1 1 Rio Tinto Financial community seminar May 2007 2 Cautionary statement For the purposes of the Forward-Looking Statements Safe Harbor provisions of the US securities laws This presentation contains statements which constitute forward-looking statements within the meaning of the US securities laws. Such statements include, but are not limited to, statements with regard to capacity, future production and grades, projections for sales growth, estimated revenues and reserves, targets for cost savings, the construction cost of new projects, projected capital expenditures, the timing of new projects, future cash flow and debt levels, the outlook for minerals and metals prices, the outlook for economic recovery and trends in the trading environment and may be (but are not necessarily) identified by the use of phrases such as “will”, “expect”, “anticipate”, “believe” and “envisage”. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future and may be outside Rio Tinto’s control. Actual results and developments may differ materially from those expressed or implied in such statements because of a number of factors, including 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 those factors set out under Risk Factors in Rio Tinto’s Annual Report on Form 20-F for the year ended 31 December 2005 filed with the U.S. Securities and Exchange Commission.
Transcript
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1
Rio Tinto Financial community seminar
May 2007
2
Cautionary statementFor the purposes of the Forward-Looking Statements Safe Harbor
provisions of the US securities laws
This presentation contains statements which constitute forward-looking statements within the meaning of the US securities laws. Such statements include, but are not limited to, statements with regard to capacity, future production and grades, projections for sales growth, estimated revenues and reserves, targets for cost savings, the construction cost of new projects, projected capital expenditures, the timing of new projects, future cash flow and debt levels, the outlook for minerals and metals prices, the outlook for economic recovery and trends in the trading environment and may be (but are not necessarily) identified by the use of phrases such as “will”, “expect”, “anticipate”, “believe” and “envisage”.
By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future and may be outside Rio Tinto’s control. Actual results and developments may differ materially from those expressed or implied in such statements because of a number of factors, including 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 those factors set out under Risk Factors in Rio Tinto’s Annual Report on Form 20-F for the year ended 31 December 2005 filed with the U.S. Securities and Exchange Commission.
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3
Guy Elliott
Chief Financial Officer
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Presentation Outline
Hydrogen Energy
Guy ElliottIntroduction
Rio Tinto Uranium Interests
Preston / GuySummary / Other Rio Tinto items
Rio Tinto Uranium: Sales and Marketing
Uranium Market
Uranium and the Fuel Cycle
Preston ChiaroOverview Rio Tinto Energy
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5
Preston Chiaro
Chief Executive Energy
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Presentation Outline
Hydrogen Energy
Guy ElliottIntroduction
Rio Tinto Uranium Interests
Preston / GuySummary / Other Rio Tinto items
Rio Tinto Uranium: Sales and Marketing
Uranium Market
Uranium and the Fuel Cycle
Preston ChiaroOverview Rio Tinto Energy
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7
Revenue - by commodity
Iron Ore27%
Energy17%
Industrial Minerals11%
Copper 21%
Aluminium14%
Other 5%
Diamonds 3%
Gold 2%
2006 data under IFRS
Earnings - by commodity
Iron Ore29%
Energy 10%
Industrial Minerals 3%
Copper, Gold& Moly 45%
Aluminium10%
Diamonds 3%
The Energy Group is a significant contributor to Rio Tinto
Energy Group earnings in US$m Energy Group earnings in US$m –by product (2006)
177
490
44
050
100150200250300350400450500
US coal
Australian coal
Uranium
5
9
Presentation Outline
Hydrogen Energy
Guy ElliottIntroduction
Rio Tinto Uranium Interests
Preston / GuySummary / Other Rio Tinto items
Rio Tinto Uranium: Sales and Marketing
Uranium Market
Uranium and the Fuel Cycle
Preston ChiaroOverview Rio Tinto Energy
A major new business opportunity
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11
The climate change science “debate” is over; it is time to develop solutions
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Positioned to profit from climate change developments
• Rio Tinto supports global efforts to address climate change
• The energy future will be carbon constrained
• Business opportunities will be found in coal gasification and the proactive management of its carbon content
• Over time, Hydrogen Energy will comprise a growing part of Rio Tinto’s coal portfolio
• Clean coal and uranium assets position Rio Tinto to profit from the advent of a low carbon energy future
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13
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Existin
g
Natural
Gas
O-C
Natural
Gas
C-C
Nuclear
Biomass I
GCCWind
Hydro
GG
E (t
CO
2-e
/ MW
h)
Photovolta
ic
Gas Renewables Nuclear
Advance
d
Coal fired power
CCS
CCS
Source: CISS, 2002
Life cycle assessment power generation emissions
14
Hydrogen Energy will add value to coal and mitigate risk
• Strong partnership with complementary skills and outlook
• Value created from– Addressing climate change issue and opening opportunities for coal– Leveraging assets and market position
• Risk mitigated by– Strong partner with downstream expertise – Measured entry project by project– Conforming to usual rigorous investment process
• Both parties believe in pro-actively shaping government policy to support and enable these projects
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15
Gasification facilitates the production of low carbon energy by allowing for cost-effective management of CO2
Carson Hydrogen Power Project
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Presentation Outline
Hydrogen Energy
Guy ElliottIntroduction
Rio Tinto Uranium Interests
Preston / GuySummary / Other Rio Tinto items
Rio Tinto Uranium: Sales and Marketing
Uranium Market
Uranium and the Fuel Cycle
Preston ChiaroOverview Rio Tinto Energy
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17
The uranium fuel cycle is long and complex
Reprocessed fuel
Access, Exploration & Development
Mining Conversion EnrichmentFuel
FabricationPower
GenerationReprocessing
& Storage
Using reprocessed mixed oxide (MOX) fuel
Extraction ofnatural U3O8
Conversion of U3O8 into UF6(also to UO2) for CANDU reactors)
Manufacturing of rods, pellets and fuel assemblies
• Extraction ofused fuel
• Separation of components
• Reprocessing of uranium and plutonium for further fuel use
• Long-term storage of waste* Low Enriched Uranium – Typically 3–5% U235
** Highly Enriched Uranium – >20% U235
Enrichment of U235 content from 0.7% to 3–4% by gaseous diffusion or centrifuge
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Global uranium is supplied from “primary” and “secondary” sources
Other West8%
Kazakh13%
Russia8%
Other East10%Canada
26%
Australia19%
Namibia8%
Niger8%
Russian Exports
38%
Mox RePu15%
HEU Feed30%
Other8%
USEC UF6
9%
Secondary Supply 2006 (25,350 tonnes U3O8, 35%)
Primary Supply 2006 (46,530 tonnes U3O8, 65%)
Source: WNA
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19
Is nuclear power poised for a renaissance?
• Energy demand• Security of energy supply• Safety• Climate change
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Presentation Outline
Hydrogen Energy
Guy ElliottIntroduction
Rio Tinto Uranium Interests
Preston / GuySummary / Other Rio Tinto items
Rio Tinto Uranium: Sales and Marketing
Uranium Market
Uranium and the Fuel Cycle
Preston ChiaroOverview Rio Tinto Energy
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Uranium supply est. 2006 (tonnes U3O8)Top 10 by country (2006) Top 7 by company (2006)
Source: WNA, Rio Tinto Uranium databook
Few major players in the uranium industry
11,612
8,936
6,169
3,674
3,856
3,620
2,676
1,950
953
635
3,357
Canada
Australia
Kazakhstan
Niger
Russia
Namibia
Uzbekistan
USA
Ukraine
South Africa
Other
Top 6share =
80% 5,813
5,267
4,009
3,382
2,677
8,321
9,479Cameco
Rio Tinto
KazAtomProm
Areva
TVEL
BHP Billiton
Navoi
[Note: Rio Tinto figure – 100% production ]
Top 7share =
83%
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0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
19701972
19741976
1978
1980
1982
19841986
19881990
1992
1994
1996
19982000
20022004
Others
USA
South Africa
Niger
Namibia
Gabon
France
Canada
Australia
Source: WNA
Historical mined production volumes have varied sharply over timeWestern Supply, Primary Uranium Production (tonnes U3O8)
Reactor requirements
Shortfall mined production
12
23
159 10 9
4052 67
75
86
11
22
0
Uranium supply, 000 tonnes
WNA reference Demand case
RussianLEU exportRussian HEU
Other
2004 2010
2619
11 10
66
7178
85
Secondary supplies are expected to decline, requiringmined supply to increase
Source: WNA
– Russian HEU
agreement to expire in
2013 though may
displace mined uranium
from Russian market
– U.S. DoE material will
likely be metered into
the market over time
and will not be price
suppressive
Mined uranium requirement
Total Secondary Supply
2015 2020
24
Nuclear reactors in operation – is a renaissance under way?
Japan1 under construction, 11 planned
Russia3 reactors under construction, 8 planned, 18 proposed
China5 being constructed13 planned50 proposed
USA/ EuropeInterest for new-
build growing
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25
Uranium demand vs. Reference Case Supply (tonnes U3O8)
Secondary material
Western existing mines
New Western mines
Non-Western mines
WNA ReferenceWNA High
0
20,000
40,000
60,000
80,000
100,000
120,000
2007 2009 2011 2013 2015 2017 2019
Source: World Nuclear Association/Rio Tinto
The market is likely to be tight to 2012 and potentially beyond
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$0
$20
$40
$60
$80
$100
$120
68 71 74 77 80 83 86 89 92 95 98 01 04 07
US$
/ lb
U3O
8
Spot price (nominal) Spot price (real 2006 $)
Uranium spot prices have risen spectacularly
Source: Ux Consulting
May 2007 spot price ($120) - a new high
May 2007 spot price ($120) - a new high
Key market drivers:• Supply situation very tight
– Production flat– Secondary supply
reduced• Increased demand• Additional demand
– Investors/Hedge funds• Requirements are
increasing ahead of production
Key market drivers:• Supply situation very tight
– Production flat– Secondary supply
reduced• Increased demand• Additional demand
– Investors/Hedge funds• Requirements are
increasing ahead of production
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Presentation Outline
Hydrogen Energy
Guy ElliottIntroduction
Rio Tinto Uranium Interests
Preston / GuySummary / Other Rio Tinto items
Rio Tinto Uranium: Sales and Marketing
Uranium Market
Uranium and the Fuel Cycle
Preston ChiaroOverview Rio Tinto Energy
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Uranium sales contracting
• Rio Tinto Uranium (RTU) is the specialised marketing arm, established in October 2005, to market 100% of production from Rössing and ERA
• Sales are negotiated several years in advance of supply in the form of long-term contracts
– Majority of material is sold through long-term contracts– Typical contract terms 3-5 years – Lead-time on deliveries 2-4 years
• The high capital costs associated with the development of nuclear power plants mean that they cannot afford to be without fuel, so they negotiate long-term contracts many years in advance
• RTU balances its contract in a portfolio, adopting different pricing strategies according to prevailing market conditions
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Uranium contracting has changed in a very short time
Contracting pre-2006
Fixed prices
Ceilings/ no floors
Base escalated with some market price referencing
Lagged pricing
Volume / timing flexibilities (buyer)
Change in market
conditions
Contracting post-2006
Market related pricing
No ceilings/ competitive floors
Some base escalated pricing
No lagged pricing
Volume flexibilities (seller)
30
Less profitable ‘legacy’ contracts are disappearing from the portfolio
0%
20%
40%
60%
80%
100%
2007 2009 2011
Shar
e of
pro
duct
ion
Contracts signed pre-2006
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Presentation Outline
Hydrogen Energy
Guy ElliottIntroduction
Rio Tinto Uranium Interests
Preston / GuySummary / Other Rio Tinto items
Rio Tinto Uranium: Sales and Marketing
Uranium Market
Uranium and the Fuel Cycle
Preston ChiaroOverview Rio Tinto Energy
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ERA first
production
1981
ERA first
production
1981
Rio Tinto has a long track record of uranium supply
1920’s 1960’s
Rössing deposit first
discovered 1920
Rössing deposit first
discovered 1920
Jabiluka exploration
began 1968, uranium
discovered 1969
Jabiluka exploration
began 1968, uranium
discovered 1969
ERA acquired
Jabiluka
ERA acquired
Jabiluka
Kintyre, uranium
discovered 1985
Kintyre, uranium
discovered 1985
ERA exploration
began 1968, uranium
discovered 1969
ERA exploration
began 1968, uranium
discovered 1969
Rössing began
production 1976
Rössing began
production 1976
Jabiluka Care and Maintenance
Agreement signed 2005
Jabiluka Care and Maintenance
Agreement signed 2005
1970’s 1980’s 1990’s 2000’s 2010’s
Rio acquired
ERA from
North 2000
Rio acquired
ERA from
North 2000
1950’s
Mary Kathleen
discovered 1955
Mary Kathleen
discovered 1955
Mary Kathleen
closed 1965
Mary Kathleen
closed 1965
Mary Kathleen
reopened 1976
closing 1982
Mary Kathleen
reopened 1976
closing 1982
Rio Tinto, formerly RTZ,
acquired Rössing 1966
Rio Tinto, formerly RTZ,
acquired Rössing 1966
Rum Jungle begins production
Rum Jungle begins production
Rum Jungle closes 1971
Rum Jungle closes 1971
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Rio Tinto has a substantial uranium mineralisation position
RössingKintyre
McArthur River
Cigar Lake
Ranger
Olympic Dam
Jabiluka
Green Mountain/Sweetwater
Imouraren
Dominion
Cominak
Yeelirrie
Somair
Kharassan
Inkai
Langer Heinrich
Sissons Schultz
Muyunkum
Valhalla
Cree LakeSaddle Hills
Tortkuduk
CamecoRio TintoArevaKazAtomProm
BHP Billiton
SXR Uranium One
Summit ResourcesMarathonWestern Prospector
Mount GeePaladin
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Worldwide uranium exploration
• Aggressive uranium growth strategy focused on near-mine and greenfield exploration.
• Total Group 2007 uranium exploration expenditure approx. US$40M.
• Rössing and Ranger near-mine exploration has identified mineralisation to support potential for expanded production.
• Kintyre and Sweetwater offer medium-term development opportunities
• Actively seeking greenfield exploration and junior partnership opportunities.
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35
Rössing is located in the dry, coastal region of Namibia
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Status of operations – life extension is under way
• Large scale open pit
• Low grade granitic ore (Alaskite)
• Extension approved in Dec. 2005 -$112m investment underway
• Current operations ~3,500 tonnes U3O8 per year
• Further development potential now being investigated
• Likelihood of further mine life extension
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2001 2002 2003 2004 2005 2006
(ton
nes
U3O
8)
Total annual Rössing uranium production
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37
Rössing main pit has further potential
Phase 2 will Phase 2 will extend mine life extend mine life to 2017to 2017
Existing miningExisting miningareas will be areas will be exhausted by 2009exhausted by 2009
Additional Additional reserves stillreserves stillto be developedto be developed
38
Radiometric footprint of Rössing provides options
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39
Rössing has exploration prospectivity
• Investigating the potential of two anomalies
– SK anomaly, located 1.5km east of the current pit
– SH anomaly, located 2.5km west of the current pit
• Both close to current pit with a good chance of conversion to mineable targets
40
Rössing – advantages and challenges
• 31 years of uranium mining experience in Namibia• Strong relationship with the Government of Namibia• Offers geographic diversity (reliable non Canadian/Australian supply)• Large resource on existing lease – expansion capability• Availability of skilled workforce• Water and power infrastructure• Low grade, high cost operation• Remote location - limited shipping options
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41
Energy Resources Australia (ERA)
42
ERA Ranger Mine
• Ranger mine is situated on Aboriginal land, and is surrounded by, but separate from, the world heritage listed KakaduNational Park, approximately 250km east of Darwin
• First drummed production in 1981
• Current life of processing extended to 2020
22
43
1 Km1 Km
Current Pit
Water evaporationpond
Previous pit
Magela Creek
Plant and infrastructure
Stockpiles
Ranger(Sept 2006)
44
Ranger operations
• Waste removal being accelerated to allow tailings storage
• Process plant throughput capacity of 2.4 million tonnes per annum
• Acid Plant: all sulphuric acid will be imported commencing 3Q 2007
• Storage and management of water is one of the biggest environmental challenges; a water treatment plant was constructed in 2005
• Mining due to cease in 2008, processing to continue until 2020
• 11,100 tonnes U3O8 added to reserves in October, 2006
• 41.8 million tonnes of stockpiled material at an average grade of 0.04% U3O8 not included in resources or reserves 0
2,000
4,000
6,000
'02 '03 '04 '05 '06
Uranium production (tonnes U3O8) - drummed
Source: ERA
Ore to waste (million tonnes)
0
5
10
15
20
'02 '03 '04 '05 '06
Ore
Waste
23
45
Recent rainfall has affected pond and open pit water levels
Pit 3 December 2006
Pit 3 March 2007
46
Ranger 3 exploration
Current Pit Shell
Operations Facilities
Ranger 3 Deeps
0 0.25
km
20072006
Ranger 3 Drill Holes
Inside the Road
S3P687
S3PD688
S3PD698
S3PD703S3PD705
S3PD708
Current Pit Shell
Operations Facilities
Ranger 3 Deeps
0 0.25
km
20072006
Ranger 3 Drill Holes
20072006
Ranger 3 Drill Holes
Inside the Road
S3P687
S3PD688
S3PD698
S3PD703S3PD705
S3PD708
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47
Ranger 3 drilling intersects
48
Pit 3 extension – preliminary design
Existing Pit Crest
25
49
ERA expansion opportunities – Ranger operations
• In October 2005, ERA announced an increase in reserves of 11,000tonnes from screening and processing of stockpiled material between 2014 and 2020.
• A Pit 3 extension study costing A$5M is currently underway. The extension will target 6,000 tonnes U3O8 of additional reserves and extend mine life from 2008 to 2011.
• Two other capital projects have also been approved for construction in 2007
– Laterite Treatment Plant – to produce 400 tonnes per annum from stockpiled clay material
– Radiometric Sorting Plant – grade manipulation plant, bringing forward 1,100 tonnes of production through 2008-13. It will act as a trial for further application of the technology to remaining low grade material
• Other ideas to increase output are also being considered
50
Jabiluka deposit• One of the largest undeveloped
uranium ore-bodies in the world
• Development target based on a shallow underground mine
• Long term care and maintenance agreement signed in early 2005
• Will only be developed with consent of Traditional Owners (MirarrGundjeihmi Aboriginal people)
• Improved dialogue with Traditional Owners
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51
ERA – advantages and challenges
• 26 years of uranium mining experience in the Northern Territory• World’s second largest uranium mine• Ownership of one of the world’s largest undeveloped uranium
resources• Additional on-site exploration activity currently underway -
encouraging results to date• Highly regulated operating environment• Water management (exposed to high intensity rainfall events)• Remote location – workforce retention, logistics• Culturally sensitive region
52
Sweetwater – a permitted mill in the USA
• Located in Sweetwater County, approximately 40 miles northwest of the town of Rawlins, Wyoming
• Mill originally shutdown in 1983• Fully permitted• Evaluating resources at a number of potential
mine sites• Decision as early as 2008
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53
Negotiations continue over Kintyre in Western Australia
• Discovered in 1984
• Situated on the edge of the Great Sandy Desert in the Eastern Pilbara Region, about 1,200 km NNE of Perth
•The Martu are the traditional owners in the region
•The Martu support the development of Kintyre
• Discussions progressing with a process agreed for reaching a commercial agreement
54
Kintyre deposits
• Geologically complex vein style mineralisation• Potentially amenable to selective mining• Mineralisation occurs in several bodies 50 to 300m below surface
KintyreWhaleEast Whale
NeradaPioneer
Kintyre deposits
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Potential Rio Tinto production* might grow assuming:
0
5,000
10,000
15,000
20,000
25,000
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Prod
uctio
n (to
nnes
U3O
8)
• Current and new production from Ranger and Rössing
• Potential production from Jabiluka, Kintyre and Sweetwater
Range of potential
production
*100%, including minorities
56
Energy summary
• Climate change is transforming the energy landscape
• Hydrogen Energy opens new pathways to growth in coal
• Nuclear and uranium outlook is positive
• Substantial near term growth opportunities in uranium production
• Uranium is a key part of the Group’s Energy strategy
• Rio Tinto is well positioned for a carbon constrained future
29
57
Guy Elliott
Chief Financial Officer
58
Creating valuable options for Rio Tinto
• Focus on value creating option generation• Internal and external opportunities • Asset quality is the key • Trigger can be changing external environment
– Short term market opportunities– Long term price trends– Regulatory regimes
30
59
Numerous organic growth opportunities
Yarwun II Pilbara
>220 MT
Diavikunderground
CorumbáExpansions
Grasberg underground
Eagle nickel
Resolution copper
Simandouiron ore
PRC Argentina
La GranjaPeru
Abu Dhabi smelter
Advanced study stage
Hail Creek expansion +
Sulawesi nickelMurowa expansion
Kennecott land
IOC pellet plant +
Orissa iron ore
Kennecott moly + U/G
Chapudi coal
US coal
Indian diamonds
Alaska copper / Pebble
Deep Cortez Hills
ERA options
Conceptual and early stage
Brazilian bauxite
HIsmeltexpansion
Oyu Tolgoi
Rössing options
Sweetwateruranium
Kintyre uranium
Yarwun III
Malaysian smelter
Hydrogen energy
Hydrogen energy
Hydrogen energy Mount Pleasant
60
Some substantial project investment decisions lie ahead
Potasio Rio ColoradoArgentinean potash
Pilbara iron ore beyond 220 MT
Yarwun II alumina refinery, Queensland
31
61
Kennecott Land is a major development opportunity
Kennecott Land owns 53% of all developable land in the Salt Lake valley
Daybreak upgrade from 14,000 homes to 21,000 homes last week
62
Conclusion
• Rio Tinto is continually creating valuable options– Near term uranium expansion – Hydrogen Energy – Iron ore beyond 220MT– Yarwun II, PRC– Kennecott Land
• Will seek to ensure value understood in the market
