力拓 (RIO) 2008 Q2 法說會逐字稿

Tony Robson, BMO Capital Markets.

Tom and Nigel, good afternoon to you. Thank you for your time for our US or North American presentation. Great to see Rio Tinto making such strong increases in profits. The $10 billion of asset sales you mentioned for 2008, of which we have I think $7 billion to go, I guess infers that we will see one or both of the Alcan downstream assets sold in the current six-month period. Would that be correct?

Tony, as you know, we have a strong suite of projects that we have put on a list for sale and I would say that in the context of that portfolio and the context of very active streams that were on a number of those individual opportunities, that I continue to be comfortable with the $10 billion target in total.

As you know, we haven't been specifying anything in detail or with regard to a specific business until we have an announcable transaction. The reason for that is that as you can imagine with strong buying interest, people out there would gain any information they can or glean anything they can and in terms of maximizing value to Rio Tinto shareholders, we have been very consistently saying the less said the better until we are at a point of announcing a transaction.

It is important to recognize that a number of the businesses that we are considering for sale including packaging, including engineered products are not only strong in their respective areas, but they are also quite large and quite complex businesses. And you would expect that the total range of processes required for a successful transaction are quite considerable and that would reflect the timing and certainly is reflected into the planning and the confidence that we have on the $10 billion number.

Just finally, I would say that in all of these businesses, there's strong buying interest.

A follow-up question, if I may. I understand you can't say much on Cloud Peak Energy, but could you give us an idea of the timeline of when you could announce to the market whether you would be running with a trade sale or an IPO please?

As you may know in Cloud Peak's case, we have made a public filing in accordance with SEC regulations. That puts us in a quiet period and the SEC has been very clear and very strict as to what we can and more importantly, what we cannot say. That means there is very little more that we can say upon that except for the fact that we are considering that as one of our options as we consider opportunities to maximize the value for what I see as a strong business, in a particularly strong sector, as we speak.

And the final question before I will get off the phone, for the purposes of my modeling, can I assume that's the $10 billion of asset sales essentially will be used or predominately used to reduce net debt? As you pointed out, you already have reduced net debt to $42 billion. So could we look to say $42 minus $7 billion takes us somewhere in the $30 billions of net debt carried is impossible (multiple speakers)?

I would not want to give you the number but I would say that since the time of the Alcan acquisition, we flagged that these asset [dispose] will become primarily used to pay down debt, so that would not be -- that is a reasonable assumption.

Okay, thank you.

(Operator Instructions) Sean Heberling, John Tumazos Very Independent Research.

Good afternoon. It's John Tumazos. How is the ramp up in the iron ore operations proceeding and if you get any output up ahead of schedule or above plan, is there opportunity to sell more than 15 million tonnes on a spot basis this year or more than 5 million tonnes in the second half?

John, good to hear from you. Maybe let's talk about iron ore in the Pilbara. We are still focusing on a target around 200 million tonnes. Right now we are running at about a 205 million tonne run rate. And with those numbers behind us, we are comfortable with the 15 million tonne spot sale guidance we have given. Now, certainly we have sold more than 15 million tonnes on an annualized rate if you look at the first half. But what we have got to look at is that then and as we said from the very beginning, that we would be anticipating spot sales currently fully in compliance with our contractual long-term contractual obligations, which we continue to do so. But also in an environment with -- also as we projected our iron ore volumes.

So with these iron ore projections for production and ramp up, I would say that 15 million tonnes continues to be the right guidance. Now, spot prices continue to be higher than contract prices, so you can imagine that we are incentivized but it is fair to say that every single tonne that we can get out, put on a rail car, put on a ship, we are certainly doing everything we can to do it.

Next year should we expect the same -- larger amount of spot sales?

I think if I go back to the time when Sam and I began to talk about increasing spot sales, increasing hybrid sales, we saw room for more of this going into the market. Now, we have not given any guidance for 2009, but I would say the general trend would be to put more in, certainly at all times, though, we would be considering the proper portfolio mix in the context of where individual markets were. For example, if spot is higher than contract, we would be incentivized to do more. But again, we are not necessarily assuming at all parts at all times of the world spot will always be higher than contract. So that is why we would not want to be too prescriptive.

Thank you very much.

I have no further questions at this time. (Operator Instructions) A follow-up from Tony Robson, BMO Capital Markets.

Tom, while I have you on the line and the opportunity to speak with you, two, if you like smaller scale questions. One, HIsmelt is still in losses. I think from memory if we go back a year ago we had expected a bit more of a positive outcome from HIsmelt. Can you give us an update on when you think it may go back into profit?

And the second question would be on Grasberg. It hasn't really contributed much to Rio Tinto's bottom line since 2005, from memory. Given your knowledge of the metal strip and expected metal production from Grasberg, when do you think it would make a bigger contribution again to Rio Tinto? Thank you.

Thank you, Tony. Maybe first talking about HIsmelt, we have just gotten off a multi-month campaign scheduled for furnace rebuild. This is still something that is in the demonstration phase. I would say that I've been pleased with the fact that every campaign breaks records from the prior campaign. And the latest campaign we had which finished up in early July for this rebuild that we are now doing has -- was the most successful effort. We are running pretty much close to what our scheduled rates would be.

Certainly we are benefiting from higher pig prices right now, but that said, the fact that it's not making money is certainly that something hasn't escaped Sam or my attention. But again, it's the right technology and it's worth continuing to pursue this particularly given the fact that ultimately this technology has roughly a 20% to 25% lessening of a greenhouse footprint and as we begin to see carbon pricing coming increasingly into the picture, in OECD countries, this is truly a strong option for the next generation steelmaking capacity.

In terms of Grasberg, as you know and as you just mentioned, because of the metal strip we get 40% of the metal above a certain level. And as we go through conversion from the open pit to the underground, we've seen some volatility based upon grade swings in the open pit which are reasonably well flagged by Freeport as they come up. We do expect copper grades to be going up in the second half, although not necessarily gold grades. So we will be seeing some benefits from Grasberg in that period of time.

And I think that as we flag, its going to be during this conversion period, not as much metal as we would have seen, say, in the pre-2005 period, so we shouldn't forget the fact that at some point -- and it is in the not-too-distant future it's getting closer and closer all the time -- we convert 2021 to a full 40% interest in the entire Grasberg orebody and that is going to be a very -- a markedly different shift in the production profile from where we are today.

Okay, thank you.

It appears there are no further questions today. Gentlemen, I will turn the conference back to you.

Again, thank you very much. I appreciate the questions. I am very pleased with these results. I'm very excited about our future. It is not every day that one can talk about a 55% increase of earnings, 73% increase of EBITDA, $1.5 billion a month of cash flow and still staying -- well, it could have been more if we would have that pricing done a little earlier. These are fantastic numbers and it's important to keep these in the context of a lot of the anxiety we see on the market in terms of global economic prospects.

We are delivering into what is, continues to be a reasonably strong demand profile, not a massively strong, but reasonably strong demand profile, but one in which the supply sector still can't keep up with it. That means that those that are best positioned with the best orebodies, the best businesses are going to do the best. And I think that's exactly where Rio Tinto is and that is where I intend to keep it in the years to come. So thank you very much.