A new metals age: the place of copper in the century ahead

Transcription

1 A new metals age: the place of copper in the century ahead Jean-Sébastien Jacques, chief executive, Copper & Coal CESCO World Copper Conference, Chile 14 April 2015 At a conference like this, you would expect executives to talk up the industry. When prices are down, it's in our best interest to find reasons for optimism. And as I am one to never disappoint, that s how I want to use my time with you today. As people in our industry worry about the copper price, I want to talk about why the broader world just isn t really fixated on short-term supply and demand. Outside our industry, there s a world of change going on shifts in demography, politics, economics and in technology. Was it only a decade ago when a blackberry was a summer fruit, that green, was well, a colour, and that a tweet was something that a bird does? At least, my teenage daughter tells me a tweet is something much more than that these days. The world is shifting at lightening pace. And the good news for us is that these shifts are copper intensive. In fact, so much so that I suggest that the world is on the edge of a new metals age with copper at its centre. And it is our role to make sure we exploit the opportunity and not squander it by losing ourselves in short-term thinking. That s why, although it is tempting, we shouldn t get completely lost in the present challenging copper situation. We shouldn t because none of us in this industry build for the short-term. We don t live month-to-month, we invest with a long-term view and in that sense, I am not just notworried I am very encouraged. In a quarter-to-quarter, minute-to-minute world it is easy to forget that our business measures mine-life in decades. Take Rio Tinto s Bingham Canyon mine in Utah in operation for more than 100 years. The company was formed in 1903 the very year the Wright Brothers took flight at Kitty Hawk in a plane with an engine block made of aluminum and copper alloy. Look at the aerospace sector today and the demand it drives for copper, with each one of the newest commercial airliners requiring nearly 200 kilometers of wires, much of it copper that s about four tonnes. In 1903, it was the infancy of the automotive sector. The Franklin 6-cylinder was all the rage : under the hood a 30 horsepower, air-cooled motor with copper flanges. Today, that s about the power of a ride-on lawnmower. And the average car currently requires around 15 kilograms of copper with four times that amount in a full electric vehicle and around double that in a hybrid vehicle. For example, the Toyota Prius uses about 30 kilograms of copper in every car. Back at the beginning of Bingham Canyon, global copper production annually yes, I checked was around 1 million metric tonnes. Our industry produces that much copper today every three weeks. So why this look back at history? Page 1 of 5

2 Let me share my last data-point from 1903: in that year, the U.S. economy was in the middle of a recession. Captains of industry were wringing their hands but that didn t stop the Wright Brothers from getting off the ground or the automobile industry from picking up speed. In 1900, only a few visionaries could see where the 20 th Century would take us. That s a mindset we need right now as we stand in the first quarter of the 21 st Century. Let me tell you how I see it: the mines we build today will serve the world into the middle of this century the world that is rapidly evolving and changing before our eyes. Look at the forces and factors at play. Between now and 2020 alone just five years global demand for copper semis will rise by more than 20 percent as more than two billion people on this planet continue the largest mass migration into middle-class life ever seen in human history. Look at China. I mentioned that China s economy is cooling and it is. But it s growing off of a much larger base: and 5 per cent growth in copper use today is equivalent to 12 per cent growth a decade ago. As for urbanisation, by 2025 just 10 years from now in China alone, more than 200 cities will have populations of over 1 million people and the number of middle-class Chinese will quadruple. 1 More people in urban areas mean more buildings, more buildings mean more infrastructure and all of it, together means more copper. Remember back in school, the Bronze Age and Iron Age? Today, it is like we are entering a New Metals Age a time when copper is a critical element in the new applications and innovations that are shaping this century. As you can imagine the story is far bigger than just China. Consider India, where nearly 1.2 billion people are presently using less than one kilogram of copper per capita. That will change. India is modernizing investing heavily in infrastructure, especially for electrical power, which requires large amounts of copper. According to the International Energy Agency (New Policies Scenario), India s power generation is expected to double in the next 15 years. This will require a significant upgrade in grid capacity and associated increase in copper required, particular in dense urban areas. Add to that India s new Vision of Housing for all by 2022 with a target for construction of 20 million houses in urban areas and 40 million houses in rural areas all of which would be electrified. Beyond China and India, Asia is seeing the economic emergence of countries like Indonesia 250 million people, Bangladesh 160 million, Vietnam 90 million, Thailand 67 million, and Myanmar 53 million five countries that taken together today have a population larger than the entire continent of South America, with populations projected to grow another 200-plus million by 2050 that s the equivalent of a new Brazil each one of whom have embarked on massive infrastructure investments as their primary gateway to increased trade and growth. Move from Asia to Africa a billion more people moving from bare subsistence, to lives with the basic comforts that all of us see as the bare-minimum society provides. Copper is key to achieving advances in human health, technology and all of the other means of making life safer, greener, better happier. 1 Page 2 of 5

3 Taken together, these are some of the reasons I see a substantial supply gap opening up by the end of this decade one that will require the industry to incentivize at least another four to five million tonnes of new annual mine capacity by 2025 and that is in addition to new mines already under construction. To meet this new demand, Rio Tinto is developing our Resolution project in the state of Arizona the world s third-largest undeveloped copper resource. We re focused now on unlocking Resolution s considerable value because once fully developed, the mine will deliver up to 600 kilotonnes of copper a year, at a low operating cost, presenting an attractive long-term growth option in the United States. And right here in South America where the population is projected to grow by more than 100 million people by 2050, to over a half-billion part of this continent s new demand for copper, we hope, will be met by La Granja in Peru: one of the largest undeveloped greenfield copper project in Latin America with the potential to be a long-life, low-cost operation, with production expected to peak at 500 kilotonnes per year. The long-term demand fundamentals for our industry present a great opportunity for copper producers, even with the macro economic challenges and uncertainty the world today faces. That really brings me full circle to the message I want to drive home. We must all fight the temptation to fixate on the latest down-tic on the LME, or the Shanghai spot price copper and the copper industry are positioned to make a positive impact on many of society s greatest challenges. We see it in sustainable development whether the goal is yield-improvement or increased productivity, copper is key in applications ranging from medical devices, cell phones, and robotics to food storage, rail transport, and construction efficiency. We see it in the battle to mitigate climate change through increased energy efficiency, and alternative energy applications like solar panels, through the cutting edge CIGS thin-film photovoltaic material where the C stands for copper (and the S for selenium) and in wind turbines, where a single industrialsized turbine requires more than two tonnes of copper. We see copper s impact in global development, where copper is critical to rural electrification with all that means in terms of advancing public health in efforts like the US s Power Africa initiative. In green building from construction mainstays like electrical wiring and piping, to new energy-efficient uses in passive solar walls, solar panels, and solar water heaters. And copper is also critical as well its role as a strategic metal is supported by more and more evidence. Copper and copper s by-products molybdenum, rhenium, tellurium, and selenium are needed in growing amounts for applications in alternative energy, the tech sector and in modern defense systems. And no other metal rivals copper for the number of potential by-product metals. 2 By-product metals may never rival copper in terms of revenue but technology is transforming demand in ways that will make copper even more critical to our future. To that end, I challenge government and industry to work together to take effective action in three specific areas that will define our success in shaping the future. I m talking about investment infrastructure and innovation. 2 ARPN study (2012), also CMI 2014 presentation. Page 3 of 5

4 In terms of investment we all know that, as we consider where to invest, the quality of the ore body is just one part of the equation. We re looking for projects in countries with predictable permitting reliable legal regimes, where rule of law replaces corruption we re looking for political stability and investment protection. We need predictability in every aspect of investment policies to allow us to take the private company risk that produces so much public good. In terms of infrastructure the world needs an additional $1 to 1-and-a-half trillion each year in new ports, bridges, roads and railways. Squabbles over whether we work through the World Bank or the AIIB miss the main point: when our investment need is measured not in billions, but trillions as Dr. Kim of the World Bank has said, there s more than enough work to go around. In terms of innovation we ve got to mine Big Data to make mining copper safer, smarter and more efficient. We re pioneering the Mine of the Future using sensors, monitors and wireless LANs to automate functions and expand remote control to bring mining into the Internet of Things predicting problems before they occur, making advances in environmental quality and productivity. And with this in mind, we need to work with groups like the International Copper Association to drive innovation to identify new uses for copper and its byproducts, connected to the public goods I ve talked about today: applications that improve quality of life in the areas of health, food supply, human habitation and sustainability. This would not only be a strategic advancement for the copper industry it would fulfill the demand for our customers and create new ones. Now I m a pragmatist and a realist, and I know you are, too. We of all people know that the emergence of this New Metals Age is not inexorable or automatic, that no future is ever pre-ordained. We know the effort and investment it takes to advance to discover and develop new sources of copper, to innovate more efficient and economic means to extract it and bring it to market. We know it is harder to do this when money is tight, when uncertainty in the short term makes it hard to plan for the long-term and when it is tempting to batten down the hatches and ride out the storm. I firmly believe this would be the wrong thing for our industry to do. Now is the time to keep investing, keep innovating, and keep creating value at all points of the cycle. Patience, boldness and persistence will pay dividends, as we are in the early years of a New Metals Age with copper at its center. And this presents us with a unique opportunity to help shape copper to make a new contribution to a higher quality of life, worldwide. The best is yet to come for us and I am optimistic about our prospects. Thank you. Page 4 of 5

5 Contacts on Twitter Media Relations, EMEA/Americas Illtud Harri T M David Outhwaite T M David Luff T M Investor Relations, EMEA/Americas John Smelt T M David Ovington T M Grant Donald T M Media Relations, Australia/Asia Ben Mitchell T M Bruce Tobin T M Matthew Klar T M Investor Relations, Australia/Asia Natalie Worley T M Rachel Storrs T M Galina Rogova T M Rio Tinto plc 2 Eastbourne Terrace London W2 6LG United Kingdom T Registered in England No Rio Tinto Limited 120 Collins Street Melbourne 3000 Australia T Registered in Australia ABN Page 5 of 5