22.06.2010 The mining industry and emerging economies, Kay Priestly
1. Rio Tinto Copper
Kay Priestly, Chief Financial Officer
The mining industry and emerging economies
June 2010
2. 1
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7 April 2010
3. 2
Oyu Tolgoi
China
Mongolia
India
• The Oyu Tolgoi copper deposit was discovered in the 1980’s.
• It is located 550km south of Ulaanbaatar and 80km north of the Mongolia-China border.
• It represents a broader industry trend of copper being extracted from deposits in emerging
regions.
• It is a significant development for the Mongolian people, requiring engagement with
governments and communities.
4. 3
0%
10%
20%
30%
0 10 20 30 40
0
10
20
30
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
The importance of emerging resource rich
economies is tied to increasing demand for copper
Global population
distribution
Consumption
per capita ($)
GDP per capita ($ thousands)
Copper
2020
Global average
2010
5. 4
Demand is driven by consumption needed to achieve
China’s phenomenal growth
GDP per capita in China still only 14 per cent of that in the United States.
There are only 33 automotive vehicles for every 1,000 people in China
compared to 800 in the United States.
By 2025, it’s estimated that 221 Chinese cities will have a population of at
least a million people. Of these, 23 will have over 5 million people.
China will build between four and five million new buildings between
2005 and 2025: Roughly equal to 50,000 skyscrapers or the
equivalent of up to ten cities the size of New York.
China’s growth potential
Source: Global Insight, McKinsey Global Institute
6. 5
Copper is essential to everyday life
Properties of copper Importance to everyday life
• Ductile, corrosion-resistant, malleable,
recyclable and also a highly efficient
electrical conductor, second only to silver.
• Alloys have additional characteristics like
hardness, tensile strength and greater
corrosion-resistance.
• Used in heating, architecture, plumbing,
transport, communications as well as
conventional and renewable energy.
• The average home today contains about
200 kilograms of copper.
• Around 25 kilograms of the average
family car is copper and copper alloys.
Source: European Copper Institute
7. 6
New applications for copper
Hybrid electric vehicles Antimicrobial benefits
• Electric and hybrid electric vehicles have
a much higher copper content than
conventional vehicles.
• ICA predicts that the full adoption of the
IE2 standard will increase copper use by
an average 0.56kg/kW.
• Copper has antimicrobial properties.
• It is proven to inactivate and limit the
spread of various influenza and bacteria
strains.
• It can continuously kill bacteria and
remains effective even after repeated wet
& dry abrasion and re-contamination.
Source: European Copper Institute
8. 7
Copper – A sustainable metal
• Unlike many other raw materials, copper is
100% recyclable.
• In 2007, recycled copper accounted for
35% of consumption.
• Copper recycling involves reclaiming
‘secondary copper’ from products that have
reached the end of their life.
Source: European Copper Institute
9. 8
12
16
20
24
28
2000 2005 2010 2015 2020
New supply is particularly dependant on greenfield projects
The market is forecast to remain tight through to 2020
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
10. 9
• There is a trend towards greater supply
from developing countries.
• Currently 60% of production comes from
the top five copper mining nations
– Chile, Peru, USA, China & Indonesia.
• 10% is sourced from OECD member
countries and the remaining 30% sourced
from non-OECD countries.
• 44% of the potential new capacity to
be added before 2020 will come from
non-OECD countries.
Broader trends emerging in the copper industry
Mines at greater depthSupply from developing countries
Notes: 1. Discoveries is defined as all new discoveries with over 4 million tonnes of contained copper.
Source: Global Insight, Brook Hunt a Wood Mackenzie Company, Rio Tinto
1980s 1990s 2000s
Indicative depth of discoveries 1
CompletelyExposed
Covered
Blind
11. 10
Rio Tinto’s robust 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
0.1
1.0
10.0
100 1,000 10,000 100,000
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
12. 11
The best undeveloped copper-gold project in the world
Of these projects, Oyu Tolgoi will be the first to commence
production
• Average annual production of 450 kt of
copper and 330 koz of gold.
• Top ten copper producer and a
significant gold producer.1
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
• Oyu Tolgoi has 3.3 billion tonnes of
resources and a 1 billion tonne reserve.
• Potential for a greater than 50 year
mine life.
• Highly prospective region with further
exploration potential.
• Significant by-product credits from gold.
• Expected to have first quartile net unit
cash costs.
13. 12
• Addressing climate change
• Protecting biodiversity
• Promoting conservation
• Healthy workplaces
• Sustainable safety culture
• Long-term community benefits
• Robust stakeholder engagement
• Honesty and transparency
• Understanding our legacy
• Socio-economic development
• Supply chain management
• Disciplined financial performance
Social
well-being
Environmental
stewardship
Economic
prosperity
Respect for
people &
communities
Our focus on sustainable development
We aim to be a partner of choice
Source: Rio Tinto
14. 13
• Safety our first priority - we are committed to an
incident and injury free workplace employing Rio
Tinto safety standards, systems and procedures.
• The Doctors’ Sponsorship and Housing Program has
provided financial assistance, housing and practices.
• Emergency Hay and Fodder Assistance in response
to the Dzud of 2009/10.
• Oyu Tolgoi LLC is developing a program to minimise
and mitigate health, safety and security impacts
caused by the project.
• Aim to improve health through capacity building,
projects, policy reform and institution building.
Social well-being
• Healthy workplaces
• Sustainable safety culture
• Long-term community benefits
Social
well-being
Source: Rio Tinto, Oyu Tolgoi LLC
15. 14
• Addressing climate change
• Protecting biodiversity
• Promoting conservation
Environmental
stewardship
• Environmental studies have been ongoing for eight
years.
• Specific attention is being paid to dust, water, waste,
flora, fauna and air quality.
• A program will be developed to minimize, mitigate,
understand and manage cultural heritage impacts and
issues associated with the mine.
• We are aiming to empower community members to
actively monitor their environment and engage with
Oyu Tolgoi LLC.
• Overall Rio Tinto aims to increase transparency and
public awareness of issues related to the environment
and to promote environmental protection.
Environmental stewardship
Source: Rio Tinto, Oyu Tolgoi LLC
16. 15
• Socio-economic development
• Supply chain management
• Disciplined financial performance
Economic
prosperity
• Oyu Tolgoi could be a catalyst for social and
economic development of the region.
• Potential to represent 25 to 35 percent of GDP.
• The government will receive revenue through
royalties, taxes, fees and dividends.
• 4000 Mongolians have already worked on the project
and 90% of direct employees will be Mongolian.
• An Oyu Tolgoi Training Strategy and Plan will be
submitted to the Government by the end of June.
• Rio Tinto is committed to supporting local business
through domestic procurement.
Economic prosperity
Source: Rio Tinto, Oyu Tolgoi LLC
17. 16
• Robust stakeholder engagement
• Honesty and transparency
• Understanding our legacy
Respect for
people &
communities
Respect for people and communities
• The Southern Gobi Regional Development Council
will be established with the support of Oyu Tolgoi LLC.
• Through the Rio Tinto Gender Matters Initiative we
have engaged with female pastoralists in the area.
• Oyu Tolgoi LLC will independently audit its
procurement and bidding process annually and report
to the public monthly.
• Partnerships with communities, government and civil
society organizations in a process starting at
exploration and ending well after closure.
Source: Rio Tinto, Oyu Tolgoi LLC
18. 17
‘Visible’
Socioeconomic contributions
• Community programmes
• Benefit receiving trusts
• Management costs
The ‘visible’ socioeconomic contribution of mining
companies is just the tip of the iceberg
• Wages & employee benefits
• Taxes & royalties
• Reinvested funds
• Dividends & interest
• Outside interest
• Payments to suppliers
‘Invisible’
Source: Rio Tinto
19. 18
The mining industry can serve as a foundation for
developing economies
Escondida still represents the largest foreign investment in Chile
China
• Escondida has made significant contributions to the
economy of Chile.
• In 2008 Escondida accounted for 8% of global copper
production and 24% of Chile’s national production.
• Accumulated investment in the project over the past
20 years has been US$7 billion.
• Tax contributions to the Chilean treasury from
Escondida and its owners since 1991 amount to
US$10 billion.1
• In 2006, company exports accounted for 10% of the
country’s total export revenues.
• The company represented more than 4% of the
Chilean GDP in 2006.2
Note: 1. Tax contributions comprise of First Category Income Tax, Additional Withholding Tax Paid On Owners’ Dividends and Royalties as at December 31st 2008.
2. Value includes both direct and indirect effects.
Source: Minera Escondida, Rio Tinto
20. 19
Chile has successfully developed its economy
through revenue derived from natural resources
A well-planned framework has allowed Chile to take advantage of revenues
• Responsible & predictable fiscal policy
• Independent monetary policy
• Control undesirable externalities
• Develop strategic industries
• Allow diversification of imports and exports
• Competitive and well capitalised banks
• Prudent regulation and supervision
The copper industry contributed to 14% of GDP in 2009.
It also represented 51% of all exports which were valued
at US$27.5 billion.
Source: Central Bank of Chile
Macroeconomic
management
Prudent
financial system
Risk mitigation
& diversification
21. 20
Conclusion
• Copper fundamentals are strong over the medium to long term.
• Oyu Tolgoi is the best undeveloped copper-gold deposit in the world.
• The Oyu Tolgoi project represents a broader industry trend.
• Rio Tinto is looking forward to engaging with the Mongolian government and people in a
sustainable way within our The Way We Work framework.
• The project is a significant development for the Mongolian people, requiring engagement
with governments and communities.
• With good governance the project could provide the foundation for further economic
development.