ul><ul><li>#8 Market Share in Export Thermal Coal 3 </li></ul><ul><li>13% of 2009 Sales Revenue 8 </li></ul>Diamonds & Industrial Minerals <ul><li>#3 Market Share in Diamonds (in terms of volume) 5 </li></ul><ul><li>#1 market share for Titanium Dioxide Feedstock 6 </li></ul><ul><li>7% of 2009 Sales Revenue 8 </li></ul>Uranium <ul><li>#2 Supplier of Uranium Oxide 4 </li></ul><ul><li>2% of 2009 Sales Revenue 8 </li></ul><ul><li>#2 market share globally in Seaborne Iron Ore 1 </li></ul><ul><li>27% of 2009 Sales Revenue 8 </li></ul>Iron Ore <ul><li>Source: AME – 2008 </li></ul><ul><li>Source: CRU – 2008 </li></ul><ul><li>Source: AME – 2009 </li></ul><ul><li>Source: Company reports, Ux Consulting, World Nuclear Association on the basis that Rio Tinto markets all production from ERA and Rössing – 2009 </li></ul><ul><li>Source: Industry Statistics – 2008 </li></ul><ul><li>Source: TZMI estimates and Company reports on the basis that titanium slag products of Rio Tinto and BHP Billiton are currently marketed by Rio Tinto – 2008 </li></ul><ul><li>Source: Brook Hunt a Wood Mackenzie Company – 2008 </li></ul><ul><li>2009 Annual Report, calculated based on gross sales revenue before equity accounted units </li></ul><ul><li>#5 Market Share in Mined Copper 7 </li></ul><ul><li>11% of 2009 Sales Revenue 8 </li></ul>Copper Rio Tinto is one of the world's leading mining and exploration companies
    6. 6. 2009 Highlights
    7. 7. 2009 Highlights <ul><li>Highlights </li></ul><ul><li>Strong volume growth delivered in iron ore, copper and gold </li></ul><ul><li>Achieved year on year operating cost savings of $2.6 Bn </li></ul><ul><li>Aluminium business turnaround </li></ul><ul><li>Significant price recovery in second half </li></ul><ul><li>Key divestments completed </li></ul>Sourced from Rio Tinto 2009 full year results announced 11 February 2010 *H208 and H109 underlying EBITDA include $0.5 billion and $0.8 billion profit on disposal of undeveloped properties Momentum returned in the second half of 2009 $ MM 2008 2009 Movement Underlying EBITDA 22,317 14,312 -36% Underlying earnings 10,303 6,298 -39% Cash flow from operations 20,668 13,834 -33% Capital expenditure 8,488 5,356 -37% Net debt 38,672 18,861 -51%
    8. 8. 2009 Achievements Delivering against our commitments Target Achieved Reduce controllable operating costs by at least $2.5 Bn per annum in 2010 Controllable operating costs reduced by $2.6 Bn in 2009 Reduction in global headcount of 14,000 roles Global headcount reduced by around 16,000 in first half 2009 Reduce net debt by $10 Bn by end of 2009 Net debt reduced by $20 Bn by the end of 2009 through divestments, operating cash flows and rights issues proceeds Alcan post-tax synergies of $1.1 Bn after the end of 2009 Alcan post-tax synergy run-rate at $1.1 Bn at the end of 2009 Capital expenditure of $4 Bn in 2009 Strengthened balance sheet and improved outlook has allowed capital expenditure of $5.4 Bn in 2009
    9. 9. Net debt at end of period ($ Bn) The balance sheet has been recapitalised and refinancing risk has been mitigated Leverage and Liquidity Note: Debt maturity profile is as at 31 December 2009. $4 Bn of the 2012 maturity was repaid in January and February 2010 Gross debt maturity profile ($ Bn) $4bn repaid in Jan & Feb 2010
    10. 10. 2009 – Sources & Uses of Cash Interest – $1.1 Bn 2009 full year cash flows ($ Bn) Rights issue proceeds – $14.8 Bn Disposal proceeds and other inflows – $2.4 Bn Cash flow from operations – $13.8 Bn Reduction in net debt – $19.8 Bn Tax – $3.1 Bn Dividends – $0.9 Bn Other – $0.7 Bn Capex – $5.4 Bn $20 Bn used to strengthen the balance sheet of which a net $14.8 Bn was raised from rights issues
    11. 11. Progress on Divestments Significant cash generation from divestment of non-core assets 2010 2.0 Alcan Packaging global pharma, tobacco, food Europe and Asia, Vickery, Asset Price ($ Bn) Completed Greens Creek, Cortez, Kintyre, other 3.1 2008 Ningxia, sundry exploration properties 0.2 Corumbá and potash assets 1.7 Jacobs Ranch 0.8 2009 Cloud Peak Energy (52%) 0.7 Alcan Engineered Products Composites 0.3 Alcan Packaging Food Americas, Maules Creek 1.5 Total completed 10.3 Note: All amounts represent gross proceeds before tax and costs of sale
    12. 12. Rio Tinto credit ratings 1 <ul><li>1. A rating is not a recommendation to buy, sell or hold securities, and may be subject to revision, suspension or withdrawal at any time by the assigning rating agencies </li></ul><ul><li>2. Standard & Poor’s Ratings Direct February 5, 2010 – Rio Tinto </li></ul><ul><li>3. Moody’s Investors Service Rating Action July 10, 2009 – Rio Tinto </li></ul><ul><li>Fitch Ratings February 19, 2010 – Rio Tinto (rating not solicited by Rio Tinto) </li></ul><ul><li>DBRS Press Release December 3, 2009 – Rio Tinto </li></ul>Stable F2 A- Fitch 4 Stable P-2 Baa1 Moody’s 3 R1 Low A-2 Short-term A Low BBB+ Long-term DBRS 5 Standard & Poor’s 2 Stable Stable Outlook
    13. 13. Economic Outlook
    14. 14. Global consumption of leading Rio Tinto commodities Indexed, 2000=100 Note: cf trend of 3-6 % growth per annum for most other metals . 1 Brook Hunt a Wood Mackenzie Company Aluminium Iron Ore Copper <ul><ul><li>Increasing urbanisation rates support positive longer term view </li></ul></ul><ul><ul><li>Growth in non-OECD markets will support higher prices over the longer term </li></ul></ul><ul><ul><ul><li>China is key but India is set to follow </li></ul></ul></ul><ul><ul><li>Underlying demand trends over the next two decades indicate that the global mining industry will need to find and develop: </li></ul></ul><ul><ul><ul><li>One Pilbara system (BHPB + Rio Tinto) every 5 years </li></ul></ul></ul><ul><ul><ul><li>One Saguenay system every nine months </li></ul></ul></ul><ul><ul><ul><li>One Escondida every year </li></ul></ul></ul>Long Term Economic Outlook Metals demand expected to double over the next 15 – 20 yrs requiring a significant supply response Brook Hunt 1 Estimates CRU Estimates
    15. 15. 2010 Economic Outlook <ul><li>Most prices rose substantially over the second half of 2009 due to macroeconomic stimulus measures, pushing current prices above average levels from the previous cycle (2005-mid 2008) </li></ul><ul><li>More volatility can be expected in the months ahead based on speculation about monetary tightening in Asia and the extent of recovery in the OECD </li></ul><ul><li>Forecasters have become progressively more optimistic about future global growth in 2010 </li></ul><ul><ul><li>The IMF is predicting global growth of nearly 4% </li></ul></ul><ul><ul><li>Chinese GDP growth is expected to be in the 9-10% range </li></ul></ul><ul><ul><li>Economy-wide inventory rebuilding in the OECD should provide a short-term boost </li></ul></ul><ul><li>But the jury is still out on whether a sustainable recovery in private sector confidence and economic activity will emerge as the fiscal and monetary stimulus is removed </li></ul><ul><li>Taking a longer run perspective, our expectation remains that real long run prices and margins for almost all minerals and metals, will average higher going forward than in the decade preceding the most recent boom </li></ul>Strong demand to continue through 2010 but with some risks and volatility
    16. 16. 2010 Priorities
    17. 17. Priorities for 2010 <ul><li>Focus on operational delivery </li></ul><ul><li>Transformation of our aluminium business to continue </li></ul><ul><li>Pursue growth path through disciplined capital expenditure </li></ul><ul><li>Complete the Western Australian iron ore production joint venture </li></ul><ul><li>Prudent balance sheet management </li></ul><ul><li>Strengthen our relationship with China </li></ul>A stronger business, well-positioned for growth
    18. 18. <ul><ul><li>Invest in large, long life, low cost assets </li></ul></ul><ul><ul><li>Driven not by choice of commodity but by the quality of each opportunity </li></ul></ul><ul><ul><li>Long term sustainable development at the heart of everything the Group does </li></ul></ul>Long Term Strategy Rio Tinto’s strategy is to maximize long term return to shareholders
    19. 19. Key Mines and mining projects Smelters, refineries and processing plants remote from mine Aluminium Copper Diamonds Energy Iron ore Minerals Growth opportunities We have preserved our growth options
    20. 20. <ul><ul><li>Long term outlook remains strong </li></ul></ul><ul><ul><li>First production from Mesa A, Brockman 4 to follow shortly </li></ul></ul><ul><ul><li>Incremental capacity increases to add considerable value </li></ul></ul><ul><ul><li>Expansions to 225mtpa and studies to 230mtpa by 2012 underway </li></ul></ul><ul><ul><li>Evaluation of Pilbara 330mtpa expansion progressing well </li></ul></ul><ul><ul><li>Further Pilbara expansion options </li></ul></ul><ul><ul><li>Global growth options remain </li></ul></ul>Iron Ore Positioned to benefit from long term outlook for iron ore demand growth
    21. 21. Iron Ore – JV with BHP Billiton <ul><ul><li>Good progress towards formation of production joint venture </li></ul></ul><ul><ul><li>Estimated synergies totaling in excess of $10 Bn NPV </li></ul></ul><ul><ul><li>The Production JV is geographically limited to the parties’ WA Iron Ore operations </li></ul></ul><ul><ul><li>Both companies will independently market iron ore globally </li></ul></ul><ul><ul><li>Completion of JV remains subject to satisfaction of various conditions precedent, including approval from competition regulators </li></ul></ul><ul><ul><li>$5.8 Bn payment to be made by BHPB to Rio Tinto, subject to finalization adjustments </li></ul></ul><ul><ul><li>It will operate as a cost centre, with costs being shared 50:50 between BHPB and Rio Tinto </li></ul></ul>Western Australian production joint venture
    22. 22. <ul><ul><li>Simandou is an undeveloped iron ore deposit located in Guinea, West Africa </li></ul></ul><ul><ul><li>Rio Tinto currently owns 95% of the Simandou project, with International Finance Corporation (IFC) owning the remaining 5% </li></ul></ul><ul><ul><li>A non-binding MoU has been signed with Chinalco with the purpose of establishing a joint venture agreement for the development of the Simandou project </li></ul></ul><ul><ul><li>Under the proposed joint venture, Chinalco will acquire a 47% interest in the joint venture </li></ul></ul><ul><ul><li>Chinalco will earn its interest by providing $1.35 Bn to sole fund project development work over the next 2 - 3 years </li></ul></ul><ul><ul><li>The resulting ownership of the project will be Rio Tinto with 50.35% and Chinalco with 44.65% </li></ul></ul><ul><ul><li>The proposed joint venture covers the mine, plus rail and port infrastructure </li></ul></ul><ul><ul><li>Rio Tinto will be the manager of the joint venture </li></ul></ul><ul><ul><li>The nature of any regulatory and other approvals required will depend on the terms of the legal agreements which are under negotiation </li></ul></ul>Iron Ore – Simandou Memorandum of understanding to form Joint Venture signed with Chinalco
    23. 23. <ul><ul><li>Current activity focused on planning capex activities </li></ul></ul><ul><ul><li>Developing training plan </li></ul></ul><ul><ul><li>Options exist to increase stake in Ivanhoe, which holds 66% of the project </li></ul></ul><ul><ul><li>Conditions precedent (CP) progressing, 7 of 10 completed 1 </li></ul></ul><ul><ul><li>Capital expenditure of $758 MM approved by technical committee </li></ul></ul><ul><ul><li>Increasing workforce on ground in Mongolia </li></ul></ul><ul><ul><li>Capex spending rate to pick up upon completion of CP </li></ul></ul>Copper Oyu Tolgoi could support a 50 yr plus mine life 1 All 10 conditions precedent subsequently completed on 31 March 2010
    24. 24. Financial Management
    25. 25. Debt Maturity Profile Significant improvement in debt levels and maturity profile <ul><ul><li>Reduction in gross debt by $4.3 Bn since y/e 2009 </li></ul></ul><ul><ul><li>2012 debt maturity reduced from $9 Bn to $5 Bn </li></ul></ul><ul><ul><li>Liquidity strong at $11 Bn </li></ul></ul>Acquisition Facility D Bonds Other debt $4 Bn acquisition Facility D repaid Jan & Feb 2010
    26. 26. <ul><ul><li>Rigorous process to prioritise capital expenditure </li></ul></ul><ul><ul><li>Growth underpinned by continued investment in key projects (or M&A) </li></ul></ul><ul><ul><li>Capex adjusted to reflect current conditions </li></ul></ul><ul><ul><li>For 2010 </li></ul></ul><ul><ul><li>Capex expected to be at least $5 Bn (maintenance Capex of c. $2.1 Bn), with potential for further investment up to $1 Bn </li></ul></ul><ul><ul><li>Dividends of at least $1.75 Bn </li></ul></ul><ul><ul><li>Prudent balance sheet management </li></ul></ul>Uses of Free Cash Flow Recapitalized balance sheet allows disciplined investment in value adding growth