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Rio seeks value through additional flexibility

Rio Tinto has outlined plans to develop greater flexibility across its system of mines, rail and ports in Western Australia.

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The company said the move will provide its Iron Ore business with the capability to dynamically respond to changes in market and customer demand, enabling it to “continue to deliver superior value for shareholders”.


In a presentation to investors and analysts last week in Perth, Rio Tinto showcased the “world-class, leading-edge, fully integrated system” of its Pilbara operations.


Chris Salisbury, CEO of Rio Tinto Iron Ore, said: “Our strategy is to optimise our Pilbara assets to deliver value for our shareholders. Our Iron Ore business delivered US$7.3B of free cash flow in 2017, and we will continue to maximise free cash flow by pursuing a value-over-volume approach, built on a portfolio of world-class assets that deliver our premium iron ore product, the Pilbara Blend.


“We are driving productivity improvements right across the business, and we continue to leverage considerable value from innovation and new technology. Our pioneering autonomous rail project, AutoHaul, is on schedule to be implemented by the end of the year, and is already delivering benefits to the business through an uplift in rail capacity.


“Removing our bottleneck in rail and increasing flexibility remain a key priority. This work is progressing well and rail and mine capacity should be in line with nameplate port capacity by the end of 2019.


“As we have said before, we will continue to optimise the system to provide the flexibility to respond to market conditions. However, importantly, capacity is not the same as tonnes shipped. How we use the capacity of our integrated system will be dynamic, in line with a strict value-over-volume approach.


“We have an extensive pipeline of future development options, which we continue to grow. In 2018, our 700 km drilling programme will provide both ongoing reserve replenishment and significant optionality to optimise operations.”


More than 4,500 mine-to-market productivity initiatives are being pursued in the firm’s Iron Ore business, delivering US$500M in additional free cash flow per year by 2021 as part of an annual Group-wide target of US$1.5B, the company added. Its productivity and cash focus are increasingly important to offset early signs of cost inflation which it said are returning to the industry.


The group’s application of new technology was also discussed, including the continued successful roll out of automation, with 95 autonomous trucks and 11 autonomous drills already in operation. Work is progressing on the feasibility study for the Koodaideri project, designed to be the first mine to take full advantage of all these innovations.


Salisbury added the company continues to benefit from changes in the Chinese steel industry.


“The steel industry in China has undergone a significant shift in recent times due to supply-side reforms and environmental policy improvements. We believe these reforms are structural and that our business is well positioned to take advantage of these changes due to robust demand for our high quality products, including the Pilbara Blend.”


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