Overview
2010 saw Rio Tinto move steadily towards its vision of global sector leadership, recording exceptional performance and creating a clear pathway for sustainable growth.
We are now financially stronger and have greater optionality, thanks to significant progress with our divestment programme, efficiencies derived from our business transformation initiatives and record annual production in our iron ore business.
Improved pricing and market conditions also enhanced our flexibility and enabled us to approve US$11 billion in major capital projects during 2010. Growth is firmly on our agenda.
These achievements are a credit to the 77,000 employees who work for Rio Tinto across the world and I would like to thank them for their ongoing commitment.
In 2010, we increased our focus on operational efficiency and risk management, with a particular emphasis on compliance and continuous improvement. Running operations which are safe, reliable and injury and illness free is our number one priority. We are proud to have improved our safety record, with an 18 per cent decrease in the all injury frequency rate. However, I must record with sorrow the deaths of three people in our managed facilities.
We have increased our focus on process and contractor safety, remaining absolutely committed to safety in the workplace. We are determined to achieve zero harm in all of our operations.
Strategy
Our strategy has remained absolutely consistent – to invest in and operate large, long term, cost competitive mines and assets, driven not by the choice of commodity but rather by the quality of each opportunity.
To achieve this, we focus on a portfolio of Tier 1 assets diversified by commodity, market and geography. This approach has underpinned our ability to overcome the challenges of previous years. I am greatly encouraged by the Group’s performance, which is a testament to our focus on creating shareholder value in the long term.
All injury frequency rate
Per 200,000 hours worked
- Including former Alcan
2010 objectives
As a result of the investments announced during the year, we have significantly enhanced our global presence in key operational areas.
In 2010, to support the execution of our strategy, we focused the business on five short term priorities: operational delivery; prudent balance sheet management; pursuing our growth path; completing the proposed Western Australian iron ore production joint venture; and strengthening our relationship with China.
I am pleased to say we made significant progress in almost all of these areas.
Our focus on operational delivery helped us break production records. We took steps to optimise our financial position and, as a result, our balance sheet is stronger. We grew organically, reflecting confidence in our business and the outlook for our markets.
The cessation of our plans to form a Western Australian iron ore production joint venture with BHP Billiton was a disappointment, but we respect the regulators’ views. We remain focused on a more than 50 per cent expansion of our iron ore business in the Pilbara, leveraging our world class assets and organisational capability.
We began 2010 with a difficult period in China, but went on to make significant progress in developing stronger ties there. In March 2010, four employees based in Shanghai were convicted of receiving bribes and obtaining commercial secrets. This disappointing and unacceptable behaviour violated the Group’s strong ethical culture as well as Chinese law, hence their employment was terminated. The independent forensic investigation found that any illegal activities were conducted entirely outside the Group’s systems.
We also looked towards the future. In July, we signed a joint venture agreement with Chalco for the development and operation of the Simandou iron ore project in Guinea and we continue to have discussions with the Government of Guinea. At the end of the year, we signed a memorandum of understanding with Chinalco to establish a landmark exploration joint venture in China, and also agreed to extend our Channar Mining joint venture in the Pilbara with our partner, Sinosteel Corporation.
In a year of considerable progress across the Group, several projects stand out: our iron ore expansion plans in the Pilbara; our increased interest in the Oyu Tolgoi copper-gold project in Mongolia and the signing of an agreement to become the development and operating manager of Oyu Tolgoi; and progress towards modernising and expanding our Canadian aluminium portfolio. At the end of the year we announced a recommended offer for Riversdale Mining Limited, which, if successful, would provide us with a substantial Tier 1 coking coal development pipeline in Mozambique. This is an example of the small to medium sized acquisitions that we are currently focused on.
A strong framework for sustainable development
Wherever we operate, whatever we do, sustainable development underpins our vision. Our sustainable development approach gives governments confidence that we will develop resources in a way that will benefit their economies and communities and will protect their environments.
The mining and natural resource sector occupies an increasingly strategic and exposed position in the thinking of governments and other stakeholders. While these factors can lead to tensions, with effective management, new opportunities will emerge. Through proactive leadership, and by building relationships with all our stakeholders, we can turn this area of challenge and complexity into a source of competitive advantage.
We will continue to show leadership in areas such as employee health and safety; community engagement; and in global issues vital to the future of the world’s environment such as carbon, water use and biodiversity.
Well placed to meet rising demand
Prices for many of our products recovered during the year driven principally by demand growth in China and the OECD countries. Iron ore and copper prices were particularly strong. While government stimulus measures generally supported a gradual return to normalised global trade, the improvement in developed economies faded slightly during the latter part of 2010.
We believe the recovery momentum of the major economies will remain uncertain and volatile as the impact of the fiscal and monetary stimuli fades. Therefore, we remain cautious about the short term view of the economy. Globally, we expect GDP growth in 2011 to continue at broadly healthy levels of around 4.5 per cent. However, the pace of economic recovery will vary between the different markets we supply.
In the longer term, we believe the fundamentals are strong, but we will not be complacent. Much of the anticipated growth in demand for minerals will be driven by China and other emerging economies. Implementation of our established strategy will enable us to take advantage of increasing demand from these fast growing regions.
Financial recovery
We will meet that demand from a strong financial position. In the past year we have transformed the Group’s balance sheet. Our robust operating performance, including record annual production in iron ore, led to record cash flows and underlying earnings in 2010. We completed a number of disposals, making asset sales totalling US$4.2 billion in 2010. This takes the total divestments completed since 2008 to more than US$11 billion and largely completes the disposal programme launched in 2007.
Achieving our vision
With a focus on organic growth, we will also consider strategic merger and acquisition opportunities of moderate size that fit our overall direction and help us achieve our vision.
As we move into 2011 we have established a longer term vision for global sector leadership, reflecting the long term nature of our business. Our strategy and business model are explained in detail in the Group strategy section.
The people who make it all happen
We are fortunate in the Group that our geographic spread gives us access to the skills and talents of a highly diverse workforce. But there is much more we have to do and we have set ambitious plans to foster greater diversity.
It is our policy to offer our employees career opportunities that are rewarding and stimulating with real opportunities for personal and professional development. For example, training and recruitment programmes are under way in a number of countries in which we have embarked on major development opportunities. These include Madagascar, Mongolia and Guinea.
We recognise that given our ambitious growth plans, our recruitment challenge will be substantial, particularly in some of our more competitive labour markets. We will not fulfil this requirement without a concerted effort to make Rio Tinto the employer of choice, something we are committed to achieving.
I want to take this opportunity to thank our shareholders, my leadership team and all of our employees across the world. It has been a year of exceptional performance and momentum, which was truly a team effort. I am looking forward to building on this success in 2011.
In a world of increasing commodity demand and growing sustainable development challenges I believe Rio Tinto will set itself apart through its leadership in operational delivery, exploration, technology and innovation and sustainable development to become the preferred industry partner and developer.
Tom Albanese, chief executive
