Demand, supply and price of copper – an exploration ... - Rio Tinto

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Demand, supply and price of copper – an exploration ... - Rio Tinto

Demand, supply and price of copper

an exploration perspective

Eric Finlayson

Head of Exploration

Global Mining Investment Conference

London, September 30, 2009


Cautionary Statement

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concerning Rio Tinto. By reviewing/attending this presentation you agree to be bound by the following conditions.

Forward-Looking Statements

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including, without limitation, those regarding Rio Tinto’s financial position, business strategy, plans and objectives of management for

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resource positions), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and

other factors which may cause the actual results, performance or achievements of Rio Tinto, or industry results, to be materially different

from any future results, performance or achievements expressed or implied by such forward-looking statements.

Such forward-looking statements are based on numerous assumptions regarding Rio Tinto’s present and future business strategies and

the environment in which Rio Tinto will operate in the future. Among the important factors that could cause Rio Tinto’s actual results,

performance or achievements to differ materially from those in the forward-looking statements include, among others, levels of actual

production during any period, 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 such other risk factors identified in Rio Tinto's most recent Annual Report on Form 20-F filed with the United States Securities and

Exchange Commission (the "SEC") or Form 6-Ks furnished to the SEC. Forward-looking statements should, therefore, be construed in light

of such risk factors and undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only

as of the date of this presentation.

Nothing in this presentation should be interpreted to mean that future earnings per share of Rio Tinto plc or Rio Tinto Limited will

necessarily match or exceed its historical published earnings per share.

Demand, supply and price of copper an exploration perspective 2


BHP Billiton

Vale

Shenhua

Rio Tinto

Anglo American

Xstrata

Barrick Gold

Goldcorp

Potash Corp

Freeport

Southern Copper

Mosaic

Anglo Platinum

Norilsk

Newmont

Chalco

ENRC

Impala

Teck Cominco

Anglogold Ashanti

Market capitalisation of major listed mining

companies

Source: Thomson Datastream

41

38

31

27

26

25

24

22

21

20

19

17

17

14

13

13

82

78

98

0 50 100 150

160

Rio Tinto Gross asset distribution

(2008)

Australia, 35%

Other, 7%

US, 11%

Canada, 34%

Europe, 13%

At 1 September 09

(US$ billion)

Demand, supply and price of copper an exploration perspective 3


Rio Tinto a world leader in mining

Aluminium Copper Iron Ore

Diamonds Energy Industrial Minerals

Demand, supply and price of copper an exploration perspective 4


Key drivers for long term commodity demand

growth remain intact

Urbanisation rates across Asia, the United States and European Union

Urbanisation rate (percent)

100

Urbanisation rates, income and population

80

60

40

20

India

Sources: Global Insight, CIA Factbook

0

China

EU15

Japan

National averages

Chinese provinces

Note: Size of bubble reflects total population

United States

0 10,000 20,000 30,000 40,000 50,000

GDP per capita (US$ at PPP rates in 2006 terms)

Demand, supply and price of copper an exploration perspective 5


Global copper consumption

Consumption in millions of tonnes per annum

20

15

10

5

0

1900

1910

1920

• Compound Annual Growth Rate (CAGR) in demand over the last 108 years is ~ 3.4%

• China overtook the US in 2003 as the largest consumer of copper

1930

1940

1950

• The proportion of global copper consumed in China will grow as per capita consumption increases

Sources: 1900-1928 McGraw Hill (1931), 1929-2008 CRU

Demand, supply and price of copper an exploration perspective 6

1960

1970

1980

1990

2000


Long-term copper price

Real prices 2008 US$ per tonne

18,000

12,000

6,000

0

1900 1920 1940 1960 1980 2000

• 1906 Start-up of the world’s first open-pit porphyry copper mine at Bingham Canyon, Utah

• 1906 - 1920 Other porphyry copper operations become established

$3,700 +/- 800

• 1920 - present The open-pit porphyry copper era of stable mining costs and flat long-term price

Sources: NBER, Rothwell, Metal Statistics 1919, LME

Demand, supply and price of copper an exploration perspective 7

}


Source: CRU

Production is dominated by a few operations

Contribution of copper mines to global copper production (2009f)

> 250 Other Mines

Escondida

Codelco Norte

Grasberg/Ertsberg

Collahuasi

El Teniente

Norilsk

Antamina

Los Pelambres

Cerro Verde

Morenci

Bingham Canyon

Los Bronces

Andina

Batu Hijau

Demand, supply and price of copper an exploration perspective 8


Source: MEG

Distribution of copper reserves and resources

US

Others 10%

3% Canada

10%

Chile

4% Mexico

8%

34%

Peru

2% Argentina

Poland

2%

DRC 2%

3% Zambia

Kazakhstan

2%

4% China

•Total reserves + resources 1.8Bt contained copper in 953 deposits

•Global average grade is 0.55% copper

3% Russia

3% Mongolia

2% Philippines

3% Indonesia

Demand, supply and price of copper an exploration perspective 9

5%

Australia


45

Source: Brook Hunt

Global copper reserves and grades are falling

Global copper reserves - years of production Average reserve grade - % copper

27

24

25

1996 2000 2004 2008

• Data for 217 mines and projects

0.97

• Reserves are being mined faster than they are being replaced

0.78

0.77

0.70

1996 2000 2004 2008

• Resource conversion is falling behind production or is focusing on the high-grade parts of deposits

• Selective conversion and mining of high-grade is an unsustainable practice

Demand, supply and price of copper an exploration perspective 10


Contained Cu

100,000,000

90,000,000

80,000,000

70,000,000

60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0

Mined grades will continue to fall

Reserves Deposits with >4Mt contained copper Resources Deposits with >4Mt contained copper

K am oto J V

K onkola

Tenke Fungurum e

G logow

Nkana

Chambishi

KGHM

Mt Isa

Olym pic Dam

Aynak

Udokanskoe

Gaisky Com plex

Tintaya

Antamina

Grasberg

El Teniente

Zhezkazgan Com plex

Collahuasi

Andina Division

E scondida

S alobo

Lum wana

Chuquicam ata

S archeshm eh

Sungun

Los P elam bres

Radomiro Tomic

Q uellaveco

S alvador Division

Rio Blanco

E speranza

Toromocho Cuajone

Los Bronces

Almalyk Complex

O yu Tolgoi

Agua Rica

Ray Complex

Bingham Canyon

Dexing Complex

Santo Tom as

Q uebrada Blanca

El Abra

G aby

Balkhash Complex

M onywa

B atu H ijau

Bor Basin

Safford

C e rro V e rd e

Toquepala

Cananea

Bagdad

Morenci

S ierrita La Caridad

Weighted average grade: 0.88% copper

Total contained copper: 457Mt

Sources: MEG; FCX 2008 Form 10-K

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

0.00

Cu Grade ( % )

Contained Cu

100,000,000

90,000,000

80,000,000

70,000,000

60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0

Tintaya

Konkola North

Tenke Fungurum K am oto Nkana JV

Resolution

Limamay o

Los Su lfatos

Windy Craggy

Konkola

Zhezkazga n Com Oyu ple Tolgoi Mt Isa

Y ulong

Las Bambas Qulong

A ntamina

Olympic CollaDam Kalumbila

huasi

Junin

Lookout Sungun Hill

Cerro Colorad Nokomis

P anantza

Andina Divisio

San Manuel DLumwana Tampakan ivisio

Tuwu-Yandon El Pachon

Frieda Escondida Rive

M irador

G ra sbe rg

Lo

Santa

s Az ules

Rio Blanco

Cru z

Los Pe la mAk-Sug bres El Arco

El Teniente La

P etaquilla

Granja

Que brad a Reko Blan cDiq

Chuquicamata

Galore Creek S afford Erdmin Galeno Sxew

Bingha m Quellaveco Canyo

Cobre Western de

Toki

SCoppe ono

Clu

r

Letpa daun

ster

g

B alkh A lmalyk ash

Sierra

Com Comple ple

Los Br

Gorda

Toromocho onc

A

es

E

idarly

l Abra

Salvador Vizc Divisio Aachitas gua PRic ebble a

E spe B or ran Basin Gaby

za

Santo Monywa Tomas

Ce rro BVerde Morenci

agdad

S ierrita

Batu Zangezu H ijau r

Weighted average grade: 0.68% copper

Total contained copper: 909Mt

Demand, supply and price of copper an exploration perspective 11

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

0.00

Cu Grade ( % )


The challenge for exploration discovery of new

Tier 1 copper deposits

Millions Metric Tonnes

Bingham Canyon, USA

60

50

40

30

20

10

View of the open pit

0

2006

2002

1998

1994

1990

1986

1982

1978

1974

1970

1966

1962

1958

1954

1950

1946

1942

1938

1934

1930

1926

1922

1918

1914

1910

1906

Ore Mined

Production by year 1906 - 2008

• Tier 1 deposits the largest and highest

quality in the world are geologically rare

and confer sustainable competitive

advantage

• They grow with exploration and commonly

have other Tier 1 deposits nearby

• Their capacity to support production

expansions delivers optionality and value

growth

• Output from these deposits dominates global

copper production

Demand, supply and price of copper an exploration perspective 12


Rio Tinto Tier 1 discoveries

Date Name Commodity Country Date Name Commodity Country

1947 Lac Allard Ilmenite Canada 2000 Potasio Rio Colorado Potash Argentina

1952 Weipa Bauxite Australia 2002 Resolution Copper USA

1962 Tom Price Iron Ore Australia 2004 Simandou Iron Ore Guinea

1963 Kirka Borates Turkey 2005 La Granja Copper Peru

1965 Panguna Copper PNG 2005 Caliwingina Iron Ore Australia

1967 Ok Tedi Copper PNG 2008 Sulawesi Nickel Indonesia

1968 Rossing Uranium Namibia 2008 Mutamba Ilmenite Mozambique

1971 Paragominas Bauxite Brazil 2009 Jadar Borates Serbia

1979 Argyle Diamond Australia

1982 Kaltim Prima Coal Indonesia

1983 Lihir Gold PNG

1985 QMM Ilmenite Madagascar

1990 Century Zinc Australia

1991 Corumba Iron Ore Brazil

1994 Diavik Diamond Canada

1995 Orissa Iron Ore India

In operation

Divested/suspended

In evaluation

• A discovery is a deposit handed over to a

Product Group pre-feasibility study team

Demand, supply and price of copper an exploration perspective 13


Greenfield exploration the trade-off between

discovery potential and country risk

Western Cordillera, Colombia

Porphyry with secondary copper minerals

High-grade primary copper mineralisation

IHS Global Insight

Country Risk Ratings

Rank Country Current

Overall Risk

1 Sweden 1.33

2 Luxembourg 1.35

3 Canada 1.40

116 Colombia 3.10

202 Zimbabwe 4.41

203 Democratic Republic of Congo 4.46

204 Somalia 4.80

Demand, supply and price of copper an exploration perspective 14


Approximate depth to top of deposit

-200

0

200

400

600

800

1000

1200

1400

1850 1870 1890 1910 1930 1950 1970 1990 2010

Source: MEG

Deeper discoveries are starting to appear

Copper discoveries showing depth of deposits with >4Mt contained copper

El Teniente Andina

Chuquicamata

Olympic Dam

Approximate year of discovery

Kalamazoo

Pebble East

Resolution

Escondida

Hugo Dummett

Heruga

Grasberg

Los Sulfatos

Demand, supply and price of copper an exploration perspective 15


Brownfield exploration high potential for

discovery in an established operating environment

Bingham Canyon Deep Molybdenum Zone

• Deep Molybdenum Zone to date only partially

delineated by drilling (D664 only recently

completed)

• Annular body of mineralisation extending

>2,000m downwards beneath current open pit

• Current Exploration Target of 500-600Mt @

0.1 0.15% Mo (pre-D664) is likely to

significantly expand with further drilling

Demand, supply and price of copper an exploration perspective 16


Bingham Canyon an emerging mineral district

Bingham Canyon tip of the iceberg

• New geophysical data have traced the Bingham Canyon ore body to depth

• Nearby unroofed intrusions identified for 2009/2010 drilling

• Potential for additional major discoveries within the Bingham Canyon mineral district

Demand, supply and price of copper an exploration perspective 17


Notes: 1 - Existing mines and funded projects

Source: Brook Hunt

Copper mining methods and costs

Increasing depth . . . . . . means higher mining costs?

Underground production 1 - % of global production Average 2007 C1 composite costs - (c/lb)

26%

40%

2008 2025

63

Demand, supply and price of copper an exploration perspective 18

102

Open Pit Underground


Technology and innovation unlocking the value

of lower-grade mineral deposits

La Granja, Peru

Cu >0.75% drill intercepts

View looking south

• 2,770Mt @ 0.51% Cu, 0.1% Zn

• Deposit remains open

• Amenable to dump leaching of copper and zinc

• Major new mineralised porphyry found immediately

to the north-west currently under evaluation

Demand, supply and price of copper an exploration perspective 19


US$ (billions)

14

12

10

8

6

4

2

0

Source: MEG

Global exploration expenditures

1989

1990

1991

1992

1993

1994

1995

1996

1997

• Cyclicity of exploration spend is normal

1998

1999

• The current economic downturn will have no lasting impact on copper exploration & development

2000

2001

2002

Demand, supply and price of copper an exploration perspective 20

2003

2004

2005

2006

2007

2008

2009


Summary

• Global copper reserves and resources are sufficient for several decades.

Ongoing exploration will continue to deliver new resources

• Reserve and resource grades are progressively declining due to depletion

of supergene-enrichment blankets in the major producing districts

• Greenfield exploration in under-explored countries offers some potential to

reverse this trend through new surface copper discoveries. However, the

full potential of these countries to support major production may be

undermined by sovereign risk factors

• Deeper discoveries are appearing in known districts as we explore around

surface deposits. Some of these brownfield discoveries have unusually

high copper and by-product grades

• Innovation in mining and processing technology may reduce the costs of

production from lower-grade surface resources

• Given forecast future demand, future copper prices will depend on the

relative success of greenfield discovery, brownfield discovery and

innovation in mining and processing

Demand, supply and price of copper an exploration perspective 21

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