A sustainable approach to investment in Africa

Remarks by Tom Albanese, Chief Executive, Copper and Exploration, Rio Tinto, to the 11th Annual Investing in African Mining Conference (Cape Town, South Africa, 7 February 2006)

Thank you for your kind introductions…

I'm pleased to be attending the annual Indaba conference for 2006.

It gives me the opportunity to describe Rio Tinto’s activities both globally and more locally.

We have operated in Africa for more than 50 years and currently have a pipeline of exciting developments which underline our commitment to the continent’s future. With the help of a few slides I plan to first of all give you a quick introduction to Rio Tinto as a whole and then to focus on our approach to exploration and development, highlighting some of the successes that have emerged from the Group's efforts.

We have a number of major greenfield projects that have grown out of our exploration success.

Our QMM ilmenite project in Madagascar and our Simandou iron ore deposit in Guinea are both excellent examples of how we plan our developments, from the earliest days, with the goal of contributing to sustainable development.

So, first let me take you through who we are and the role we play globally in exploration and mining.

Rio Tinto is a major producer in all the metals and minerals markets in which we operate. We are generally among the top five global producers by volume, and have market shares for different commodities ranging from five per cent to 40 per cent.

We are the number one supplier of industrial minerals in the world, we are second in iron ore, and fourth in copper and diamonds. We are not thought of as a gold producer due to our diverse product range, but we actually are a top ten producer, mainly as a by product of copper mining.

Our company is named after a mining district in southern Spain.

The Rio Tinto Company was started by investors in London in 1873 to re-open copper mines that were worked in Roman times. The other half of today’s Rio Tinto, the Consolidated Zinc Corporation, was started in Australia in 1905 in the Broken Hill district.

These two related companies were merged in 1995 under a dual stock exchange listing structure in Australia and the UK to create the Rio Tinto Group of today.

Rio Tinto has grown into a worldwide mining group made up of 30 businesses that control more than 80 active operations and six exploration regions.

We are strongly represented in Australia and North America but have significant businesses in Africa, South America, Asia and Europe. The Group employs 34,000 people around the world. Our policy has always been to employ locally wherever possible at all levels in our operations.

Our management is organised into six global product groups to ensure a clear focus on performance. Each product group has become a major commodity sector player in its own right.

The chief executive of each reports to the chief executive of Rio Tinto, headquartered in London, with a corporate office in Melbourne, Australia.

My dual role in the organisation is both as chief executive of the Copper product group and as Head of global Exploration.

Our diverse portfolio of commodities and markets which have varying responses to the economic cycle acts as a natural hedge to counteract the effect of commodity price cycles.

Our strategy is to invest in large, long life and cost competitive mines driven by the quality of the opportunity, not the choice of commodity. We either own or share an interest in many of the world’s largest mineral deposits.

We seek to discover or identify mineral resources that will contribute to the growth of the Group. The discovery of new resources is essential to replace deposits as they are mined and to help meet the increasing global demand for minerals and metals.

We try to be opportunistic in approach and deploy resources on projects that show the best chance of delivering a world class deposit to Rio Tinto.

Our objective is to make discoveries which provide us with the potential to create new businesses similar in size and quality to the top 20 existing Rio Tinto businesses. The challenge for us is that our admittedly tough selection criteria make the typical industry discovery too small to make a difference.

As a consequence, our statistics show that an average of only one in 350 mineral prospects that are drill tested result in a mine for the Group. Rio Tinto believes in having a critical mass of projects, selected through a rigorous process of prioritisation.

This means that for our exploration to be successful we have to be not only good explorers, but we have to prioritise well and have strategies for those discoveries that are not big enough for us.

Exploration is organised into four geographically based teams, including a team responsible for Europe and Africa. Additionally, a project generation team examines the world for new opportunities.

Rio Tinto is currently exploring in 30 countries for a broad range of commodities including copper, diamonds, nickel, industrial minerals, gold, bauxite, iron ore and coal.

I will come back to Exploration and its successes later in the presentation, especially in an African context. Firstly I would like to take you through some of our African operations.

As I said earlier, Rio Tinto has been a major investor in Africa for many decades. Currently, we operate

• the 49 per cent owned Palabora copper mine in Limpopo province,
• 50 per cent owned Richards Bay Minerals in KwaZulu-Natal,
• the 69 per cent owned Rössing Uranium mine in Namibia, and
• the 78 per cent owned Murowa diamond mine in Zimbabwe, our most recent mine
  development.

These are all major world class operations that have not only made an economic difference to the region but have contributed richly to social and community development.

A previous managing director of Rössing Uranium, David Salisbury, once said: “The best contribution the mine can make to sustainable development in Namibia is to stay in business.”

In keeping with this approach and our goal of optimising the use of mineral resources, major expansions are being undertaken to long life mines both here and in Australia.

In Namibia, Rio Tinto has approved an expansion at the Rössing Uranium mine that will add another ten years to an already 30 year mine life.

This means the largest and longest running open pit uranium mine in the world is to grow further with the addition of mining equipment and processing facilities at a total incremental and sustaining capital cost of US$112 million.

In Australia we are extending the 20 year life of the Argyle diamond mine to 2018 by going underground with a major block caving operation that will cost 760 million US dollars.

Rio Tinto's growing expertise in this underground bulk mining method was nurtured at Palabora. After 38 years as an open pit mine, Palabora has been transformed into a block caving operation. Preparation of the underground mine began in 1998, caving started in 2002, and ore production reached the target rate of 30,000 tonnes per day in the middle of last year.

The new underground mine is directly below the depleted open pit, which had a final depth of about 800 metres. The production level is about 400 metres below the deepest part of the pit, for a total depth from surface of 1200 metres.

In northern KwaZulu-Natal, Richards Bay Minerals has been operating since 1976 making huge contributions to the local and national economy by mining the mineral sands o f coastal dunes.

RBM produces titanium dioxide feedstock products for whiteners which go into paints, plastics and coatings. There are also significant co products like rutile, high purity pig iron, and zircon.

At inception, RBM embarked on a dune rehabilitation programme which has received world wide recognition for restoring a fully functional coastal dune forest ecosystem after mining.

RBM and Palabora have both impacted positively on the quality of life of thousands of families within their outlying areas. Surrounding communities have benefited from social investment programmes, which comprise health care, water and sanitation, agriculture, business development, education and a number of specialised initiatives.

In Zimbabwe the Murowa diamond mine was born out of successful exploration programme in the late 1990’s. The deposit was found in an area where diamonds had never been recorded before and which had been explored without success by our competitors.

The mine started on a small scale towards the end of 2004 and has so far proved success enough for us to be considering expansion options. Murowa is an example of Rio Tinto’s ability to develop a world-class asset in a challenging environment. Murowa became the first Kimberley Process certified diamond mine in Zimbabwe and has implemented an industry leading chain-of-custody programme.

However, expansion will pose new challenges. Further investment will require a stable and predictable foreign exchange regime and strong government support for foreign investment that recognises the need to facilitate imported capital goods and dividend repatriation. We wait to see if the business environment will be sufficient to justify the next stage of Murowa’s development.

On top of these significant operations, our investments are set to increase over the next few years.

In 2005 Rio Tinto announced the approval of a 585 million US dollar mineral sands operation and port in Madagascar. With a grade of 60 per cent titanium dioxide, the Madagascar orebody is the largest known undeveloped high grade ilmenite deposit in the world and has an expected mine life of 40 years.

First production from the operation in the Fort-Dauphin region is expected in late 2008 and the initial capacity will be 750,000 tonnes per year of ilmenite.

This is a project we have been doing differently. Doing business in Madagascar has challenges ranging from intense international NGO interest on environmental issues, and just as intense rural poverty due to the lack of development opportunities.

The traditional technical focus has given way to a more sensitive consideration of the ways the project can contribute to regional development. We've engaged with the community, conservation partners and other stakeholders. We anticipate the project will become a template for responsible mining development worldwide.

In addition to creating value for our shareholders, it gives us the opportunity to demonstrate the contribution that mining can make to sustainable development through the successful integration of financial, environmental and community objectives.

Also in the pipeline in Africa is the Simandou project in Eastern Guinea which, in common with Madagascar, has its own unique social and environmental challenges. This is a project where we believe we can apply our experiences learned in places like Madagascar and elsewhere in Africa even more effectively.

This is likely to be a world class iron ore resource which Rio Tinto Exploration discovered in the late 90’s. A pre-feasibility study at Pic de Fon is to be completed by the end of 2006 and other projects ranging from grassroots exploration through to Order of Magnitude studies have started elsewhere within the mining concession.

Infrastructure studies through a Transport Committee including the Guinean government and Rio Tinto is in progress. Rio Tinto is fully committed to the transguinean railway project for the future development of Simandou.

To visit Simandou is to appreciate the importance of biodiversity conservation. From the earliest days we recognised this is an area that needs the most special attention. It was also apparent that if nothing were done, then the encroaching destruction of the natural forest that flanks the deposit would irretrievably degrade an important area.

Rio Tinto’s biodiversity policy mandates that we integrate biodiversity into all management and decision making processes and that the development of a mining operation should aim for an overall positive impact on the area.

At Simandou, cognisant of the potential biodiversity significance of the area, Rio Tinto undertook a number of studies to better understand the current and future threats to the biodiversity.

Given the closely interlinked relationship between community activities and biodiversity protection in south-eastern Guinea, it was of crucial importance that we understood how the goals of socio-economic development within communities and protection of biodiversity could be achieved.

Biodiversity protection is both enhanced and threatened by community activities. It was in recognition of this that the Simandou Biodiversity Strategy was developed.

For biodiversity protection to be successful long term it had to be integrated into community subsistence programmes that recognise the levels of poverty in which the local people are presently living, and recognising the economic benefits to the community a new mine can deliver.

One important pillar of this strategy was to engage the expertise of specialists in biodiversity preservation. To this end an agreement was signed with Conservation International in which they undertook, in close cooperation with Rio Tinto, a two pronged study.

This firstly aimed to assess the current state of biodiversity in the area, and secondly to understand the threats to the area and find opportunities for positive outcomes.

The study covered not only the Simandou area but also outlying forest areas throughout eastern Guinea. The survey successfully characterised the situation at Simandou and indicated that the biodiversity assemblage at Simandou may not be unique and in fact may be common to the other areas in the broader region.
This may allow developing offsets and achieving an overall gain for the area should
Simandou go into production.

We believe that cooperation of this nature with responsible NGOs is the model for the future assurance of biodiversity conservation during mine development.

The importance of Africa to the future of Rio Tinto is shown by the planned expenditure of 16 per cent of our global exploration budget in the region in 2006. Through these current exploration programmes we are planning to add to our development pipeline in Africa.

Now returning to exploration….

The last ten years has seen a steady increase in exploration expenditure on the continent.

Many of the programmes have been for diamonds although the past few years has seen a move to realign exploration expenditure to better reflect Rio Tinto’s revenue stream.

This has seen the development of large programmes for iron ore and for coal.

This slide shows the areas in which we are currently active and those that are emerging or under review. You will see a focus on core areas in southern and west Africa and increasing interest in new countries that in many cases are emerging from prolonged periods of conflict and uncertainty.

Our diamond programmes are however still of major importance and are based around a state of the art diamond laboratory in Polokwane in South Africa which supports our continuing programmes in Botswana and west Africa.

Both programmes have been successful in the discovery of large and diamondiferous
kimberlites although to date economic pipes have eluded us.

We have been the major explorer in Mauritania since 1998. Rio Tinto inherited the project when we acquired Ashton Mining in 2000. We have built on this foundation to develop a bold programme that aims to test a highly underexplored craton in one of the most challenging and remote parts of the continent.

In this programme we have sought to use not only the traditional, tried and tested methods of diamond exploration, but to also introduce appropriate new technologies.

The newer programmes in our Africa portfolio have leaned towards the bulk commodities in particular iron ore and coal which for the foreseeable future will remain the cornerstone of economic growth in the developing world.

While iron ore exploration continues in West Africa, it is here in South Africa that we have found coal.

It’s an interesting story, with the roots of this programme originating from a diamond exploration programme in the Limpopo following up on our successful Murowa diamond discovery. While we were not successful in finding diamonds in the Limpopo, the work opened our eyes to the potential for a new coal bearing basin.

Follow-up basin analysis outlined a significant resource in the Limpopo Province. Evaluation is still ongoing, as is test work to determine which is the most viable mix of products. There is no doubt however that this resource has the potential to help meet South Africa’s future shortfall in power generation capacity.

Based on work to date with what are now widely spaced drill holes, the resource looks structurally simple over a 30 metre plus thick horizon. We have over 30 kilometers of strike of continuously subcropping, thinly dipping, thick, structurally simple coal.

A domestic thermal product would be on a par with coals currently being consumed by South African power stations, if anything with better average sulfur levels. We are also working on metallurgical coking coal potential in the area. Should we determine that an export coking product is also viable; the resource is excellently placed as it straddles the primary railway line between Zimbabwe and Polokwane.

We are aiming to have this deposit brought to compliant resource status by the end of this year and to enter feasibility immediately thereafter. We are in discussions with the DME, Eskom and others on the best way to bring this project into production.

This resource was defined in the first area that we studied. The programme is now testing the remainder of the basin to the east over a distance of 150 kilometers where we anticipate that the rank of the coals will be higher with enhanced potential for an export coking product.

The coal programme is a joint venture between Rio Tinto and Kwezi Mining. This joint venture meets all the criteria and spirit of the Empowerment Charter. I have been pleased with the contributions Kwezi has brought into the project, and we would envision that they will be a very active part of the development partnership as we proceed forward. We regard this as potentially one of the first significant empowerment successes in exploration in South Africa. We are keen to benefit from the complementary and contrasting skills mix of the two partners and to move the project forward together in active partnership.

We believe we have put together a workable model that more than meets the Government’s aims and aspirations and will result in the creation of a new highly effective black controlled exploration and mining company.

In global terms, the mining industry is today more upbeat than we have experienced in a generation. There has been a massive increase in new exploration spending.

The Metals Economics Group consultancy firm has reported that global mineral exploration spending increased in 2005 by an estimated 38 per cent compared with 2004.

Based on what we have seen so far, I would guess that 2006 will see a further jump in global exploration spending.

Established majors, long established exploration juniors and intermediate companies, and a whole host of new companies are putting more dollars into exploration.

This has created cost increases in the sector, which makes a difference to everything from new license bids, salaries for geo-professionals, and drill and service contracts.

We have not yet seen a whole lot of new discoveries from this stepped up spending, but I think ultimately it will lead to a supply response, and that will eventually lead to the next dip in the commodities cycle.

For Rio Tinto our approach is to stick to the quality end of the spectrum. We will continue to focus on discovering orebodies that ensure positive returns at all points of the business cycle.

What our teams are doing, nicely distinguishes Rio Tinto from the pack. We have a quality team, with quality efforts, all focused on delivering quality results to our Rio Tinto businesses.

We stick to the basics, prioritising our efforts on what can make a difference to Rio Tinto. You won’t see us claiming any silver bullet which distinguishes us from others. Instead we focus on all aspects of the exploration business and all aspects of the science, giving our teams the accountability to pick the right tools, and deliver the right results.

We work closely with juniors, but not at the expense of out-sourcing a core competency. As a result of this combination of efforts, and long term commitment, we have shown ourselves to be delivering new organic growth options for Rio Tinto, which are value adding, and will allow the business to remain the premier miner well into the future.

With our developed expertise, and our healthy balance sheet, Rio Tinto is uniquely positioned to finance and execute this next generation of resources. Our experience in delivering best sustainable development practice to new projects in Africa especially positions us well.

Meanwhile, we keep the front end of the pipeline filled with an interesting set of early stage project generation opportunities.

As I've said, besides technical innovation, we also seek to differentiate ourselves in our approach to the all important social and environmental aspects of our global business as I have described in Madagascar and at Simandou.

These projects underline the fact that the mining business today is much more than just geology and mining engineering.

We have to also be best positioned to deal with complex stakeholder relationships and position ourselves as a developer of choice. This means we have to get environmental performance, commercial transparency, community relations and employee welfare just as right as the technical aspects.

Built into Rio Tinto’s operating philosophy is a focus on corporate social responsibility. We implement at all our businesses an umbrella of corporate policies. These are described in our statement of business practice The way we work, which we all follow as employees of Rio Tinto, and which we expect all our partners to follow.

We set out to satisfy long term global and community needs and aspirations, whether economic, social or environmental. We seek to contribute more than the production of minerals and metals to meet global needs.

With social and community experts on staff working alongside the traditional mining disciplines, we add value to the well being of our host communities while minimizing the effect of our activities on the environment.

By operating responsibly and sustainably we find we increase our chances of acquiring new projects. It gives us priority access to land and resources that will help sustain our project pipeline into the future. We think that some of the work we are doing at our mines, our development projects and in exploration in Africa represents world best practice in these areas.

Rio Tinto, with its combination of technical breadth and depth, its focus on operational excellence, its commitment to responsible mining practices, and its strong balance sheet, is better positioned than most to be the developer of choice in Africa and the rest of the industry.

Thank you.

Author Tom Albanese Publication Date 7 Feb 2006 Document Type Speeches Issue/Topic Development Mining & Minerals Region Africa Country South Africa Company DSM N.V. Eskom Holdings Limited Rio Tinto plc Event 11th Annual Investing in African Mining Conference, Cape Town, South Africa Source Rio Tinto Include In RSS Business & Development News