24th Apr 2008 07:01
Rio Tinto PLC24 April 2008 Rio Tinto Limited AGM 24 April 2008 The Rio Tinto Limited annual general meeting was held on Thursday, 24 April 2008in Brisbane. The speeches by the chairman and the chief executive are below. Opening remarks by the chairman, Paul Skinner Good morning ladies and gentlemen. I am very pleased to welcome you to thisyear's Annual General Meeting. Before we go any further there will be a short safety briefing. This issomething Rio Tinto takes very seriously and I would ask that you all listencarefully. Directors All your directors are present at today's meeting, except Andrew Gould who hasan unavoidable long standing commitment and sends his apologies. Following the acquisition of Alcan we are especially pleased to welcome YvesFortier and Paul Tellier who are standing for election to the board as nonexecutive directors, and Dick Evans, chief executive of Rio Tinto Alcan, as anexecutive director. This strong representation from Canada will provideimportant continuity in the integration of Alcan and brings valuable newperspectives to the board. Members of the board who are standing for re-election today are Tom Albanese,Vivienne Cox, Richard Goodmanson and myself. As we announced last year, Sir Richard Sykes, currently the senior independentdirector, will retire after this year's annual general meetings after ten yearson the board. I take this opportunity of recognising his valuable contributionto Rio Tinto over that period, for which we thank him. Andrew Gould, currentlychairman of the Audit committee, will become the senior independent director onRichard's retirement and will become chairman of the Remuneration committee.Sir David Clementi will replace Andrew as chairman of the Audit committee. Thesechanges are planned to take effect at the conclusion of the 2008 annual generalmeetings. Ill health led to the resignation of Ashton Calvert from the board in Novemberand we were deeply saddened to hear of his death shortly afterwards. Ashtonjoined the boards in 2005 following a long and distinguished career in theAustralian foreign service before his last role as secretary at the Departmentof Foreign Affairs and Trade. He made a major contribution to Rio Tinto andprovided valuable insights across a range of major strategic issues, notably inrelation to our businesses in Australia and Asia. He was an inspiring colleagueand we miss him greatly. During 2007 we also achieved a seamless transition in our executive leadershipwith Tom Albanese taking over as chief executive on 1 May. Retaining continuityand stability during a change of leadership does not just happen - it is theresult of careful planning and management focus. It is testament to the quality of our leadership team that they have delivered astring of records during the year against the backdrop of heightened corporateactivity. We are very fortunate to have one of the strongest management teams inthe resources sector. Results and dividend Rio Tinto is about value creation and business excellence and we remaincommitted to both. I am pleased to say that the Group had another record year in 2007, withcontinuing strong demand and prices for our products. Our underlying earnings in2007 were a record US$7.4 billion, one per cent above 2006. Net earnings were $7.3 billion, and cash flow from operations increased 15 percent to a record $12.5 billion. We are currently generating around a billiondollars a month in cash. Total dividends declared for 2007 of 136 US cents per share represent anincrease of 31 per cent over the 2006 dividend. Reflecting our confidence in thecontinuing growth of the business, we have committed to further total increasesin the dividend of at least 20 per cent in each of 2008 and 2009. We have always said that our first priority for excess capital after ourreinvestment in profitable growth is the ordinary dividend, and we are pleasedto reinforce this commitment to our shareholders. Our confidence is also reflected in our planned capital expenditure in 2008 and2009 - indicatively around nine billion dollars in each year, including thecommitments we have made to Rio Tinto Alcan's growth projects. We have manyopportunities to grow our business from our expanded asset base. Strategy Our strategy to add value over time is characterised by consistency andsimplicity - we aim to invest in large, long life, cost competitive assets. The acquisition of Alcan is an excellent example. Against a background ofstrengthening aluminium prices we have created a global leader in this sector,with high quality assets in all phases of aluminium production. Similarly, our ongoing investments in iron ore production and infrastructure,and our plans for investment in a series of large, long term copper projects aretargeted to create significant value over time. Tom will say more about this. We have also committed to a programme of disposal of non core assets which willlower our debt level and create the opportunity to focus our business on worldclass, market leading positions. This is progressing well. BHP Billiton offer I should like to make a few comments on the position following BHP Billiton'spre-conditional offer. As you know, the Rio Tinto boards unanimously rejected anoutline proposal last November of three BHP Billiton shares for each Rio Tintoshare. This rejection was after full consideration by our board, on the basisthat it significantly undervalued Rio Tinto's assets and prospects. In February, BHP Billiton followed this approach with a pre-conditional offer of3.4 BHP Billiton shares for each Rio Tinto share. Again our boards gave thisvery careful consideration and concluded that we should reject this also for thesame reasons. We have an outstanding portfolio of assets, our business is performing verystrongly and is very well managed by a talented team. We have taken manyopportunities to explain this to the shareholders and the financial communityover recent months and I believe the intrinsic value of Rio Tinto is becomingincreasingly clear. As you know, a 12 per cent holding in Rio Tinto plc has beentaken by the Aluminium Corporation of China (Chinalco). This is not something wesolicited, but the acquisition, at a premium to the then prevailing marketprice, gives directional support to our view on Rio Tinto's value. We shall therefore continue on our course of creating value for shareholders andthe board will not engage in discussion with any party whose proposals do notfully value Rio Tinto. This would need to reflect a significant premium to whatwe can achieve ourselves - so far we have not seen that. In the meantime themomentum in our business continues to develop strongly. Strong in Australia A lot of that momentum comes from our activities in Australia - Queensland isone of our major operational hubs. In Australia Rio Tinto is in the forefront of national wealth creation that addsvalue to the economy in the form of wages, taxes, royalties and interest, aswell as profits distributed to shareholders. Brisbane hosts our globalTechnology and Innovation group where we are developing a global position oftechnical leadership through our Mine of the Future programme. We also have astrong base in Melbourne, and Perth hosts Rio Tinto's dynamic global Iron Orebusiness. Our pioneering dual listed companies' structure has proved a very strongplatform for growth and we have the capacity to do all we need to do in oursector - Alcan was an example - but at the same time maintain our specialrelationship with Australia. Rio Tinto's focus on its Australian operations has intensified over recent years- with approximately 30 billion Australian dollars in investment since 1998.Last year our value added in Australia amounted to 10 billion. Even moreimportantly we employ 17,000 people in well paid jobs in Australia and are thelargest private sector employer of Aboriginal people. Rio Tinto has also led the introduction to Australia of new competencies inmining - such as the first modern Aboriginal land access agreements. We are veryfocused on these important community relationships. We firmly believe that, through our stewardship and development of Australia'snatural resources, we have demonstrated a full commitment to Australia. A trulyglobal company will seek to achieve that objective in every country in which itoperates. Sustainable development A successful business is one that is sustainable and meets all its legitimatestakeholders' needs in the short term and the long term. By earning a good reputation for our care of the environment and contribution tosocial improvement and economic conditions of local communities, all within astrong governance structure, we gain improved access to land, people andcapital, the three critical resources on which our business success is built. Our demonstrated commitment to sustainable development is matched by Alcan's.These common values are greatly assisting in the integration of the twobusinesses. Rio Tinto Alcan aims to be the sustainability leader in aluminium. It hasconsistently been at the forefront of developing the most advanced smeltingtechnology to reduce energy use and emissions. More than half of its electricityrequirements come from clean hydro-electric power which will prove an increasingcompetitive advantage in a carbon constrained world. Economic outlook Turning now to the outlook, market conditions in 2007 served to underline thatstrong demand for metals and minerals is continuing. There has clearly been a shift in the cyclical pattern of the industry, drivenby demand from fast developing economies. This presents mining companies with apotentially extended period of strong earnings. It is not only about demand -supply is struggling to catch up and keep up, due to multiple constraints in thedevelopment of new production capacity. Last year China's economy expanded at its strongest pace in 13 years, markingthe fifth year of double digit growth. Industrial production there was up by18.5 per cent and urban investment by 25 per cent. These are key aggregateindicators of China's industrialisation and urbanisation process. Because of the developed world's focus on the weakening economic situation inthe US, there's a perception that mining and metals may face declining demandand a return to cyclical over capacity. This is not how we see it. Important asthe US remains to the world economy, it is not as pivotal as it once was toglobal demand for metals and minerals. For example, last year China consumedmore than half the world's iron ore imports, and its total steel consumption wasover three times that of the US. We often think of China as being powered by exports, and particularly exports tothe US. In terms of demand for our products, this is not really the story anymore. The direction has changed to one of accelerating internal demand driven byindustrialisation and urbanisation. We expect continuing double digit GDP growthin China in 2008 and metals demand to continue to rise at a rate well above GDPgrowth. Even if an extended US recession were to materialise, our analysis showsit would reduce Chinese GDP only marginally. It is not just a China story -other Asian economies, notably India, are poised for extended periods of growth. We therefore remain very positive about the prospects for the industry, and forRio Tinto in particular, given our outstanding portfolio of assets. Conclusion 2007 was a transformational year for Rio Tinto. As we move through 2008 theextent of this change will become apparent as we move to a new level ofperformance. This, in turn, will highlight the increased focus of our businesson global leading positions in products with strong fundamentals. We haveestablished a new baseline for future value creation for shareholders. Managing major strategic initiatives places strong extra demands on managementand they have certainly risen to meet the challenges. Satisfying the demands ofcustomers, and developing new projects within tight timetables and budgets, putsconsiderable pressure on every individual in the organisation. Our record results in 2007 are very much a product of the commitment, dedicationand hard work of all our people across the world. On behalf of the board andyou, our shareholders, I thank them for all they have done to deliver success inanother record year. Remarks by the chief executive, Tom Albanese Before I discuss our results, let me say something on safety. This remains thehighest priority throughout Rio Tinto. It is therefore deeply tragic that on 11 March we suffered the loss of tenpeople in a helicopter accident near the La Granja copper project in Peru. Rio Tinto is deeply saddened. Everything was done to assist the families ofthose on board. Bret Clayton, our Copper group chief executive, other seniorexecutives and I immediately visited the area to lend the support we could. On 19 March all operations in the Rio Tinto Group worldwide observed a safetyshutdown as a mark of respect for this tragic loss. We also very much regret the four fatalities of contractor personnel at managedoperations in 2007. Nevertheless 2007 did see a continuation in improvement ofour overall safety performance. Overall we have a good safety record but we will never be complacent and willcontinue to work towards our goal of zero harm. This is particularly importantas we integrate Alcan and combine what are two strong safety cultures to drivefurther improvement. Our company and our industry is going through very exciting and dynamic times.None of us can remember the mining industry so buoyant and Rio Tinto being insuch good shape. We delivered record production for many of our key commodities. This wasreinforced by our substantial investment in growth. Major investments in growth projects made or approved in 2007 totalled animpressive $46 billion. Most of this was on the acquisition of Alcan for $38 billion, but it alsoincludes construction of iron ore mines and infrastructure, and investments indiamonds, alumina, coal and nickel. Rio Tinto Alcan The agreed takeover of Alcan in 2007 was a historic step with far reachingstrategic benefits for Rio Tinto. I would like to thank you, our shareholders,for supporting the transaction. By combining Alcan with the existing Rio Tinto Aluminium business we have becomea global leader in aluminium, We own premier assets throughout the aluminiumvalue chain, competitively positioned on the global cost curve, and integrationof Alcan into the Rio Tinto Group is well under way. We have 25 aluminium smelters in 11 territories, most of which are located inOECD countries. Crucially, the production base contains many of the world's mostmodern and low cost smelters, fitted out with Rio Tinto Alcan's industry leadingAP Series technology. We are now a leader in aluminium industry technology, with the takeover of Alcanuniting two of the world's top metallurgical and research and development teamsin a global drive to make aluminium the green metal for the 21st century. We also own large and sustainable hydro-electric generating capacity of nearly3,700 megawatts, much of which cannot be duplicated. This is equivalent to anoilfield producing 175,000 barrels a day forever. It constitutes a significantcompetitive advantage that will only increase in value over time. The Aluminium group also has a strong project development portfolio. There aresix projects planned or under way in bauxite and alumina and seven more inaluminium. When the deal with Alcan was announced we saw some 600 million dollars of costsavings being achievable. After further work we have set ourselves the target ofachieving after tax benefits of US$1.1 billion per year in synergies from theend of 2009. Market environment Turning to the wider commodity market environment, over the past five years thegrowth of China has created high expectations with a fundamental shift in theglobal economy towards fast and resource intensive growth. Countries like China and India continue to industrialise, urbanise and expandtheir per capita GDP. We expect these conditions to continue for some time. On top of this strongdemand, supply growth continues to be constrained, held back by decades ofunderinvestment by the mining industry in people, in exploration and resources,in mines and infrastructure. While demand bodes well for the future, we must remember that to keep ourcompetitive edge we have to work faster at meeting the world's growing demand,better at leading and shaping our industry, and smarter at creating shareholdervalue. This means investing in robust projects that will continue to be market leadersin decades to come. 2007 results overview Turning to the 2007 financial results, as we have seen, this was anotherexcellent year, breaking production records for iron ore, bauxite, alumina,aluminium, refined copper and refined gold, thus making the most of higherprices. Price movements on all major commodities increased earnings by 1.4 billiondollars. We completed four major iron ore projects in 2007 on time and within budgetwhile at the same time achieving record output. These were the expansion of theTom Price and Yandicoogina mines; expansion of Dampier port, and completion ofthe first stage of the Hope Downs project. Copper The Copper group was our highest earner with a contribution to underlyingearnings of $3.5 billion, similar to record earnings in 2006. Earnings in 2007reflected higher sales of refined copper, and continuing strong copper,molybdenum and gold markets. Positive co- product credits reduced our overallunit cash costs to less than zero. Iron ore Our Iron Ore group enjoyed a record breaking year. Underlying earnings rose 18per cent and set an annual record, as did production and sales. For safetyperformance this was also the best year on record, with a 35 per centimprovement in the lost time injury frequency rate, despite new projects and ahigher level of activity. Aluminium Aluminium's results include Alcan businesses from 24 October. The productgroup's contribution to underlying earnings was just over one billion dollars,an increase of 47 per cent over 2006. On a comparable basis, the group achievedrecord aluminium production. The increased earnings contribution was the resultof higher aluminium prices and a one off reduction in Canadian tax ratesapplying to the Alcan businesses. Energy In Energy, 2007 saw the re-emergence of uranium as an important contributor. Weare the world's second largest producer and we saw a trebling of earnings fromsharply rising prices realised at Rossing and ERA. In 2007 the biggest negativeimpact on Energy earnings came from continuing, externally managed,infrastructure issues on the east coast of Australia. We hope to see the newgovernment in Australia begin to address this national issue as a matter ofurgency. Diamonds and Industrial Minerals Diamonds and Industrial Minerals performed well in 2007. The Diavik diamondmine, one of the world's most profitable, had record production and earnings. InMinerals, volume weakness in North America was offset by rising prices forborates and talc. Titanium dioxide prices also firmed, and our ilmenite projectin Madagascar is on track for first production at the end of this year. Divestments The acquisition of Alcan gave us the opportunity to refocus our portfolio. This rebalancing of the portfolio also gives us the means of reducing the debttaken on for the Alcan acquisition. We plan to reduce this debt more quickly by divesting assets that are no longercore to the enlarged Rio Tinto. We originally set ourselves a target for asset sales of at least $10 billion.After further review this has been increased to at least $15 billion. We aim toachieve $10 billion in 2008, of which we have completed sales of $2.5 billion sofar. We have formal processes in place for all asset sales, and no shortage ofinterested parties. Major project developments At the heart of our value case is the strength of our project pipeline. Ourplanned capital expenditure in 2008 and 2009 is $9 billion in each year. Our portfolio of projects allows us to target strong production growth in thethree commodities that are key to the economic future of China, and later Indiaand other fast growing and industrialising economies of Asia: iron ore, copperand aluminium. Ongoing projects include expansion at Kennecott Utah Copper in the US, new ironore mines and port expansions in Australia, underground development of ourdiamond mines, extension of coking coal production and re-entry into the nickelbusiness. In all, extending out to 2012, we have 34 key projects on the go which areexpected to boost our production of key commodities. Beyond 2012, we have a number of early stage and conceptual projects - La Granjacopper, Simandou iron ore, Resolution copper and Sulawesi Nickel, for example. Exploration Looking even further ahead we have strong growth opportunities generated fromour exploration activities, both greenfield and near mine. This is the most costeffective way of acquiring quality assets, and we are very good at it. It is often our ability to think creatively about an existing asset or a knownprospect, which unlocks the opportunity to create value. Resolution, Simandou, Potasio Rio Colorado and La Granja would be good recentexamples. The recently announced one billion tonne Chapudi coal resource inSouth Africa could be a future example. We continue to invest at high levels in the area of exploration and evaluation,on which our total pre tax spend was 570 million dollars in 2007. Strong prospects Rio Tinto's project pipeline and exploration capability, together with ourproven project execution capability is the key to value adding growth. Based on our portfolio of projects, we estimate that the compound annual growthrate of our volumes from 2008 to 2015 is over eight per cent per annum. This is based on the volume growth rate of our individual products indexed intocomparable monetary equivalents using consensus long term prices. This equates to growth in value, which is the key driver of Rio Tinto. Volume growth from competitively positioned assets at a time of strong demandwill lead to substantially enhanced returns for shareholders. All ourinvestments must pass a rigorous appraisal discipline before they are approved. As I've said, we are in a unique position with strong demand for everything weproduce - and we have the operations, prospects and capabilities to deliver thisgrowth. Our current position in each of our three main products is very strong. We havelarge scale if not leading positions in each one of them, with competitiveoperational costs in the first or lower second quartiles. We have an excellent set of growth opportunities, with the potential to doubleor even treble the production of our key commodities. Conclusion Rio Tinto is therefore perfectly positioned to take advantage of theopportunities afforded by markets that are expected to remain strong for decadesto come. We remain totally focused on value and I am resolved to make the business workfaster at meeting the world's growing demand, better at leading and shaping ourindustry, and smarter at creating value for our shareholders. Our 2007 results show that our growth is accelerating. Our planned investmentsare targeted to maintain this momentum. Rio Tinto is about value. The value will come from leveraging our assets, ourprospects, and our organisation in a very strong market environment, whilecontinuing our commitment to safety, and adhering to our sustainable developmentprinciples. And ultimately the value we create will belong to you our shareholders. About Rio Tinto Rio Tinto is a leading international mining group headquartered in the UK,combining Rio Tinto plc, a London and NYSE listed public company, and Rio TintoLimited, which is a public company listed on the Australian Securities Exchange. Rio Tinto's business is finding, mining, and processing mineral resources. Majorproducts are aluminium, copper, diamonds, energy (coal and uranium), gold,industrial minerals (borax, titanium dioxide, salt, talc) and iron ore.Activities span the world but are strongly represented in Australia and NorthAmerica with significant businesses in South America, Asia, Europe and southernAfrica. Forward-Looking Statements This announcement includes "forward-looking statements" within the meaning ofSection 27A of the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. All statements other thanstatements of historical facts included in this announcement, including, withoutlimitation, those regarding Rio Tinto's financial position, business strategy,plans and objectives of management for future operations (including developmentplans and objectives relating to Rio Tinto's products, production forecasts andreserve and resource positions), are forward-looking statements. Suchforward-looking statements involve known and unknown risks, uncertainties andother factors which may cause the actual results, performance or achievements ofRio Tinto, or industry results, to be materially different from any futureresults, performance or achievements expressed or implied by suchforward-looking statements. Such forward-looking statements are based on numerous assumptions regarding RioTinto's present and future business strategies and the environment in which RioTinto will operate in the future. Among the important factors that could causeRio Tinto's actual results, performance or achievements to differ materiallyfrom those in the forward-looking statements include, among others, levels ofactual production during any period, levels of demand and market prices, theability to produce and transport products profitably, the impact of foreigncurrency exchange rates on market prices and operating costs, operationalproblems, political uncertainty and economic conditions in relevant areas of theworld, the actions of competitors, activities by governmental authorities suchas changes in taxation or regulation and such other risk factors identified inRio Tinto's most recent Annual Report on Form 20-F filed with the United StatesSecurities and Exchange Commission (the "SEC") or Form 6-Ks furnished to theSEC. Forward-looking statements should, therefore, be construed in light of suchrisk factors and undue reliance should not be placed on forward-lookingstatements. These forward-looking statements speak only as of the date of thisannouncement. Rio Tinto expressly disclaims any obligation or undertaking(except as required by applicable law, the City Code on Takeovers and Mergers(the "Takeover Code"), the UK Listing Rules, the Disclosure and TransparencyRules of the Financial Services Authority and the Listing Rules of theAustralian Securities Exchange) to release publicly any updates or revisions toany forward-looking statement contained herein to reflect any change in RioTinto's expectations with regard thereto or any change in events, conditions orcircumstances on which any such statement is based. Nothing in this announcement should be interpreted to mean that future earningsper share of Rio Tinto plc or Rio Tinto Limited will necessarily match or exceedits historical published earnings per share. Subject to the requirements of the Takeover Code, none of Rio Tinto, any of itsofficers or any person named in this announcement with their consent or anyperson involved in the preparation of this announcement makes any representationor warranty (either express or implied) or gives any assurance that the impliedvalues, anticipated results, performance or achievements expressed or implied inforward-looking statements contained in this announcement will be achieved. For further information, please contact: Media Relations, Australia Media Relations, London Amanda Buckley Christina MillsOffice: +61 (0) 3 9283 3627 Office: +44 (0) 20 7781 1154Mobile: +61 (0) 419 801 349 Mobile: +44 (0) 7825 275 605 Ian Head Nick CobbanOffice: +61 (0) 3 9283 3620 Office: +44 (0) 20 7781 1138Mobile: +61 (0) 408 360 101 Mobile: +44 (0) 7920 041 003 Media Relations, Americas Nancy IvesMobile: +1 619 540 3751 Investor Relations, Australia Investor Relations, London Dave Skinner Nigel JonesOffice: +61 (0) 3 9283 3628 Office: +44 (0) 20 7781 2049Mobile: +61 (0) 408 335 309 Mobile: +44 (0) 7917 227365 Simon Ellinor David OvingtonOffice: +61 (0) 7 3867 1607 Office: +44 (0) 20 7781 2051Mobile: +61 (0) 439 102 811 Mobile: +44 (0) 7920 010 978 Investor Relations, North America Jason CombesOffice: +1 (0) 801 685 4535Mobile: +1 (0) 801 558 2645 Email: [email protected] Website: www.riotinto.com High resolution photographs available at: www.newscast.co.uk This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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