credit suisse asia_rio tinto
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Credit Suisse
2008 Asian InvestmentConference3 April 2008
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Tom Albanese
Chief Executive Officer
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Introduction
Continued value delivery for shareholders
2007 results delivered records across the board: production, EBITDA,
underlying earnings, cash flow from operations and capital investment
Outlook remains excellent in Rio Tintos key products
Alcan transaction logic clear and confirmed, integration is well underway
Growth and value upside
Unsolicited and pre-conditional acquisition offer received from BHP given
careful consideration and rejected on value grounds
Offer fails to recognise Rio Tintos outstanding assets and prospects
Insufficient incentive to deviate from proven path to value creation
Clear strategy and well-balanced portfolio of high quality assets with
exceptional growth opportunities
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Strong position in metals well placed to benefitfrom global growth
Source: Global Insight for population distribution; Rio Tinto estimates for commodity expenditure profiles.Note: Expenditure profiles are based on Rio Tinto estimates of global income and consumption relationships and average real terms prices between 1990-2006. Iron oreand hard coking coal expenditure calculated based on crude steel demand projections, assuming all met by blast furnace production at historic average export prices.
0%
5%
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15%
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25%
30%
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,0000
10
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Aluminium
Expenditure per capitaUS$ (2007 terms)
2007 population distribution
Copper
World average income per capita2007
GDP per capita (in 2000 US$)
2022
Iron ore
Nickel
Hard coking coal
ChinaIndia
Consumption of metals increases in line with increasing income
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Rio Tinto has a well balanced portfolio
Iron ore, 29%
Diamonds &
Minerals, 5%
Energy, 5%
Copper, gold,
moly, 38%
Rio Tinto
Alcan, 23%
2007 proforma underlying earnings by product group1
Aluminium takes its placealongside Iron Ore and Copperas a sector leader
Strong industry position andhigh asset quality in each metal
Well balanced portfoliopositioned for Chinese growth
Total 2007 pro forma product group underlyingearnings1 of $9.2 billion
1 Excludes other items such as corporate and interest costs. Pro forma includescontribution of Rio Tinto Aluminium as well as Alcan from January 1, 2007. Excludes AlcanPackaging and Engineered Products divisions.
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and a stable platform for global growth
2007 revenues1 = $41bn
Rio Tinto Group 2007 pro forma revenues by region of origin
Australia
40%
2% Asia
Europe12%
8%S. America5%Africa
NorthAmerica
33%
1. Data under IFRS. Includes Alcan revenues from January 1, 2007.Excludes Alcan Packaging and Engineered Products.
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Source: AME for aluminium, copper and iron ore. 2001-2006 oil data source is BP Statistical Review of World Energy 2007Note: Consumption data for aluminium, copper and iron ore represents "apparent" consumption rather than actual consumption and is determined by:apparent consumption = domestic production + imports - exports - change in stocks (where available) Forecast available only 2Seaborne Data for 2007 and 2011 is calculated by applying expected consumption growth rates from IEA (International Energy Outlook) tohistorical data
40%
20%
0%
20%
40%
60%
AluminiumAluminium CopperCopper Iron ore2Iron ore2
China is the new force in commodity demand
`2001 2002 2003 2004 2005 2006 2007E 2011E
+ Chinese share increasing
- US share declining
Oil3Oil3
Share of global consumption
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Direct trade effects on China from aUS slowdown are expected to be small
Modelling suggests Chinese GDP would fall by less than 1% if US
demand were to slip to recessionary levels
Domestic demand remains the primary contributor to GDP
Source: Global Insight estimates, China Customs Statistics
Domestic
82%
Exportednon-US
12%
Exportedto US 6%
GovernmentSpending
14%
Net Trade
6%
Consumption35%
Investment45%
Chinese copper tube production 2007Composition of Chinese GDP 2007
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80
100
120
140
160
180
200
0 5 10 15 20 25 30 35
Months forward
Index(spot=100)
Copper
Aluminium
Iron ore
Nickel Oil
Source:a) Iron ore 71% settlement for CVRD Carajas fines effective from 1/4/2008 then average of analyst prices for subsequent marketing years, based on Australian finesFOB benchmark price to Asia
b) Aluminium, nickel, oil, copper - Ecowin, LME, NYMEXc) Based on spot and forward prices at 26 March 2008
Market outlook suggests stronger forward pricesfor aluminium and iron ore
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Rio Tinto Iron Ore
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Seaborne iron ore importsMillion tonnes
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600
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1500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Rest ofWorld
China
12
China is forecast to double iron ore imports inthe next 6 years
Source: Actual data GTIS, CBI. Forecast data - Rio Tinto estimates
Actual Forecast
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Spot iron ore prices into China indicatesignificant upside
CFR iron ore prices into China (US$/t, dmt)
13
Source: CCCMC and Rio Tinto analysis (Indian exports), benchmark prices and Clarkson spot freight rates (Australia).
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Jan 07 Feb 07 Mar 07 Apr 07 May 07 Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07
US$
/t
Australia CFR China
Indian exports
Spot
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0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 850 900 950 1000 1050 1100
USD/tonne CFR
pa
USD/tonne CFR
Rio TintoPilbara
BHPBPilbara
Mine-to-mouthChineseproducers
Cumulative production (million tonnes)
Rio Tinto has a highly competitive position in theiron ore industry
Source: CRU (mining operating costs), Tex report (spot freight rates), Rio Tinto estimates
2007 iron ore cost curve, delivered to China at spot freight rates
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Rail and port infrastructure positions Rio Tintoas premier supplier
Source: Geological Survey of Western Australia - Iron Ore Deposits of the Pilbara Region
Dampier incorporating: Parker Point East Intercourse Island
Mine, rail and portinfrastructure
Red Rio Tinto
Blue BHPBilliton
Green FMG
Cloud Break
Christmas Creek
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Rio Tinto global iron ore production
Conceptual pathway to over 600 million tonnesper annum
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500
600
2007 2008 2009 2010 2011 2012 2013 Phase 1 Phase 2 Phase 3
milliontonnes
Pilbara
IOCCCorumb
Simandou
Phase 1: Pilbara 320, Simandou 70, IOC/Corumb 40 pre-feasibilityPhase 2: Pilbara 370, Simandou 120 conceptualPhase 3: Pilbara 420, Simandou 170 conceptual
430
530
630
Source: Rio Tinto estimates. Production on a 100% basis.
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Delivering on time and on budget
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20%
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60%
80%
100%
120%
Dampier Port to
116mtpa
Yandi to 52m tpa Dam pie r Port to
140mtpa
Hope Dow ns Cape Lambert to
80mtpa (forecast)
Under budget
Ahead of schedule
Over budget
Behind schedule
Budget Time
Source: Rio Tinto
Iron ore expansion projects (>$300m)
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Rio Tinto Alcan
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Primary aluminium consumptionkg per capita 3-year rolling average
0
4
8
12
16
20
24
China*
Japan
Korea
Taiwan
1957 1967 1977 1987 1997 2007
Chinas initial growth in aluminium consumptionis faster than other Asian economies
Source:Global Insight; WBMS; IAI; Rio Tinto Alcan
* If China follows the same growth pattern as Taiwan or Korea, additional annual requirements by the early 2020s will be around 20Mt of primary aluminium, 40Mt of alumina,100Mt of bauxite and 34,000MW of electricity
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Cash cost
USD / t
Aluminium cost curve has risen and steepenedsince 2003, RMB appreciation would impact
further
Cumulative production (%)
2003
2007 with 15% RMB appreciation(RMB:USD = 6.54)
Source: James F. King; McKinsey; CRU Primary Aluminium Smelting Costs 2007 Edition Smelter Cost Profiles and the Benchmarking Model Version 2.0; Rio Tinto Alcan Investor Seminar November 26, 2007 p. 32
2007 base caseRMB:USD = 7.69
600
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1,800
2,000
2,200
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Rio Tinto Alcan
AlcanRio Tinto
Potential GHG impact(Rio Tinto Alcan 64% hydropower)
d k d f l
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1,500
1,800
2,100
2,400
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Aluminium 5-year forward curveUSD/tonne
Forward markets indicate a significant structuralre-pricing in the last 12 months
Dec. 31 2007
Dec 29, 2006
Dec 30, 2005
Dec 31, 2004
2005 2008 2011 2014
March 5, 2008
Feb 2008 analyst
consensus
Source: Reuters, LME
1,100
l i i b i
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Alcan investment assumptions are beingrealised only faster
Additional value from higher synergies, lower Canadian tax and US interest rates
Outcome in March 2008:
Increasing energy and electricity costs
Chinese government restrictions Slowing Chinese output growth China becoming a net importer of primary
aluminium
Assumption in July 2007:
Rising coal prices and power costs inChina
Removal of export taxes on semis
Power shortages cut production growthto 11% in January 2008
Developing Chinese net import trend
Appreciating Renminbi
Continuing upward pressure on energycosts Steepening cost curve Likely carbon emissions costs
Short term pressures would see prices continue to rise
Longer term pressures will cement a structural change in the industry
Rmb strengthened 7% against the
US$ Removal of preferential power
rates
Carbon regulations proposed inmultiple jurisdictions
Source: International Aluminium Association ; Reuters Ecowin
Ill i l i f i i i d
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Illustrative analysis of incremental impact on value
Illustrative analysis of increasing prices andvolumes on Rio Tinto Alcan
NotesThe above illustrative analysis demonstrates the potential incremental impact of differing commodity price and production volume assumptions on the value of a 4.20Mtpaintegrated aluminium company (balanced chain bauxite, alumina, aluminium) where the base case assumes no expansions, utilising the following assumptions (all figures inreal terms):
Aluminium smelters: Greenfield capex - $4830/t; Brownfield capex - $3923/t; Sustaining capex - $39/t; $624/t base opex excluding power and alumina; Alumina price14% of Aluminium price.
Alumina refineries: Capex - $1100/t; Sustaining capex - $17/t; $132/t base opex excluding bauxite and bauxite freight Bauxite: Price is 1.25% of Aluminium prices; Capex $100/t; Sustaining capex - $1.9/t; Opex - $10.4/t.
Illustrative DCF analysis based on: 7% WACC (Real); 30% tax rate; 50 year asset life. Opex (including a portion of power sourced from 3rd parties) and capex are flexed forhigher prices. 5 year forward curve 3rd March 2008; July 2007 consensus price escalated by 6 months. Expansion scenario assumes addition of 350kt each year from 2009 -2015
US$ Billion NPV
Forward curve revertingto Feb 08 consensus
($2045 LT)
Forward curvecontinued from
2013 ($2895LT)
Forward curve+350ktpa of expansions
per annum to 2015
July 2007Consensus
($1970 LT)
Base Case
$23 B
$8 B
$33 B
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Rio Tinto Copper
C
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CopperHigh quality assets continue to deliver
Interests in some of the worlds greatest copper orebodies
Highest earning product group in 2007
EBITDA of $5.8 billion
Underlying earnings of $3.5 billion
Copper, gold and molybdenum markets remain very strong
By product credits reduce unit cash costs to less than zero
Great set of growth projects
Ri Ti t t ll iti d th
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Rio Tinto copper assets are well positioned on thecost curve
Source: 2007 Brook Hunt
Rio Tinto
BHP Billiton
Combined Interest
-200
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-50
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Cumulative Production ( k t )
C1Cost(/lb)
Rio Tinto WeightedAverage
BHP Billiton WeightedAverage
Rio Tinto
BHP Billiton
Combined Interest
-200
-150
-100
-50
0
50
100
150
200
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Cumulative Production ( k t )
C1Cost(/lb)
Rio Tinto WeightedAverage
BHP Billiton WeightedAverage
2006 Copper Mine C1 normal unit cash cost
-73,105
Rio Tintoweighted average
BHP Billitonweighted average
2006 copper cost curve, net of by-product credits
Rio Tinto has an interest in the worlds largest
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Rio Tinto has an interest in the world s largestundeveloped copper projects
0.1
1
10
100
0 5 10 15 20 25 30 35 40 45
Contained copper equivalent mineralisation - Mt
Copp
erequivalentgrade-%Cu(logscale)
Oyu Tolgoi2
Pebble2
La Granja3
Competitors1
Rio Tinto interests
Resolution3
Note: bubble size reflects forecast annual copper capacity
Copper equivalent calculated using Citigroup long term metal prices 5 Sept 2007 US$1.45/lb Cu, US$8/lb Mo, US$550/oz Au, US$ 8/lb CoSources: 1 External company reports; 2. Pebble published resources by Northern Dynasty Feb 2007 @ 0.6% copper equivalent cut-off; Oyu Tolgoi published resource byIvanhoe Mines Feb 2007 @ 0.6% copper equivalent cut-off; 3. Rio Tinto - potential size from early stage studies
Largest undeveloped copper projects by contained copper equivalent
Sulawesi Nickel stands out as a world class
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0
1
10
0 1000 2000 3000 4000 5000 6000 7000 8000 9000
Contained Ni Equiv. (ktonnes)
NiEquiv.
Grade%N
i(
logscale)
Sulawesi Nickel stands out as a world classopportunity
Large scale high grade laterite target in Indonesia Additional potential of similar size
Contract of Work in final rounds of negotiation
Base case output of 46ktpa Ni with production commencing by 2015
Potential to support future expansion beyond 100ktpa
Note: bubble size reflects total annual capacity
Largest undeveloped nickel projects by contained nickel equivalent
Rio Tinto projects
Competitors3 - undeveloped
Competitors3 - under construction
Nickel equivalent calculated using Citigroup long term metal prices 5 Sept 2007 US$6/lb Ni, US$1.45/lb Cu, US$550/oz Au, US$8/lb Co, US$550/loz Au, US$850/loz Pt, US$230/loz PdSource: 1. Rio Tinto Annual Report 2006, 2. Rio Tinto projects 3. Competitor projects Brook Hunt.
SulawesiNickel2
Sulawesi upside
Eagle1 upside
Advanced stage near term high quality projects
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Advanced stage near term high quality projects
Source: Rio Tinto, * Ivanhoe Year represents estimated first production from project. Range of capital expenditure on 100% basis.
2008 201220112009 2010
PRC potash
Cortez Hills
Oyu Tolgoi*
Bingham
Clermont
ERAextension
Argyle u/g
Brockman 4
Mesa A
Rssingextension
Northparkes
Eagle
Diavik u/g
Madagascarilmenite
Weipa
Kestrel
Madagascarexpansion
Adalco
ISALYarwun
Sohar
Coega
Kitimat
MaadenSarawak
Alumar
>$1bn
+$500m to $1bn
Quebec
QIT upgrade
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Production volume index
Notes: Production is total attributable production. Figures for each company are based on estimated yearly production levels multiplied by long term analyst consensus prices. Total production volume for
each company is rebased to 100 for 2008. Commodities included for Rio Tinto: Aluminium, alumina, iron ore, export thermal coal, export metallurgical coal, copper, gold, silver, molybdenum, and uranium. Commodities included for BHP
Billiton: Aluminium, alumina, iron ore, manganese ore, export thermal coal, export metallurgical coal, copper, nickel, gold, silver, lead, zinc, molybdenum, uranium, and petroleum. Rio Tinto production source: Rio Tinto. BHP Billiton production source: Third party public forecasts and reports and adjusted by Rio Tinto for recent BHP Billiton announcements.
Strong forecast growth in total production
8.6%CAGR
3.9%CAGR
100
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200
2008 2009 2010 2011 2012 2013 2014 2015
Rio Tinto BHP Billiton
Delivering today strongly positioned for
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Delivering today, strongly positioned forgrowth in the future
Record underlying earnings and cash flow
Record production levels in many key products
Alcan deal has created aluminium industry leader
Record investment in organic growth options
Outstanding pipeline of opportunities
Proven capability to deliver
Demand outlook excellent Largest product groups directly exposed to strong growth drivers in China and India
Copper, Iron Ore and Aluminium
Continued focus on shareholder value
FASTER at meeting the worlds growing demand
BETTER at leading and shaping our industry
SMARTER at creating shareholder value
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