24.11.2010 The role of emerging markets in meeting the worlds commodity demands, Mr. Andrew Harding

The role of emerging markets in meeting the worlds commodity demands

Andrew Harding, Chief Executive Officer, CopperNovember 2010

Cautionary statement

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Mongolia Investment Summit – November 2010 117 April 2010

A global business with a diverse product portfolio

Bauxite, alumina and aluminium

Coal DiamondsBorates Copper Gold

Gypsum Molybdenum SaltIron ore SilverNickel Sulphate

ZirconTitanium dioxideTalc UraniumSulphuric acid Vermiculite

Mongolia Investment Summit – November 2010 2Source: Rio Tinto

Oyu Tolgoi: Substantial ownership interest, leadership role

Rio Tinto34.9%*

OtherShareholders

* Options to increase to approx 44%

Ivanhoe66%

Govt of Mongolia 34%

Oyu Tolgoi

Mongolia Investment Summit – November 2010 3Source: Rio Tinto, Oyu Tolgoi LLC

Fundamentals for copper suggest continued strong demand constrained supplydemand, constrained supply

While supply will be constrainedStrong demand will continue

Global population distribution

Consumption per capita ($)

• The average exploration cost per tonne of copper discovered has l t d bl d i th l t d d

Copperalmost doubled in the last decade

• Reserve life is decreasing, as is the average grade of new depositsthe average grade of new deposits

• Most discoveries are now blind

• High capital and operating costs, and greater technical risk, limit new production

GDP per capita ($ thousands)

Mongolia Investment Summit – November 2010 4

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

China is the engine of global demand growth

16,00018,000

China’s copper demand will remain strong driven by urbanisation and increasing intensity of use…….

Rest of worldChina

Refined copper consumption (kt)

6 0008,000

10,00012,00014,000

02,0004,0006,000

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Copper and copper raw material imports (Mt contained Cu)

….but due to limited resources is reliant on imports

3.8

CAGR 14%6.1

1 2

1.74.6

1 5

4.4

1 33 3

CathodeScrapConcentrate

1 2

1.4

1.13.2

1 2

1.20.8

3.2

1.2

1 4

1.7

1.5

1 5

1.7

1.33.3

1.5

1.0

Mongolia Investment Summit – November 2010Source: RT Analysis, GTIS; Brook Hunt - a Wood Mackenzie Company;

5

2005

1.2

2004

1.2

20092008

1.4

2007

1.5

2006

0.8

China’s concentrate requirements will continue to grow

201520142013201220112010

Global concentrate deficit continues to grow…

5,000

Driven by Chinese smelter capacity expansion

Copper production from concentrates (Kt contained Cu)

-678

-5

2,000

3,000

4,000

, contained Cu)

ChinaJapan

-2,058

-1,274-1,525

-1,307

0

1,000

,

1990 1995 2000 2005 2010 2015Global concentrate balance (‘000 tonnes contained Cu)

New Chinese smelters are low cost

High cost

,

China has overtaken Japan as the largest consumer of custom Cts/lb

40

30

50 Chinese Smelters High cost smelters are vulnerable to closureLow cost capacity

forecast to increase

concentrates (6.1 Mt – 2009)

Most smelters in China are positioned in the lower quartile of the cost curve

20

10

0

q

Low cost capacity will continue to be built in China while marginal producers will be vulnerable to closure

Mongolia Investment Summit – November 2010Source: CRU; Brook Hunt - a Wood Mackenzie Company; Rio Tinto Analysis

-10

08,0006,000 10,0004,0002,000

Supply will increasingly come from emerging regions

Emerging supply regions1 will become more prominent over the next 15 years2

Significant supply growth is expected from key emerging regions over the next decade

1291,037

Mongolia

24 000

26,000

28,000Kt Cu

689

1,157

984

1,768

Russia

China

16,000

18,000

20,000

22,000

24,000

ROWMajor Emerging

227

462

946

705Kazakhstan

Mexico20202008

6 000

8,000

10,000

12,000

14,000

583

286

1,067

1,034

Zambia

DRC

0

2,000

4,000

6,000

20202005 2010 20252015200019951990

Traditional regions are unable to meet demand growth


Source: Brook Hunt – A Wood Mackenzie Company1Mongolia, China, Russia, Kazakhstan, Mexico, DRC, Zambia2 Including highly probable, probable, possible projects as forecast by Brook Hunt.

7

Emerging regions host significant resourcesCopper reserves and resources – 1.95Bt of copper in 866 deposits

Emerging regions host significant resources

2%Canada

Russia

M liKazakhstanPoland

5%

9%China

3%Mexico

Mongolia

Philippines

USA

3%3%1%

2%

4%

Australia

34%

Peru

ZambiaOthers 11% Indonesia

pp

DRC9%3%

2%3%

2%

6%

34%2%

ArgentinaChile

The largest 13% of deposits contain 77% of the copper

ReservesWeighted average grade: 0.94% copper

ResourcesWeighted average grade: 0.71% copper

The largest 13% of deposits contain 77% of the copper

Mongolia Investment Summit – November 2010 8Source: Metals Economics Group

Total contained copper: 475Mt Total contained copper: 1,036Mt

A range of additional challenges

• Upward pressure on wage rates

Macro challenges

engagement and co-operation

• Appreciating exchange rates

• Sectoral adjustment

g g pof government, industry and

communities

• Local employment

Micro challenges

• Local employment

• Skills training

• Local business development

P t ti• Procurement practices


A history of project development in emerging countries

Successful development of projects in emerging countries is achievable

PalaboraSouth Africa

In 2009 employed historically disadvantaged South Africans in 42% of management positions.

South Africa The Palabora Foundation continues to assist local communities.

RössingNamibia

Established and support the Rössing Foundation. In 2008 Rössing accounted for 12% of total exports and 4% of GDPtotal exports and 4% of GDP.

US$1 billion invested leaving infrastructure legacy worth more thanQMM

Madagascarinfrastructure legacy worth more than $350 million. Recognized for excellent environmental stewardship through 2009 Nedbank Award


Award.

Source: Rio Tinto, Palabora Mining Company 10

We are active in a host of key emerging regions projects

Rio Tinto’s operations & pipeline projects reflect this trend

Oyu TolgoiMongolia

Bipartisan agreement with the Mongolian Government. Project to represent 25-35% of GDP.

Mongolia Over 4000 employees currently working on the Oyu Tolgoi project.

BunderIndia

Have strong support from the government in Madhya Pradesh.Currently employs ~150 employees.Long term, strategic partnership with UNICEF to provide of education.

C tl l 100 l 90% fLa Granja

Peru

Currently employ ~100 employees, 90% of which are Peruvian nationals. Currently focussing on improving programs in health, education and environment.

Mongolia Investment Summit – November 2010 11Source: Rio Tinto, Oyu Tolgoi LLC 11

A commitment to sustainable development is critical

• Healthy workplaces

• Sustainable safety culture

• Long-term community benefits

Socialwell-being

International experience and impact

• Addressing climate change

• Protecting biodiversity

g y

Environmentalstewardship

• Madagascar

• South Africa• Promoting conservation

• Socio-economic development

stewardship

Economic

• Peru

• Namibia

• E i t k h ld

• Supply chain management

• Disciplined financial performance

Economicprosperity• Guinea

• Remote indigenous • Engaging stakeholders

• Honesty and transparency

• Respecting people and communities

Stronggovernance

communities in Australia and Canada

O T l i i fi t i it d itt d t it ift d t i bl d l t


Oyu Tolgoi is our first priority, and we are committed to its swift and sustainable development

A commitment to SD: the OT Investment Agreement

Terms of Investment Taxation Infrastructure

• Template established

• Long term investment • Stable tax environment

• Generates tax and royalty revenue

• Flexible energy options

• Provision for roads• Transparent reporting

Generates tax and royalty revenue Provision for roads

Employment & Training Regional development Environment

• 90% Mongolian employees

• 5 year training & strategy plan

• New regional council

• Transparent community plans• Detailed environmental impact

assessments and protection plan

Mongolia Investment Summit – November 2010 13Source: Oyu Tolgoi LLC

• Scholarships for local students • Participative and cooperativeassessments and protection plan

A partner of choice: The OT Investment Agreement

A catalyst for Economic and Social development

Capital expenditure

Ed ti & T i i• US$58 million committed, training for 3,000 operators initially

Education & Trainingg p y

• 150 scholarships awarded

• Workforce will peak at 13,000 during construction

Employment • World class methods, processes and standards

• 90% Mongolian nationals during operations

E ti t d $500 800 h ti l• Estimated $500-800m per annum when operational

• Infrastructure plans include an airstrip, water, transport and p p, , ppower developments

• US$10m budget this year for CR & SD programs locally


• Rio Tinto sponsored General Equilibrium Model

Mongolia – A benchmark for the emerging world

Rio Tinto’s Oyu Tolgoi Investment AgreementMongolia’s commitment to sustainable economic development

“The mine will be a model for the world”

“Mongolia’s economy is poised for a return to ‘very

rapid growth’ after theTsakhiagiin Elbegdorj,President of Mongolia

rapid growth after the signing of the Oyu Tolgoi

agreement”

ING Groep NVING Groep NV

“Erdenet accounts for 40% of export and “Mongolia’s economic

t i d bi30% of GDP for Mongolia and this project is at least three times bigger”

prospects received a big boost with the signing of

the Oyu Tolgoi investment agreement”


Sükhbaataryn Batbold, Prime Minister of Mongolia

agreement

International Monetary Fund

The resources sector can make substantial, lasting contributions

Chile GDP per Capita1 and Copper Production Since 1996

GDP Per Capita $ Cu Production kt

Cu KTGDP per Capita

20001999199819971996 200320022001 2004 2005 2006 2007 2008 2009 2010 2011 2012

Year

• Chile is the world’s leading copper producer, however, this was not always the case

• A stable investment climate, the development of world class infrastructure, and associated technical and vocational skills has enabled a dramatic increase in both copper production


1. Per Capita GDP in 2005 PPP$. Sources: Brook Hunt, OECD, US Library of Congress

and rate of GDP growth per capita

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24.11.2010 The role of emerging markets in meeting the worlds commodity demands, Mr. Andrew Harding