China Iron Ore 2011 New opportunities for industry growth Sam Walsh AO Chief executive, Iron ore & Australia 24 March 2011
Outline Rio Tinto strategy Demand fundamentals and supply constraints Pilbara operations and expansions to 333 Mt/a capacity International operations and opportunities 2
Rio Tinto joint ventures with Chinese partners Channar joint venture Bao-HI joint venture Simandou joint venture China Exploration joint venture Shares Rio Tinto 60% Sinosteel Channar Pty Ltd 40% Rio Tinto 54% Baosteel Australia Mining Company Pty Ltd - 46% Chalco 44.65% Rio Tinto 50.35% International Finance Corp 5% Chinalco 51% Rio Tinto 49% Key facts Unincorporated joint venture JV created on 16 November 1987, extended in December 2010 Production commenced in 1990 from the Channar mine Unincorporated joint venture JV created in 2002 Production commenced in 2004 from the Eastern Range mine Binding agreement signed in July 2010 Chalco will acquire the JV interests by providing US$1.35 billion on an earn-in basis over the next two to three years. Non-binding MOU Plan to select between three and five large area exploration projects with potential for additional regions to be added in a later date 3
Our strategy is consistent and unchanged Our core objective is 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 Driven not by choice of commodity but by the quality of each opportunity 4
China to continue driving steel growth Global steel consumption intensity 1950-2050 (kg/capita) Global economy led by emerging nations; Doubling of global urban population to over 6 billion Post WW2 reconstruction and industrialisation of North America, Japan and Europe 1970s energy price shocks Emergence of China 2008-2009 GFC Collapse of USSR Source: RTIO analysis 5
Many large Chinese provinces are just beginning to climb the steel intensity curve Chinese regional steel intensity Steel use per capita 2009 (kg) Beijing 18m Henan 100m Shandong 95m Shanghai 19m Guangdong 96m Sichuan 89m Guizhou 41m Bubble size reflects population of each of the 31 Chinese provinces Source: Global Insight China Regional Service 6
Chinese provincial crude steel production nearest global equivalent, 2010 Kazakhstan Nethe rlands South Africa Be lgium Egypt Brazil EU 15 S. Korea S. Korea Taiwan Switzerland France Netherlands y Italy Italy India Africa Iran Thailand Mexico Africa UK 50 Mt + 20-50 Mt 10 20 Mt 0.1 10 Mt 0 Mt Canada Iran Iran 7
China plans to rapidly expand infrastructure Length of railways Thousand km Length of expressways Thousand km +54% +85% 2007 2010 2020 2007 2010 2020 Airports Number of airports Capacity of container terminals Mn TEU +47% +153% 2007 2010 2020 2007 2010 2020 Source: CIA Factbook; S&P; World Bank; IWG; Difu; Yearbook of China Transportation and Communications 8
Building heights are increasing, dramatically impacting steel intensity Building Height Categories Floors, steel intensity (kg/m 2 ) < 100 F Steel intensity (low-end) Steel intensity (high-end) Examples Shanghai World Financial Center (101F) Jin Mao Tower (93 F) < 50 F < 32 F Zhongrong Jasper Tower (48F) Shanghai Times Square (30F) < 18 F < 12 F < 8 F Bank of China (15F) Peace Hotel (11F) Housing units, low-rise apartments, schools, etc Av erage steel intensity (range) 5-40 kg/m 2 40-50 50-70 60-100 80-120 110-220 kg/m 2 kg/m 2 kg/m 2 kg/m 2 kg/m 2 Source: Literature search, interviews, team analysis 9
Our business continues to grow rapidly in response to demand Rio Tinto Pilbara iron ore production (100% basis) (Million tonnes/year) Marandoo Mesa A Brockman 4 Western Turner Syncline Eastern Range West Angelas Hope Downs Nammuldi 1966 Tom Price 1990 Channar Tom Price Paraburdoo Brockman Channar Yandicoogina North Ltd acquisition 2007 Hope Downs 2010 35 years 1970 1980 1990 2000 2010 Brockman 4 Initial infrastructure investment at Tom Price has created a Pilbara iron ore province 10
Pilbara operations Australia s largest exporter of iron ore: 14 mines 1,400 km of rail 3 port terminals Large scale, long-life, lowcost assets Innovation and technology leaders Current capacity: 225 Mt/a Growth strategy: 333 Mt/a in 2015 11
Difficult environment for new supply Announced and completed production capacity (global) (million tonnes) 700 600 500 400 300 200 100 0 Announced for 2008-10 Completed by Q4 2010 Major challenges for iron ore projects include: Regulatory approvals Infrastructure requirements High capital intensity Environmental considerations Certain Probable Possible Others Rio Tinto 600 500 400 300 200 100 0? Announced for 2010-12 Completed by 2012 Source: UNCTAD, Rio Tinto analysis 12
Delivering Australia s largest fully integrated mining project Expansion Description Total capex Capex/t (Mt) 100% basis (US$/t) (US$m) Dampier systems efficiencies (complete) 5 Port improvement w orks. 91 18 Dampier incremental (approved and underw ay) Cape Lambert expansion #1 approved and underw ay 5 Increase shiploading capacity and associated rail stock. 53 Dredging contracts and long lead items to achieve 333 Mt/a. Port and rail infrastructure w orks to achieve 283 Mt/a. Mine capacity (Brockman 4, Western Turner Syncline) 230 46 990 3,100 1,100 Cape Lambert expansion #1 unapproved Mine capacity (Greater Nammuldi) Pow er, tow n and other infrastructure ~ 1,600 ~ 800 Cape Lambert expansion #2 - unapproved 50 Port, rail and other infrastructure Mine capacity ~ 3,200 ~ 3,700 Rio Tinto 100% for 113 Mt Total capex ~ 14,800 ~ 130 Rio Tinto share for 113 Mt ~ 105 *Estimates as at November 2010 13
Achieving the pathway to 333 Mt/a with options for further growth Pilbara port capacity (million tonnes, 100% basis) Options to achiev e 433 Mt/a Car Dumpers (x2) 333 283 Existing CLA Port 1.8 km 2.5km 220 225 230 80 80 80 133 183 383 433 Tug harbour 140 145 150 150 150 2 nd 50 Mt/a 1 st 53 Mt/a 1.8 km 2010 2011 2012 2013 2015 1 Potential 2 Dampier Cape Lambert Each berth 400 metres Note: Schematic is a perspective view of Cape Lambert B looking to the south. 14
Mine and rail developments to support 333 Mt/a Recently completed: Mesa A Brockman 4 Western Turner Syncline Recently approved: Hope Downs 4 Brockman 4 Phase II Western Turner Syncline II Marandoo extension Currently under review: Nammuldi Expansions 15
Scope of work for +103 Mt/a 1 st 53 Mt/a 2 nd 50 Mt/a Port: Cape Lambert B (CLB) Rail Mines Infrastructure 1 car dumper Stockyard - 3 rows & 12 stockpiles 2 Stackers & 2 Reclaimers 1 Screen house 2 Berths & 2 Tugs Crossovers & Sidings 7 Mile maintenance facility upgrade ECP retrofit to pooled fleet 7 Consists (locos and cars) BS4 (Phase II) WTS (conveyor to TP) Nammuldi 2 nd stage Power - 2 turbines & transmission Accommodation FIFO & Houses Fuel, Explosives 1 car dumper Stockyard - 3 rows & 12 stockpiles 2 Stackers & 1 Reclaimers No Screen house 2 Berths & 1 Tug Emu to Cape Lambert Duplication Cape Lambert yard upgrade Greater efficiencies across pooled rail fleet 5 Consists (locos and cars) Silvergrass (Namm Phase II) BS4 (Phase III) Koodaideri Power - 2 turbines & transmission Accommodation - FIFO & Houses Fuel, Explosive 16
Expansions will build on our very solid track record Expansion projects (>A$300m) construction performance Ov er budget Behind schedule Under budget Ahead of schedule 17
Construction workforce requirements to peak at more than 7,000 18 Total Home Office and Site Resources
IOC: a further growth story IOC concentrate production (million tonnes, 100% basis) Further expansion options 50+ Reactivated expansion plans Approved US$678 million investment (Rio Tinto share US$398m) for first two stages of three-stage plan Increasing concentrate capacity by 5.3 Mt/a to 23.3 Mt/a in 2013 Further expansions planned 22.3 26.0 18.0 Main plant complex, Labrador City 19
Simandou: a world-class project in a world-class precinct Rio Tinto-led JV to develop and operate Simandou signed with Chalco in July 2010 Production planned to commence in five years Current spend is about US$20m per month Well-established project team in Guinea, Europe and Australia around 1,500 staff and contractors Resource of 2.25 billion tonnes of high grade ore Political transition offers renewed opportunities for disputed tenure resolution *Rio Tinto (50.35%); Chalco (44.65%); International Finance Company (5%). 20
Orissa: joint venture participation in another world-class iron ore province First global miner directly participating in India s mining sector Progress being made on State approvals on partners Joint Venture Agreements Iron ore produced would primarily supply the rapidly expanding domestic markets Region is under-explored and underdeveloped and holds significant geological potential *Rio Tinto (51%), Orissa Mining Company (44%) & NMDC (5%). Orissa Mining Company is wholly State owned. 21
China Iron Ore 2011 Sam Walsh AO Chief executive, Iron ore & Australia 22 March 2011