Long Term Copper Fundamentals Expected To Remain Strong


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Long term copper fundamentals expected to remain strong, presentation by Andrew Harding, Rio Tinto Copper, 7 April 2010

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Long Term Copper Fundamentals Expected To Remain Strong

  1. 1. Rio Tinto Copper Andrew Harding, Chief executive Long term copper fundamentals expected to remain strong April 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>7 April 2010
  3. 3. It has been a rollercoaster ride . . . Indexed market performance over the last 36 months (January 2007 = 100) Source: Bloomberg, Global Insight CESCO 2008 CESCO 2009 CESCO 2010
  4. 4. Our large, long-life, low-cost asset base is resilient to volatile prices Escondida Kennecott Utah Copper Grasberg “ More than 100 years of mine production and much more to come” World’s tenth largest copper producer First quartile net unit cash costs 1 10 “ Top ten gold producer with significant underground opportunities” World’s second largest copper mine First quartile net unit cash costs 1 2 “ Further options through brownfield exploration and sulphide leach technology” World’s largest copper mine Second quartile net unit cash costs 2 1 Source: Brook Hunt a Wood Mackenzie Company
  5. 5. There is significant scope for demand growth over the medium to long-term . . . Note: Expenditure profiles are based on Rio Tinto estimates of global income and consumption relationships and Brook Hunts long term price forecast. Source: Global Insight, Brook Hunt a Wood Mackenzie Company , McKinsey, Rio Tinto Consumption per capita will increase significantly over the next decade Global population distribution Consumption per capita ($) GDP per capita ($ thousands) Copper 2020 Global average 2010
  6. 6. . . . while constraints to supply are likely to continue Higher costs? Greater depth Higher sovereign risk Notes: 1. Country risk categories are derived from Global Insight’s Country Risk Rankings: low risk 1 – 2.3; medium risk 2.3 – 3.6 and; high risk 3.6 – 5.0 . 2. Discoveries is defined as all new discoveries with over 4 million tonnes of contained copper. 3. Cash costs are a weighted average based on paid copper production from Brook Hunt’s Copper Costs: Mines and Projects 2009 Edition Study. Source: Global Insight, Brook Hunt a Wood Mackenzie Company , Rio Tinto Location of copper supply 1 C1 Composite Cash Costs by mining method 3 (2008, c/lb) Indicative depth of discoveries 2 Completely Exposed Covered Blind Lower Risk Medium Risk Higher Risk
  7. 7. The market is forecast to remain tight through to 2020 New supply is particularly dependant on greenfield projects Source: Rio Tinto, Brook Hunt a Wood Mackenzie Company Mined Copper (Mt) 2009 5% 4% 3% Demand CAGR scenarios for mined production 70% greenfield Probable Highly probable Existing & committed
  8. 8. Rio Tinto has an unmatched pipeline of greenfield projects Notes: 1. Copper assets include those in Pre-Production or Feasibility and the ten largest assets with Active Reserves Development as defined by MEG. 2. Rio Tinto’s owns 100% of La Granja, 55% of Resolution, has a 22.4% interest in Ivanhoe Mines Limited (with the option to increase to 44%) who own 66% of Oyu Tolgoi and a 19.8% interest in Northern Dynasty Minerals Limited who own 50% of Pebble. Deposit data for La Granja, Resolution and Oyu Tolgoi is from the JORC compliant ore reserves and resources statement outlined in the 2009 Annual Report, pp. 68-77. Pebble deposit data is 43-101 compliant, derived from the “Updates Mineral Resource Estimate…” news release dated 01/02/2010. Source: Metals Economics Group, Rio Tinto, Northern Dynasty Bubble size denotes size of asset (contained Cu) Resolution La Granja Oyu Tolgoi Pebble Comparison of undeveloped copper assets 1 Grade (%Cu) Reserves and resources (Mt) Rio Tinto interests
  9. 9. Of these projects, Oyu Tolgoi will be the first to commence production The best undeveloped copper-gold project in the world <ul><li>Average production of 450 kt of copper and 330 koz of gold. </li></ul><ul><li>Top ten copper producer and a significant gold producer . 1 </li></ul>Notes: 1. Ranked using 2013 Brook Hunt mine production data and Oyu Tolgoi’s full capacity production. Source: Brook Hunt a Wood Mackenzie Company , Rio Tinto Large Long life Low cost <ul><li>Over 3.3 billion tonnes of resources in addition to a 930 million tonne reserve. </li></ul><ul><li>Potential for a 50 year mine life. </li></ul><ul><li>Highly prospective region with further exploration potential. </li></ul><ul><li>Significant by-product credits from gold and molybdenum. </li></ul><ul><li>Expected to have first quartile net unit cash costs. </li></ul>
  10. 10. Regional benefits Local benefits Rio Tinto is the ideal partner to develop Oyu Tolgoi Our landmark bipartisan agreement with the Mongolian Government <ul><li>Bipartisan agreement commits to supporting the development of the South Gobi region. </li></ul><ul><li>90% of direct employees will be Mongolian. </li></ul><ul><li>4000 Mongolians have already worked on the project. </li></ul>National benefits <ul><li>Oyu Tolgoi is expected to contribute around 30% of Mongolia’s gross domestic product. </li></ul>Source: Rio Tinto
  11. 11. <ul><ul><li>Addressing climate change </li></ul></ul><ul><ul><li>Protecting biodiversity </li></ul></ul><ul><ul><li>Promoting conservation </li></ul></ul><ul><ul><li>Healthy workplaces </li></ul></ul><ul><ul><li>Sustainable safety culture </li></ul></ul><ul><ul><li>Long-term community benefits </li></ul></ul><ul><ul><li>Engaging stakeholders </li></ul></ul><ul><ul><li>Honesty and transparency </li></ul></ul><ul><ul><li>Respecting people and communities </li></ul></ul><ul><ul><li>Socio-economic development </li></ul></ul><ul><ul><li>Supply chain management </li></ul></ul><ul><ul><li>Disciplined financial performance </li></ul></ul>Social well-being Environmental stewardship Economic prosperity Strong governance Our focus on sustainable development 14.2 Why we are a partner of choice for governments Source: Rio Tinto
  12. 12. ‘ Visible’ $119 million Note: The numbers shown include Rio Tinto’s share of Equity Accounted Unit’s . Source: Rio Tinto Socioeconomic contributions <ul><li>Community programmes </li></ul><ul><li>Benefit receiving trusts </li></ul><ul><li>Management costs </li></ul>Our ‘visible’ socioeconomic contribution is just the tip of the iceberg <ul><li>Wages & employee benefits </li></ul><ul><li>Taxes & royalties </li></ul><ul><li>Reinvested funds </li></ul><ul><li>Dividends & interest </li></ul><ul><li>Outside interest </li></ul><ul><li>Payments to suppliers </li></ul>‘ Invisible’ $45 billion Local Regional National International
  13. 13. <ul><li>Two new tunnelling concepts that are more productive and cost effective than traditional methods. </li></ul><ul><li>Integrated shaft boring machinery with the potential to dramatically reduce development time. </li></ul>Technology and innovation driving our competitive advantage “ Rio de Cobre” Technology Alliance The Mine of the Future TM initiative <ul><li>Safer, lower cost production with a lower environmental impact. </li></ul><ul><li>Investigate step change technology. </li></ul>Rio Tinto and CODELCO are pursuing next generation copper mining and processing technology. Rio Tinto and its partners are developing new equipment and systems for underground mines. Source: Rio Tinto
  14. 14. A truly global partner Mines and mining projects Smelters, refineries & processing plants remote from mine Note: Shaded areas denote countries where Rio Tinto has a presence through operations, offices or exploration. Source: Rio Tinto Rio Tinto Copper Group Other Rio Tinto Africa Europe South America North America Australasia Asia