Rio Tinto Group ($RIO)

So good morning. I'm Jason Fairclough. I run Metals Mining Research for Bank of America and EMEA. On behalf of myself and my new colleague down in Australia, Kate. Very pleased to introduce our next company, which is Rio Tinto. Representing Rio Tinto, we have Simon Trott. Now we previously hosted Simon at the conference, but this is the first time as CEO. So thanks for being here, Simon. Welcome. Simon has chosen the hybrid format, so we'll have a few slides just to set the scene, and then we'll have a fireside chat. So let's jump into it.

Thank you very much, Jason, and a pleasure to be here in Miami, and thank you for allowing me to migrate out of the other room where I've been for the last few years. So Rio has got a winning formula to be the most valued metals and mining business, and I'll talk a little bit about that today. But first, I wanted to start with safety as our #1 priority. And since this time last year, we have had 3 devastating fatalities at sites across our business, and we hold our colleagues and all those impacted by these tragedies in our thoughts. As a leadership team, we are focused on resetting our safety culture and strengthening accountability at every level. I'll start here because nothing is more important than making sure our people go home safely at the end of every day. 9 months into this role in 26 years with Rio Tinto. I've got a clear conviction around what sets us apart. The formula has 4 strategic pillars, which combined will deliver leading growth and returns. First, the right assets and the right commodities and we've simplified our business to focus on 3 world-class product groups, each with large, low-cost, long-life assets focused on structurally attractive commodities, copper, aluminum and lithium and iron ore. Now these commodities are driven by the 2 structural -- the energy transition and the growth of sharper operating model and simplifying how we work is structurally improving Rio's performance, translating into a 4% compound annual reduction in unit costs through to 2030. I world-class projects like Alitalia in Mongolia and Simandou in Guinea show we can deliver at scale in complex environments. Our advanced in-flight projects underpin the 20% production growth we expect by 2030. And finally, capital discipline, a strong balance sheet, disciplined capital allocation and a clear and consistent shareholder returns policy have allowed us to maintain a 10-year payout 60% of underlying earnings. Let's dive into each of these strategic pillars, starting with our assets. In iron ore, we are the #1 global producer with assets in Australia, Guinea and Canada, the best growth options across the mid- and high-grade iron ore markets. In aluminum, we are the #1 integrated Western producer. Now media headlines may focus elsewhere, but aluminum has actually been the best-performing base metal over the last 12 months and also year-to-date. With prices up 23% this year. In lithium, we have incredible assets and the largest Tier 1 pipeline in an industry that is forecast to more than double over the next decade. In copper, we are growing now delivering 11% production growth year-on-year in 2025 with a further 13% through to 2030. This is visible and permitted. When you combine these essential factors, quality assets, scale and cost position that translate into strong EBITDA margins across each of our businesses. So -- if you want exposure to the largest trends shaping the future, the energy transition NII, this is a portfolio to own. So in an industry like ours, I believe in the diversified model, at Retina, we are optimizing it to ensure we unlock our business's full potential. 3 outstanding businesses and a lean corporate center that allocates capital, supported by central delivery only where there is a synergy from our diversified scale. Since becoming CEO, my focus has been on making Rio stronger sharper and simpler. Some examples. On Simplify, we've reduced senior roles by around 15 and shifted decision-making and accountability as close to the point of impact. These drives a faster cadence, harder cost control and improved capital productivity and stronger safety. This has resulted in $650 million in annualized productivity benefits to date, with significantly more to come. As an example, last week, I was talking with the team about changes they are making to a group standard that applies across our operations. reduce that standard from 185 pages to just 7. Our people have absolute clarity on what they need to do. It removes layers of bureaucracy and site leaders can concentrate on what truly matters. We are now embedding these changes into our management operating system to drive sustainable performance improvements. On deliver, we've made a strong start with a 9% year-on-year uplift in production in the first quarter. The successful ramp-up of OlioTogoi is a key contributor, a project on track to become the world's fourth largest copper mine by 2030. Across the business, we're using learnings from [indiscernible] to drive lower capital requirements and faster execution. On release, we're ensuring every dollar works harder and drives higher shareholder returns. When I became CEO, I made a commitment to unlock capital. We are well advanced in doing so for borates, actively scoping options in TiO2 and conducting a disciplined review of potential infrastructure options -- every asset must justify its spot in the portfolio, and we are progressing opportunities in 2026 to release up to $5 billion of cash from the total program of $5 billion to $10 billion. and I'll update that further at the half year. Our increased portfolio diversification across the 3 product groups is a real strength, the right assets in the right commodities -- the contribution from copper and aluminum has increased 2.5x -- 2x from 2020. And now it's growth through the end of this decade further diversifies our earnings base. And finally, capital discipline is the bedrock of our diversified model. Growth is governed by a strict financial framework, rigorously applied hurdle rates around $10 million annual CapEx over the midterm and active portfolio review to recycle capital into higher returns. With a 60% dividend payout sustained over the past 10 years, as EBITDA grows 40% to 50% through the 2030, the dividend stream also increases. We operate with a strong balance sheet anchored on a single A rating. Any surplus capital above our investment hurdles and balance sheet anchor gets returned. So bringing this all together, have a winning formula for growth and returns, leading positions in iron ore, aluminum, copper and lithium. No 1 else in the sector has this combination exposed to the right demand catalyst with growth coming through at the right time. Our focus is to run it harder, get it into stronger cash flow, higher returns and a more resilient business, all of which is underpinned by strong capital discipline ensuring shareholders benefit from increased cash generation and capital release. This is how we're becoming the most valued metals and mining business. Thank you. You're double teaming on me.

So let's ease bings of gently Simon and talk about a subject that's probably pretty close to your heart. For my tenure on sell side, you've spoken about the [ 360 million ] tonne per annum target out of Pilbara iron ore. So let's talk about iron ore. How do you think about value over volume?

There's a formula -- former CEO of our iron ore business used to talk to me about the 5Ps. Every time I see they say 5 pon preparation prevents petal performance. And I think in iron ore, we've got probably the 3 Ds now, which has really meant iron ore has been resilient, a lot more resilient than many commentators some of which are close to here, have -- but depletion is one. And so when you look forward and you think about the growth that's happened over the last 10 years, -- we actually need about the same capacity to come on to replace division that's happening in the industry, part of which is miles getting to the end of life, part of which is also the second around declining grades. And at the same time, disruptions that occurred on the supply side has meant on or has been far more resilient than most commentators predicted and it's an incredible strategic advantage to us. to have an enormous cash generation that we're able to deploy both shareholder returns as well as for investing in projects. So when you look across our portfolio, IOC, [indiscernible] and the Pilbara, we've got really good growth options to take our midterm guidance to around 425 million to 440 million tonnes. That's across all of those assets in terms of sales. Simon -- we commissioned that in the start of this year and about a 30-month ramp-up for that to come to market and similarly in the Pilbara. We've got the replacement projects that we're well progressed on as we recapitalize the the business, and we turn to roads reach to really support the tonnage in the Pilbara. We've got the infrastructure in place, but we haven't had in place is the mine capacity.

Yes. Okay. And as you went through the discussion with merger talks with your friends at Glencore, did you rethink about what you could do with producing and selling iron ore? Were there any ideas that came out of that, that you're looking to implement?

So I think 1 of the things I really wanted to do coming into this chair is make sure we set a really clear base case that we set out and explore all opportunities to add valet that. And so the discussions with Glencore you certainly learn things about them. You certainly learn things about yourself. One of the things, I think, is the value of having a stronger commercial front end in a world that is more volatile, Balboa's somewhere here, and we'll be I think talking to you, Jason, tomorrow, so you should have remember about how we're thinking about that in terms of developing up a stronger front end.

Okay. Great. And so let's move from Australia to [indiscernible] and talk about that asset. So the market is worried that this extra supply coming online, we'll see downside to the iron ore prices and put pressure on that. How do you think about iron ore pricing in environment with Simandou coming online?

So steel production in China continues to be strong. We'll have another year north of 1 billion tonnes. At the same time, as some of those trends I talked about earlier around the 3D means that we're going to need still the iron ore units out of Simandou. Particularly those higher-grade units as the steel industry continues to reduce emissions. And so Simon will come on to the market, the market is going to need those units. It's a tremendous advantage for us to be well diversified across high grade, midgrade and low grade as well as geographically diverse across our business, Canada, Australia and Guinea. The other point I'd make is Simon de it's a really complex environment, the ability to bring that project on and the amount that we're learning from the consortia that building Simandou, the pace and scale of that development and applying those to some of our other projects and taking those learnings is certainly helping us in terms of capital intensity. And we've got to replenish our pipeline. You've got to be able to build projects if you want a sustainable business.

Okay. Let's switch directions, we're going to go to copper. Maybe we'll just walk through a couple of the key producing assets. So let start with Mongolia. I think you spent about 15 years now pouring huge capital into a hole in the middle of the Gobi desert called Tobi. So it's finally coming good. How do you think about the near term for the asset, but then is there a longer-term optionality here as well?

So OT is amazing ore body. I must say I'm pleased that, that CapEx is behind us, and we've got the production growth coming through and -- it's obviously a really good spot for us to be in as copper prices, obviously, fairly robust and so this isn't growth out in the 2030 of the growth that's coming through today. ongoing discussions with Mongolian government on a whole range of factors, the shareholder interest loans, the the taxation. And so we'll continue to have those discussions. An asset that, as we look to -- I think the team has done a really good job in terms of making sure we've got optionality as we look at Panel 1 panel 2 and access into the entree leases. And so we'll make decisions around that. Our focus at the moment is to bring that up to the 500,000 tonnes that we've committed to 2 to the mid-2030s. And so that's the immediate focus, and we'll continue to drive towards that. But ramp-up is going well. The asset is performing as we expect.

Okay. So let's come over to the U.S. We're here. Kennecott. So some people would call this an iconic asset. Some people would describe it in different ways, has Rio Tinto think about it? Are the best years behind it?

So Kennecott as well, 40% to 50% production growth through 2028. So an asset that we're really pleased to have in the portfolio. copper plus a smelter in the U.S. It's an asset that sits very well in the portfolio. Obviously, a lot of heritage there with Rio Tinto. First production from the underground scans at the end of last year, and we're doing work on how to extend the life of Kennecott to make sure that it keeps delivering for the future. But obviously, it gives us a significant strategic card in the U.S.

So while we're talking about the U.S., let's talk about resolution. So a few former CEOs have told me it's coming sooner than you think, Jason. I think for the last 20 years, it's been 10 years away from production.

It depends on your timing, Jason, on your base guys.

So how far are we away from FID?

So really material news recently on resolution with the non circuit rolling that came down a few months ago. So that then has cleared the land exchange, which has occurred. And so we're now progressing the drilling. The next stage for resolution is to make sure that we get down to the ore body. It's 1 of the learnings from is really making sure that we have full oversight of the ore body. Geotech, we can design the mine. And so that's the near-term focus as part of the pathway to bringing that asset sort of mid-2030s into production, but resolution will be a phenomenal mine. We need to make sure we get the settings right for its development.

So just on FID, is this a go, no go? Or is this a staged approach still in terms of committed capital?

Stage approach still, as I say, the first thing we need to do is get down and really drill the ore body to make sure that we understand all the parameters of that orebody to then take the next decision.

Simon, you mentioned in your opening remarks that Aluminium had been the best performing commodity year-to-date. Rio has got the Canadian assets, which are some of the low cost. They're supported by hydro. They're the lowest carbon, you benefit from the premium into there? How do you think about unlocking full value from those assets. So they're sort of hitting away as a discount in the regular portfolio, some would argue. How do you think about aluminum in the portfolio?

So the -- I mean, the slide I showed earlier, the contribution of copper and Ali, 2x since 2020. And if you run a diversified model, you got to be diversified. And so aluminum assets in Canada. Now we produce around 3. We've got capacity for around about 3 gigawatts of energy in aluminum. At the time of rising energy costs, that's all hydro in Canada. That's all own dams to be able to replace that hydro system now. you wouldn't be able to do it. But at a time when energy costs are rising, and we've got that self-generated capacity. And obviously, we can monetize that through the aluminum business, and hence, you're seeing the EBITDA return from that business increased a 3-point bump on the ROCE for that business. Aluminum performing well and an asset that we want a commodity that we want to continue to participate in.

So we'll talk about lithium a bit now. Spot lithium more than double since the -- since you guys did your deal. So exposit looks pretty pretty tasty pretty well timed, and we had a great site visit down to Argentina last year. I guess are you pleased with the acquisition? And then how do we think about the decision points for that business from a capital allocation point of view over the next 5, 10 years?

Then you start with the structural drivers, electrification, AI and lithium plays really well into that together with aluminum and copper. And so it positions the portfolio well. And certainly having those lithium assets as part of our portfolio strengthens it. You got to have the right assets, and we'll see lithium prices be volatile, as you say, a significant expansion in lithium prices recently. But it's growing extremely fast. And industries that are growing fast like that, you'll get capacity come on, and so you will see some volatility on the price side. And so our our focus is on that medium and longer term. And so as you saw at the site visits, we've got incredible existing assets there and a clear path to build out to 200,000 tonnes of capacity by 2028. Our objective is around that fight to get unit cost down to $5 a tonne, get capital intensity down to about that $30,000 a tonne. And if you can get to those sort of numbers, depending on your view of prices, it's a very solid EBITDA and will be a great contributor to the group going forward.

So when is your next decision on a project for lithium?

So the Rincon 3000 is ramping up at the same time as we'll focus on the Rincon project Phoenix will come in towards the end of -- in the second half of this year and then a stage-wise step out of that build to the 200,000 tonnes.

So earlier this year, Simon, the discussions with Glencore ultimately led to the decision not to proceed with that bid. What are the key things that we learned during that process that you can talk to us about?

I mean the Glencore transaction has been around for a while. I wanted to have a detailed look and detailed due diligence as part of the U.K. takeover code. It's hard to have a couple of team within the U.K. without it being public. And so certainly aware that it was going to be public, but that's the right thing for us to do. We should have a look. We should do detailed due diligence. That's what we did. And we couldn't come to a transaction that made sense for Rio Tinto shareholders. And so hence, the decision to walk away.

And putting aside the price there, what were some of the complementary aspects between the businesses you...

A few pieces of investment thesis I wanted to test our project capability, their pipeline their marketing capability across the combined assets. And so they were part of -- as part of the discussions. And ultimately, we couldn't get there.

Okay. Got it. And a key pushback that we often hear on Rio is that there's not enough copper growth options. You've told us that in the second half of the year, you're going to come to the market and tell us more about your copper business what kind of things can we expect? What are the key assets you're talking to when we talk about Rio's Copper Group.

So if you segment our copper business, we've got great existing assets that have got growth coming through. We talked about and IT. We've got good greenfield project options, resolution, we've touched on together with projects like Winner in Australia, smaller but great jurisdiction area. We know really well with some exploration upside as well as future projects like the Wavecobra. And so I think we've got a good mix of organic growth options, both from existing brownfields that are lowest longer-dated options, and that will give us growth. I talked earlier about the growth that we're going to continue to see coming through to 2030, but we've obviously got options to extend that well out into 2030.

So is all of that to say, you don't need the inorganic, you're happy with the organic?

I think we're in a [indiscernible]. As we touched on, on the start, having an organic cash machine like the iron ore business, actually puts us in a different place compared to others without because it allows us both to drive shareholder returns and growth at the same time.

Okay. Let's do a couple of questions from the floor. Anybody have a question. Okay. Let me ask one more just to keep things going a little bit. I mean one thing that's come up in a few investor meetings is this sort of debate on the whole big miner business model. And you're kind of scratching the surface a little bit here, Simon, but you're a believer, I think, right?

If you I think the diverse hub model is the right model, if it's run right.

What do you think the diversified model is good for and what do you think is bad at?

So I think through the cycle, it positions you the bets both to drive your own organic options and take advantage of whatever options come. Obviously, as well, it allows you to get synergies where you have that scale. The key is, though, you got to have a lean corporate sand, you've got to be clear around where you're delivering synergy benefits from scale. And so one of the things we've done is been pushing decision-making back to the asset. And so that's about making decisions as close as possible to their point of impact, and then being really clear where at a corporate level, we've got some synergy benefit procurement, capital allocation, those aspects.

What do you think about the argument about the valuation disconnect between diversified miners and pure plays.

I think at any point of the cycle, you can isolate particular bits of the business and say these could be valued more if they were stand-alone. But it comes with disadvantages. You've got a project pipeline, but you can't fund it. through the cycle at different price points. You can always come to a different view around that. My belief is through the cycle, the diversified model will win in our industry because of those benefits I talked about.

Okay. Let's try the floor one more time. Anybody feeling like an extra vedo, I can cold call some friends? We got one here. Let's get one from the stage of the front row.

Talking about the growth in the metals and the change in the political environment around the world to do it. Do you see any lessening of restrictions as it relates to permitting or at least the red tape relating to permitting. Do you think that with the movement away from globalization that some of the western countries, and I won't name 2 or 3 that I think or should will become more receptive to projects?

It's exactly the right question. That's something we look at and think about a lot across all the jurisdictions in which we operate. And I mean 1 of the reasons on the supply side that is restricted has been just how long it takes to get projects permitting, and that's true across most regions. To your question, are we seeing that change? I think you're seeing a far greater focus from governments than we really have seen for decades around where their materials come from and around supply. And so I think that will translate. And from our perspective, we want to see permitting efficient and effective in terms of the protecting environment, cultural heritage, the other aspects. -- but it has to be efficient as well. We're able to progress things rapidly and not have things go around in circles without really any benefit at the end of the day. Some jurisdictions, I think you are seeing it change. Argentina may be an example. There's some other jurisdictions you'd say it's continuing to get harder and harder. So I think it depends on the jurisdiction. You are seeing and ultimately, capital in our industry is competitive around the world. And so if you have an efficient and effective permitting system, you're going to see more projects in your country.

Okay. Let's wind it up there. Could you join with me, please, in thanking Simon for his presentation.

Thank you very much.