Performance

Group projects

The group has developed a strong portfolio of copper, nickel and diamonds projects and has acquired interests in four of the world's largest known undeveloped copper and nickel deposits - Oyu Tolgoi (Mongolia), Resolution (US), La Granja (Peru) and Sulawesi (Indonesia).

In addition, the Eagle project in the US is positioned to commence construction and the Copper group retains a 19.6 per cent interest in Northern Dynasty Minerals which has a 50:50 joint venture in the Pebble project in Alaska. The group believes that these projects, combined with some of the world's largest brownfields development opportunities at Bingham Canyon and Grasberg, create an opportunity for the group to leverage its size and capability to unlock shareholder value.

In 2008, the expenditure on project evaluation was US$376 million on a pre-tax cash cost basis. Due to challenging economic conditions, the Copper group has decided to defer expenditure on some projects. The focus in 2009 will be on sustaining capital expenditure. However, the group remains prepared to restart development on recovery of demand for its products.

At Oyu Tolgoi, measures are being implemented to reduce the current rate of spending on pre-construction development work pending conclusion of an Investment Agreement with the Government. A slowdown has also occurred at La Granja where exploration drilling has been reduced and non essential work has been deferred. At Resolution, the rate of expenditures on the pre-feasibility work has also been slowed. At Argyle Diamonds, the underground project has been slowed by reducing the project workforce.

Resolution (Rio Tinto: 55 per cent)
The Resolution Copper project is located in the historic Pioneer Mining District three miles east of Superior, Arizona. Exploration from 2001 to 2003 indicated a large, copper resource more than 1,300 metres below surface. The deposit is a world class porphyry copper-molybdenum system. The project team is currently working through a pre-feasibility study, including dewatering the former Magma mine and sinking an exploratory shaft to 2,000 metres below the surface as well as evaluating the technical, legal and environmental issues and preparing the mining plan.

Although the ultimate size of the deposit has not been fully defined, it is characterised by copper mineralisation of greater than one per cent in suitable host rocks above an elevation of 750 metres below sea level. It extends over an area of at least two kilometres in an east northeast direction and 1.5 kilometres in a north north west direction, with a local thickness greater than 500 metres. Significant but lower grade mineralisation extends beyond this defined body of strong mineralisation.

In May 2008, Resolution announced that it had completed sufficient drilling on its deep porphyry copper deposit to report an inferred resource of 1.34 billion tonnes containing 1.51 per cent copper and 0.04 per cent molybdenum. Rio Tinto announced in August 2008 an investment of US$652 million to support continued pre-feasibility studies on the proposed mine. In the near term the investment will allow Resolution to proceed with dewatering the legacy mine affected by the previous mining operations and proceed with shaft sinking needed to reach the identified copper deposit.

Before the studies can be completed and the mine developed, Resolution Copper must gain ownership of and manage surface lands above the mine and in the immediate surrounding area. In return for this land, Resolution Copper intends to transfer to the US government over 5,500 acres of high priority conservation lands. Passage of the Southeast Arizona Land Exchange and Conservation Act, currently under review in the US Congress, would accomplish this goal and will also benefit the town of Superior, the region and the state of Arizona.

Oyu Tolgoi (Rio Tinto: 9.9 per cent interest in Ivanhoe Mines Limited)
In October 2006 Rio Tinto purchased a stake of just under ten per cent in Ivanhoe Mines Limited in order to jointly develop the Oyu Tolgoi copper-gold resource in Mongolia's South Gobi region. Rio Tinto has the right to progressively increase its stake to 43 per cent over the next four years at pre-determined prices. Oyu Tolgoi has a potential average production rate of 440,000 tonnes of copper per year with significant gold by-products. It is also geographically positioned to supply growing Asian copper markets.

The project is expected to bring substantial benefits to the local community and the people of Mongolia. Since the initial discovery, more than 4,000 Mongolians have been employed and currently 90 per cent of the project workforce is Mongolian. More than 900 Mongolian businesses have worked with Oyu Tolgoi since 2001. Once an acceptable investment agreement is concluded, Rio Tinto and Ivanhoe Mines are committed to giving preference to Mongolian companies, training as many Mongolian workers as possible and laying the foundation for a long life mine that will provide well paid jobs for several generations of Mongolians.

Rio Tinto and Ivanhoe Mines are actively engaged and working with the Mongolian Government to progress settlement of a long term investment agreement. The newly formed coalition government has affirmed that the development of major mineral deposits, including Oyu Tolgoi, is a matter of high priority.

Progress has been made at Oyu Tolgoi from the bottom of No.1 Shaft to drive twin horizontal tunnels towards the Hugo South mineralisation. The continuation of underground construction work has included the commissioning of the electrical sub-station and construction of a workshop and permanent sump facilities. In the second half of 2008, Ivanhoe Mines received US$122 million from Rio Tinto for the purchase of large long lead time equipment for construction of the project.

As a result of the global financial crisis there was a significant slowdown in preconstruction activity during the later part of 2008 which is expected to continue into 2009. Furthermore, the absence of an acceptable investment agreement to allow construction to proceed has resulted in a reduction in manning and a curtailment of spending.

La Granja (Rio Tinto: 100 per cent)
The La Granja copper project located in the Cajamarca region of northern Peru is in the pre-feasibility phase. Rio Tinto acquired the project in December 2005 through a public bidding process carried out by the Peruvian Government. Consideration included an up front payment of US$22 million plus a commitment to fund a further investment of US$60 million.

In May 2008, Rio Tinto released a mineral resource estimate for La Granja of 2.77 billion tonnes of material grading 0.51 per cent copper and 0.1 per cent zinc. Rio Tinto completed 80 kilometres of exploration drilling to the end of 2008. Results showed that the area may host a cluster of several porphyries with associated mineralised bodies of breccia and skarn, including a new extension of breccia to the northwest of the current resource, exhibiting higher grades than the previously stated average. Though still to be quantified, the property may hold significantly greater tonnages than the stated resource. La Granja could represent the largest undeveloped greenfield copper project in Latin America. It has the potential to be a very large, long life operation.

Instead of looking at La Granja as a conventional milling operation producing concentrates for export, the pre-feasibility study is aimed at demonstrating the possibility of recovering copper metal using leaching of copper from whole ore, with solvent extraction and electrowinning to produce high quality copper cathode. The timeline and options for development of this project are under review given the current global economic setting.

There are many stakeholders with an interest in the project due to the potential positive impact on the local and national economy. At the same time, local communities have high expectations of Rio Tinto's presence in the area, where basic infrastructure and services are lacking. Rio Tinto intends to continue working in a participatory manner with local communities to promote sustainable development and help them develop and improve their quality of life with the engagement of local, regional and national authorities and institutions.

Sulawesi Nickel (Rio Tinto: 100 per cent)
Rio Tinto identified a lateritic nickel deposit in an area which straddles the border of Central and South East Sulawesi provinces in Indonesia. This deposit currently ranks as one of the largest known undeveloped greenfield lateritic nickel deposits in the world. The project could develop into a world class operation, mining and processing ore to produce nickel metal at a rate of 46,000 tonnes per annum, with potential for future expansion. An order of magnitude study was updated in 2008 and will be optimised in 2009, as the implications of the new Indonesian Mining Law are better understood.

Rio Tinto submitted an application for a Contract of Work (CoW) for the Sulawesi Nickel Project to the Government of Indonesia in mid December 2008, following finalisation of agreements with regional governments and with holders of local mining authorisation which overlapped the CoW application area.

Subsequent to submission of the CoW application, a new mining bill (Minerba) was passed by the national parliament, replacing the previous mining law under which CoW's were granted. Investment under Minerba must be carried out pursuant to permits or licenses for exploration, development and exploitation of minerals. Minerba became effective from mid January 2009 and its implementation will rely on a number of government regulations that are expected to be issued within the next 12 months. The implications of Minerba on the project will be fully reviewed and assessed following government socialisation programmes which are planned in early 2009, and as regulations become available.

Rio Tinto is continuing to work closely with the regional governments and communities with a number of socioeconomic, community and environmental baseline studies commencing in early 2009.

Eagle (Rio Tinto: 100 per cent)
Late in 2007 Rio Tinto approved the development of the high grade underground Eagle nickel mine in Michigan, US. During 2008 Eagle has been addressing legal challenges to issued mine permits. At the same time, Eagle continued with engineering designs and acquisition of major pieces of mining equipment in preparation for construction. The Humboldt mill was purchased in 2008 and general site clean up and permitting was initiated. Additional exploration at Eagle identified a previously unknown high grade copper and nickel zone.

There are similarities between Eagle and other world class magmatic nickel-sulphide deposits. Rio Tinto has an extensive land position in the Eagle district which is extremely prospective, including a 30 kilometre identified trend containing multiple target intrusions. In 2008, an airborne geophysical survey identified over 100 new anomalies similar to Eagle in the region. These anomalies are currently being evaluated and will be prioritised for exploration in 2009.

Pebble (Rio Tinto: 9.8 per cent)
Rio Tinto has a 19.6 per cent equity holding in Northern Dynasty Minerals which owns a 50 per cent share in the Pebble Joint Venture. The joint venture owns the right to develop the Pebble Copper project in Alaska, US. In July 2007 Anglo American agreed to invest the first US$1.4 billion of studies and development costs to earn a 50 per cent stake in the project. The Pebble project is located about 200 miles south west of Anchorage in the Bristol Bay region of Alaska on land designated for mineral exploration and development.

Entrée Gold (Rio Tinto: 15.8 per cent)
Rio Tinto has a direct 15.8 per cent equity holding in Entrée Gold (ETG), a Canadian listed company that owns strategic tenements surrounding the Oyu Tolgoi project in Mongolia. Ivanhoe Mines also holds a 14.6 per cent equity holding in ETG and has an exploration joint venture agreement on key titles which entitle ETG to 30 per cent of the minerals discovered above 560 metres and 20 per cent of any minerals discovered below 560 metres. The main physical assets in the ETG portfolio include a 20 per cent interest in the high grade Hugo North Extension and 20 per cent of the recent Heruga gold discovery. ETG also has 100 per cent ownership of the Lookout Hill property, coal targets in Mongolia and exploration titles in Arizona, New Mexico and China.

Argyle underground (Rio Tinto: 100 per cent)
Rio Tinto approved the development of an underground block cave mine under the AK1 open pit in late 2005. It also approved an open pit cutback on the Northern Bowl to facilitate the transition from open pit to underground mining. Due to the difficult short term market conditions the underground project will be limited to only critical development activities resulting in a workforce reduction and demobilisation of contractors. First production from the underground operation is now expected in 2013.

Diavik underground (Rio Tinto: 60 per cent)
Following completion of a feasibility study in 2007 approval was given to proceed with underground mining of the A154N, A154S and A418 kimberlites. The capital investment was increased to account for higher than budgeted construction and material costs. However a number of initiatives have been identified to postpone some expenditure to subsequent years.

In January 2009 it was announced that underground development would be slowed to defer costs in light of current market conditions. Underground production is now expected to commence about six months later than planned in the fourth quarter of 2009, and should reach full production in 2012. Open pit mining is expected to cease in 2012, at which time Diavik is expected to source all its ore from the underground mine.

Murowa (Rio Tinto: 77.8 per cent)
The capital cost estimate for the Murowa expansion project (MXP) was revalidated during 2008, and a number of options identified to reduce the capital cost. The project remains on hold given the current uncertain investment environment in Zimbabwe and difficult diamond market conditions.

Bunder (Rio Tinto: 100 per cent)
The project was transferred from Rio Tinto Exploration to the Diamonds Group in November 2008 upon completion of the order of magnitude study. Evaluation work is continuing including the processing of bulk samples. Results are expected in 2009.

Back to top