Operations & financial report
Bauxite and aluminia operations
Bauxite production capacity more than doubled during the year, with the group's wholly owned bauxite mine at Weipa (Australia) being joined by Alcan's four operating bauxite mines from around the world (Australia, Brazil, Ghana and Guinea). At year end, RTA's bauxite production capacity was the largest in the industry, at 34.4 million tonnes per annum, up from 16.5 million tonnes in 2006.
The RTA bauxite business benefits from the following:
- The largest reserves and resources in the industry which should ensure sufficient bauxite supply to sustain the group's long term growth strategy.
- Regional concentration of reserves (Weipa, Ely, Gove) which should provide the basis for optimisation opportunities going forward.
- Scope for expansion of annual production which should underpin expected future alumina production growth.
- Interests in three of the four largest mines in the world (Weipa, Porto Trombetas and Sangaredi), located in the top three bauxite reserve countries (Australia, Brazil and Guinea).
- Annual production capacity that not only supports internal alumina production, but allows significant sales to third parties.
The Weipa mine located on Cape York, Australia contains reserves of 1,224 million tonnes and resources of 2,219 million tonnes. It has an annual production capacity of 18.2 million tonnes and is by far the largest bauxite mine in the group. In 2007 the mine increased its production capacity by 1.7 million tonnes from 16.5 million tonnes as the result of commissioning of a second shiploader in late 2006. Alcan's Ely mining lease is situated adjacent to Weipa and is included in the reserves and resources figures for Weipa. Bauxite from Weipa is either shipped to Gladstone for processing at the group's wholly owned Yarwun refinery and 80 per cent owned Queensland Alumina Limited (QAL) refinery or sold to third parties.
RTA's other Australian mine, at Gove contains reserves of 143 million tonnes and resources of 83 million tonnes. It has an annual production capacity of 6.9 million tonnes and is co-located with the group's Gove alumina refinery in the Northern Territory, Australia. Output from the mine is consumed mainly by the refinery, although some amounts are sold to third parties.
RTA owns 12.0 per cent of the Porto Trombetas mine in Brazil. Its share of reserves is 20 million tonnes and share of resources 53 million tonnes, constituting a share of annual production capacity of 2.1 million tonnes. Across the Atlantic, RTA owns 22.9 per cent of the Sangaredi mine in Guinea and 80 per cent of the Awaso mine in Ghana, constituting shares of annual production capacity of 6.2 million tonnes and 1 million tonnes respectively. The reserves and resources positions of these African mines are currently under review, although Sangaredi has a current disclosed resource (RTA share) of 151 million tonnes.
The addition of Alcan's assets during 2007 boosted RTA's total alumina production capacity almost threefold, from 3.2 million tonnes per annum in 2006 to 8.3 million tonnes at the end of 2007. In addition to increasing smelter grade alumina refining capacity, the Alcan assets included specialty alumina production capacity of 740,000 tonnes per annum. Specialty alumina represents a range of products that is used extensively in a wide range of industrial and consumer applications.
The combination of Rio Tinto and Alcan has created an alumina business which is balanced in terms of internal alumina demands from the Primary Metal aluminium business. This is important as a balanced or long net alumina position prevents the group from being negatively exposed to periodic alumina price spikes.
Additional advantages of the RTA alumina business include:
- Demonstrated technological capability backed by a strong research and development team.
- Ownership of the Gove, Yarwun and QAL alumina refineries located in north eastern Australia, which along with the Weipa and Gove bauxite mines offer significant scope for optimisation as experience, best practices and supply chain benefits are shared.
- A modern set of assets with expansion optionality.
- Deployment of the latest technology in significant expansions at Gove and Yarwun.
The Gove refinery is a wholly owned two million tonnes per annum plant which is in the final stages of a 1.8 million tonnes per annum expansion. It is expected to take overall capacity to 3.8 million tonnes per annum by the end of 2008. The refinery is located next to the Gove bauxite mine. Associated infrastructure includes a deep water port, township and oil fired power station. Following completion of the expansion, the Gove refinery is expected to operate in the second quartile of the industry cash cost curve. Alternative energy sources are currently being evaluated for use at Gove, which could result in a significant further reduction in cash operating costs.
The wholly owned Yarwun refinery, located in Gladstone, Australia, has current nameplate capacity of 1.4 million tonnes per annum. On 3 July 2007, Rio Tinto Aluminium announced an expansion of the Yarwun refinery to increase capacity to 3.4 million tonnes per annum. First shipments are expected in the second half of 2010. An important feature is the inclusion of a gas fired cogeneration facility. Gas will become the primary fuel source, demonstrating RTA's ongoing commitment to reducing greenhouse gas emissions and improving energy efficiency. There remains potential for the refinery to be ultimately expanded to over four million tonnes per annum. Following completion of the proposed Yarwun expansion, the refinery is expected to operate in the second quartile of the industry cash cost curve.
The combination of Rio Tinto and Alcan has resulted in an 80 per cent interest in QAL, an increase from 38.6 per cent at the end of 2006. QAL, also located in Gladstone, Australia, is one of the world's largest alumina refineries, with a capacity of just under four million tonnes per annum. QAL operates in the second quartile of the industry cash cost curve and has opportunities for further development.
Outside Australia, RTA wholly owns the 1.3 million tonne per annum Jonquière refinery in Quebec, Canada and the Gardanne refinery in France, which produces mainly specialty alumina, but also has capacity to produce 150,000 tonnes of smelter grade alumina per annum. Both refineries are placed in the fourth quartile of the industry cash cost curve. Other wholly owned refinery operations relate to specialty alumina, in which four smaller plants combine with Gardanne and part of Jonquière to provide around 740,000 tonnes of annual production capacity.
RTA owns a ten per cent share of the Sao Luis (also known as Alumar) refinery in Brazil, which has a current capacity of 1.5 million tonnes per annum. The refinery is currently undergoing a 2.1 million tonnes per annum expansion, of which RTA's contribution is expected to be approximately US$200 million and which is expected to be completed during 2009. Once completed, the refinery is expected to operate in the first quartile of the industry cash cost curve.
2007 operating performance
Bauxite production during 2007 included output from Alcan's bauxite mines from 24 October 2007. Accordingly, total production for 2007 of 21 million tonnes exceeded 2006 production by 29 per cent.
Production of bauxite at Weipa reached record levels in 2007, at 18.2 million tonnes (beneficiated and calcined), 12 per cent higher than in 2006. Increased capacity from the commissioning of the second shiploader in late 2006 was the major contributor to Weipa's improved production capability. Adverse weather conditions that impacted production in early 2006 did not occur in 2007. Weipa bauxite shipments rose by 15 per cent, to 18.2 million tonnes.
Rio Tinto Aluminium advised its calcined bauxite customers in December 2006 that it would withdraw from the production of calcined bauxite by 2008 after 40 years of providing this product to the abrasives and oil and gas exploration industries. Calcined bauxite represents about one per cent of Weipa's total bauxite production.
To meet the increased transport needs for bauxite and alumina, Rio Tinto has committed US$210 million to the purchase of five new post Panamax bulk ore carriers to be used on the Weipa to Gladstone run and for international trade. These ships are being built in Japan. The first ship, "Wakamatha" was delivered in the third quarter of 2007. In 2007, Weipa's improved safety performance was recognised with a Chief Executive's Safety Award.
As is the case with bauxite production, 2007 alumina production included the output of Alcan's alumina refineries from 24 October 2007. Smelter grade alumina production for 2007 was therefore 15 per cent higher than in 2006 at 3.73 million tonnes. The addition of Alcan's specialty alumina business during 2007 provided 144,000 tonnes of production from 24 October 2007.
The Yarwun refinery produced at higher levels than 2006 being the first full year of operation since the plant ramped up to nameplate capacity.
On 31 October 2007, RTA announced that it had reached an agreement with Norsk Hydro ASA to expand its alumina supply to Hydro Aluminium from 500,000 tonnes of alumina per annum to 900,000 tonnes from 2011 to the end of the contract. Under a 20 year contract signed in 2003 with Norsk Hydro, RTA is committed to supplying Hydro Aluminium with 500,000 tonnes of alumina per annum from 2006 until 2030. The new contract underpins RTA's decision to expand the Yarwun alumina refinery and is consistent with its strategy of maximising the value of RTA's world class bauxite deposits at Weipa.