Rio Tinto held a rare Investor Seminar today, with presentations by several members of the executive team. While the presentations were strictly scripted, and the Q&A gave very little away in terms of new information, the seminar highlighted that the company is firmly back to its roots: conservative, disciplined, focussed on generating cash and delivering shareholder returns. Boring at its best, as RIO always should be.
Not just about digging dirt. RIO highlighted the greater complexity and increasing global challenges facing the industry in the next decade, driven by growing geopolitical tensions (trade and GDP growth), higher societal expectations (ESG/climate change) and technological disruptions. The company states that the best way to tackle climate change is by working across the entire value chain, from the iron ore/bauxite mine to the automaker. To this end, it will continue to develop partnerships such as the one recently announced with Baowu and Tsinghua University. RIO noted that 71% of its electricity consumption comes from renewable sources and that it has reduced its own emissions by 18% in the past 5 years. This includes sourcing renewable power at Kennecott (vs coal powered previously), thereby reducing the operation’s carbon footprint by 60% while improving community relations, given the winter inversions regularly experienced in nearby Salt Lake City.
No growth for growth’s sake. In the last 3 years, RIO has grown volumes at a c.2% CAGR but future growth remains captive to the company’s value-over-volume mantra. RIO admits that it doesn’t know what the perfect mix of commodities in the future will be, but that it doesn’t allocate capital based on what it wants the product mix to be, but on what offers the best returns: making money drives the decisions, within a background of looking at all options.
Technology now reaping rewards. While several companies are advocating their technological expertise, RIO believes its mine automation system is a competitive advantage, given that much of the knowledge has been kept in-house and so cannot be bought off the shelf or replicated easily. AutoHaul, for example, has taken many years to implement and refine. In order to encourage new technology adoption at assets, the company is conducting more trialling and small scale implementation, to de-risk new technology.
Focus still very much on iron ore. RIO is iron ore centric and unapologetic about this. And why should it be, given that the division has returned EBITDA margins of over 50% for the past two decades? We highlight key points on iron ore in this note.
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