CHECK AGAINST DELIVERY
Good morning ladies and gentlemen.
And thank you Jan.
In a moment I will get into the detail of the excellent results we produced and the global economic environment we are operating in.
And I will look ahead at how we plan to keep growing the business to increase the value of your company.
But as always, let me start with safety.
Our safety performance was marred by six fatalities at our managed operations last year and one earlier this year.
These were all terrible tragedies that are deeply felt by the families, friends and colleagues of those who died.
It means we must redouble our efforts to make ours a zero harm company.
I believe this to be an achievable goal and having everyone go home safe at the end of every day is at the heart of my vision for our company.
The road to zero harm is challenging, especially during times of major expansion, but I will not be satisfied until all of our locations are entirely injury-free.
So, let’s take a look at the big picture over the past year.
Many countries, and many industry sectors, are still continuing to adapt to the changed economic landscape after the global financial crisis.
Soaring oil prices and general market volatility persist; the continuing instability in the eurozone and geostrategic shifts in economic and political power have made for an often troubled backdrop in which global companies like ours operate.
As Jan said, our teams, right across the world, can be proud of the way they are adapting to these changing times, and of the outstanding performance Rio Tinto has delivered.
Throw in some of the additional problems caused by weather, and we can be particularly proud of the success which has come from delivering the tonnes when the markets demanded them, especially for iron ore.
Our world-class Pilbara iron ore business broke annual production and sales records, helping the company achieve record underlying earnings, and cash flows.
But 2011 was not just about delivering outstanding results; it was also about ensuring the resilience of the business by tackling rising costs and striving for productivity gains.
Increasing costs are an industry-wide problem, particularly in hotspots like Australia, and I am determined to be on the front foot in tackling this challenge.
We are not immune from cost pressures, but have built a great track record of new project delivery and excellent operational performance from our mines.
These skills, coupled with our strengthened balance sheet, put us in a strong position to invest in growth, in some of the best projects anywhere in the industry.
The expansion of our Pilbara iron ore operations is, we believe, the highest quality project of its kind in the sector, which means it is the best value creator for you, our shareholders.
The nature of our projects means that we have the flexibility to take a phased approach to expansion and can adapt our plans to changes in the economic environment.
Product group results
Let’s take a look at how our different product groups fared last year, starting with iron ore.
Spotting the shoots of Chinese growth a decade ago and investing in iron ore mines means we have been producing at record levels at times of record prices.
In 2011, iron ore performance was very impressive, with the highest-ever operating cashflow and underlying earnings for the product group.
We exceeded our Pilbara production targets for 2011 and increased our annual capacity there by five million tonnes to 225 million tonnes last year and again this year to 230 million.
This extra capacity, together with continued productivity improvements from our industry leading Operations Centre, helped us achieve these record results.
The consistently high quality of our operations is all the more impressive when you consider that we are also well underway with major expansion, which is proceeding without any disruption to production. Everything is now in place for the expansion to 283 million tonnes, and potentially to 353 million tonnes.
At Simandou in Guinea, work is underway on the ground as we prepare to develop the railway, mine and port for first shipment of iron ore by mid-2015.
As part of our commitment to sustainable investment we are excited about the opportunity from this infrastructure to also support agriculture and other multiple uses.
Turning to aluminium.
After starting 2011 with a tight physical market, global economic concerns and new Chinese supply took hold in the second half of the year, leading to lower aluminium prices.
The impact of higher sector-wide raw material costs was also felt in the second half, squeezing margins downwards across the industry.
Notwithstanding the business improvements we are making, the entire sector will continue to be challenged for some time by rising Chinese supply and higher costs.
These have caused us to review the carrying value of the assets and make a difficult but appropriate impairment of 8.9 billion US dollars.
In copper, supply continues to be tight which has meant strong prices over the last year.
Our copper grades were generally lower last year, but are predicted to recover in the second half of 2012.
We are working on studies for growth at tier one copper projects at La Granja in Peru, Kennecott Utah Copper in the US and Escondida in Chile, as well as bringing the Oyu Tolgoi copper-gold project in Mongolia into production in 2013.
Rio Tinto now owns 51% of Ivanhoe Mines. Yesterday we announced we will provide a comprehensive financing package for Ivanhoe that will underpin the development of Oy Tolgoi.
We have also agreed that Rio Tinto will replace a number of directors on the Ivanhoe Board and nominate a new management team.
Moving to our energy product group.
In 2011, coal markets were volatile, with both global supply and demand disruptions occurring at different times throughout the year. Our coal and uranium mines in Australia recovered well from the effects of the significant wet weather early in the year.
We are growing our coal business, with a target to increase annual coal capacity in Australia and starting shipments from the newly-acquired coking coal assets in Mozambique in the first half of this year.
In 2011, we also completed the acquisition of Hathor Exploration, bolstering our global uranium strategy and providing a highly prospective entry point to the Athabasca basin in Saskatchewan.
Diamonds & Minerals
Turning now to Diamonds and Minerals.
As a result of the strength of the pigments market, earnings from our Iron and Titanium
business doubled in 2011, as we continued to replace multi-year sales contracts with alternative pricing mechanisms.
Diamond prices were also strong in the first half of 2011, but weaker in the second half. The longer-term outlook remains strong, with limited supply of new diamonds and rising demand growth in China and India.
As Jan mentioned, we have begun a strategic review of our diamonds business that will include exploring a range of potential divestment options. We have a valuable, high-quality diamonds business, but given its scale, we are reviewing whether we can create more value through a different ownership structure.
In our titanium feedstock business, where we do have scale, we have announced plans to double our stake in Richards Bay Minerals.
And, we have created new opportunities in potash, through a joint venture exploration agreement in Saskatchewan, home to nearly half the world’s potash reserves.
In spite of the volatile times in which we find ourselves, each of our stakeholders can rest assured that Rio Tinto will continue to bring them the benefits of our global sector leadership.
This means superior returns to our shareholders; lasting economic and social benefits to our host countries and communities; enhanced production in response to our customers’ needs; and, for our employees, the most rewarding learning and growth opportunities in the sector.
As Rio Tinto shareholders, you own some of the world’s best mining assets. We have an unrivalled portfolio of quality growth options, and we have a proven track record of developing major projects on time and on budget.
If we step back from the current global economic volatility, our view of long-term demand remains very positive. That is, as the world develops, we expect to see billions of people moving through increasingly metals-intensive phases of development.
The future is growth
In our lifetime, and certainly in modern history, the world has developed to the benefit of the west, and the advanced economies.
There was a rich world and a poor world.
There is still too much poverty around the globe, but power and wealth are now spreading into previously poor, but now emerging, economies.
China has become an economic and political force, and is likely to be the next superpower.
India’s development is another remarkable story that few were writing about decade or two ago.
And parts of Africa are now showing that there too, the old clichés are fading and a new order is taking shape.
These are exciting times, and we are at the heart of the debates that flow from all these changes – about resources, sustainability, and the expectations of an ever-expanding aspirational middle class and the next generation in many parts of the world.
So, we see a world of strong global demand in an environment of constrained resource supply.
For too long, when prices were depressed and the outlook not so positive, the mining industry did not do enough exploration or develop enough skilled people and the challenge for us now is about access to human and mineral resources.
As a sector, we are still working hard to catch up with demand.
Geologically, deposits are becoming more difficult to find, and technically more difficult to develop. Stakeholder demands are increasing and it is taking longer to develop new resources, if we can at all. The trend towards greater resource nationalism is further adding to the risks and the costs of development, increasing the costs of capital and reducing the incentive to invest.
These are the challenges of the modern mining company.
And whilst they present a new paradigm to navigate they also open up new opportunities,
particularly to the sector leaders.
Industry leadership through innovation
At Rio Tinto we believe the smart use of technology and innovation can make a big difference to solving the challenges we face.
As minerals become harder to mine, from deeper mines in more remote areas, innovation from modern science and technology is key to meeting these challenges safely and sustainably.
I am genuinely excited about the step-changes in technology we are pioneering, which includes our industry-leading Mine of the FutureTM programme.
Last year we announced the expansion of our driverless truck fleet from 10 to one hundred and fifty trucks – the first deployment of this technology in Australia, or anywhere else, of this scale.
We are also introducing autonomous drills and driverless trains, and developing huge advances in tunnel boring technology as well as new exploration methods.
This is not innovation for its own sake – it’s about real business benefits on the bottom line.
At the heart is the vision of more productive mining operations, greater energy efficiency and improved safety and environmental performance.
Our performance and commitment to sustainable development is central to the way we work, wherever we operate. We believe it not only makes good business sense but that we have a responsibility to future generations and all our stakeholders – from employees, to communities and to governments.
We believe our strong focus on sustainable development helps us manage risks effectively, reduce environmental impacts, engage with our communities and decrease operating costs.
It also allows us to attract high-calibre employees and deliver superior returns for our shareholders.
In short, we see it as a great source of our competitive advantage.
We also recognise it is not about what we say but what we do. Throughout 2011, I had the opportunity to visit many of our operations and meet the teams on the ground delivering real results.
Our Simandou Communities team in Guinea has received international recognition for their work in the communities that surround our iron ore project.
In 2011 the team was awarded the Global Business Coalition Health Award for furthering the prevention of malaria and HIV/AIDS in local communities.
Under a number of investment initiatives to support the development of Mongolia and our Oyu Tolgoi mine, some 3300 Mongolians will be trained in an $85m US dollar education and training programme which will be the largest in Mongolia’s history.
We are also making a major contribution to nature conservation in promoting biodiversity and protecting water sources in the South Gobi.
Our water conservation efforts in Mongolia will make the mine one of the most water conservative in the world.
In April 2010, the World Bank praised our assessments of the impacts of groundwater management.
And our commitment to sustainability reaches beyond our own operations.
We fully embrace London 2012’s commitment to delivering the most sustainable Olympic and Paralympic Games.
We are very proud to provide the metal to produce the 4,700 gold, silver and bronze medals at the London Games and we are excited about seeing the athletes we are sponsoring from Mongolia, Great Britain and Australia compete.
Against a background of volatility in our markets and industry challenges, 2011 was an excellent year for Rio Tinto.
Along with delivering record underlying earnings, we have enjoyed our highest ever operating cash flows.
Our strategic advantages are many:
- we are delivering exceptional operating and financial performance;
- we have some of the best operations and growth options available in the industry
- we have a leadership position in production, exploration, innovation and sustainable
- and our long-established strategy of focusing on large, long life, cost-competitive
- and expandable assets is balanced with delivering long term shareholder returns.
It is a privilege to be the Chief executive of Rio Tinto and I would like to thank all of our shareholders for your continuing support. Your support helped us lay the strong foundations of 2011 and I am confident that in continuing to focus on controlling costs and improving productivity, we will build on those foundations, and 2012 will be even better.