Aurizon Sustainable Coal for Asia JOGMEC seminar Nov 27 2014 Lance Hockridge Managing Director and CEO
Aurizon is Australia s largest rail freight operator Top 50 ASX-listed company Market capitalisation more than AU $10 billion* More than 100 sites across Australia Employing approximately 7500 people in hundreds of communities across Australia We move more than 250 million tonnes of Australian commodities each year * at August 2014 2
Safety performance, our target is Lost Time Injury Frequency Rate (LTIFR) 1 Total Recordable Injury Frequency Rate (TRIFR) 1 11.43 55.65 Lost time injuries per million person-hours worked 6.14 3.08 2.40 71% improvement 0.95-71% 0.28 Incidents per million person-hours worked 30.81 22.34 13.14 52% improvement 5.85-52% 2.80 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 1. LTIFR & TRIFR includes employees only and does not include contractors 3
Aurizon s value creation fundamentals remain strong Network Below Rail Regulated Asset Base (RAB) growing to ~$6bn by FY2017 Stable earnings, given regulated revenue stream Top six mining companies account for 80% of contract volumes Targeted projects to deliver cost effective incremental capacity UT4 draft revenue decision released 30 September 2014 Above Rail Volumes growing despite negative sentiment Coal haulage outlook for FY2015 remains 210-220mt (September 2014 quarter 54.2mt, 1% growth) Long-term demand for Australian commodities remains strong China Improved steel quality (met) Higher quality thermal India Potential thermal shortfall Driving Returns Transformation: On track for 75% Operating Ratio (OR) in respect of FY2015 Culture of continuous improvement driving towards 70% and beyond Integrated Operating Plan (IOP) driving operational improvements Transformational capital to speed reforms and deliver incremental returns 4 4
Asia will drive growth in demand for Australia s coal and iron ore Thermal coal global seaborne demand (Mtpa) Metallurgical coal global seaborne demand (Mtpa) Iron Ore global seaborne demand (Mtpa) 807 54% 15% 10% 21% CAGR 3.9% 906 52% 14% 10% 24% 952 49% 14% 13% 24% 1,385 39% 10% 17% 34% 240 51% 23% 14% 13% CAGR 3.1% 253 45% 21% 14% 19% 288 40% 20% 13% 27% 370 43% 14% 15% 27% 1,127 27% 11% 61% CAGR 2.9% 1,187 1,278 25% 24% 11% 11% 64% 65% 1,689 24% 7% 69% 2011 2012 2013 2025 2011 2012 2013 2025 2011 2012 2013 2025 Rest of the world Japan India China Rest of the world Japan India China Rest of the world Japan China Source: Wood Mackenzie Coal Market Service, July 2014; Wood Mackenzie Iron Ore Market Service, July 2014 5
Japan is a strong long-term partner with Australia and Aurizon Thermal coal exports by destination FY14 total 194Mt Metallurgical coal exports by destination FY14 total 180Mt 6% 1% 17% 10% 24% 41% Japan China South Korea 11% 24% 5% 27% Taiwan India Others 11% 24% Japanese companies have interests in 49 Australian coal mines these mines account for 77% of Australian production. Across the economy Japan is Australia s third largest investor (following US and UK), with $131 billion invested as at the end of 2013. We encourage continuing Japanese involvement and commitment to the growth of Australian coal Source: Australian Bureau of Statistics (customised report) 6
CQCN is one of the world s largest integrated bulk supply chains has served markets for 50 years Central Queensland Coal Network Services over 50 coal mines across 2,670 km of common user track Transports coal to five independently operated export terminals Substantial electrification Managed within regulated rail and port infrastructure Cope with periodic extreme weather events
Network optimisation has supported record volumes in FY2014 In FY14, over 50 operating coal mines in the Bowen Basin were linked to the CQCN. These mines transport both metallurgical and thermal coal via the network, on which coal volumes have increased by 39% since FY02. FY14 was the best financial year on record for the CQCN delivering 13% more tonnes with only 2% more trains. CQCN historical coal volumes (FY02 FY14, mtpa) 2 Volume breakdown (2013, mtpa) 1 100% 250 39% 27% 26% 200 61% 150 89% 100 73% 74% 50 39% 0 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Newlands 11% Goonyella Blackwater Moura GAPE Moura Goonyella Metalurgical Coal Thermal Coal Newlands Blackwater 1. Wood Mackenzie, November 2012 2. Aurizon Network Financial Year Operational Data Reports 8 8
We are modernising the way we do standard work SAP Integrated Asset Management System Track Defect Inspection Reporting Whole of life asset management with tools to improve the velocity, access & accuracy of asset information Mobile tablets for real time fault reporting in the field Impact of Technology on Paths Used by Maintenance Activities Current Paths Used GPR Ultrasonic Track Testing Recording Car 96 Hr Runs Forecast Paths Used 9
with less intrusive inspection techniques improving the quality of asset data Unmanned Aerial Vehicles (UAV) / Drones High definition images Infra-red analysis Use of the drones reduces time required on track for inspections while providing data for preemptive maintenance activities Dewirements and Earthwire Failures 60 50 40 30 20 10 - FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 10
Transformational and productivity capex driving incremental returns and operational improvements 1,100 Capital expenditure FY2015 FY2017 ($m) Growth capex ~$800m, including ~$400m Network (WIRP and Rolleston electrification) ~$1,100m 370 ~$300m Operations (Whitehaven rollingstock & Hexham) 180 750 ~$750m 410 700 ~$700m 420 ~$100m Other Transformational and productivity capex ~$550m ~$300m transformational capex driving incremental returns with an average payback within five years 550 FY2015(f) Sustaining 190 180 150 100 FY2016(f) FY2017(f) Transformational and productivity Growth ~$250m fleet upgrades driving improvements in productivity, maintenance and fuel Sustaining capex ~$1,200m ~$800m Network, the majority of which earns the regulated WACC ~$400m Operations and other sustaining capital including rollingstock overhauls Long run expectations remain $500m-$600m per year 11
Aurizon growth opportunities supporting growth in demand Galilee Basin Bowen Basin Pilbara Mid West Hunter Valley Yilgarn 12
West Pilbara Infrastructure Project (WPIP) a growth OPTION, not yet a COMMITMENT to invest Option cost $211m (15% investment in Aquila) Feasibility work commenced Key deliverable in 2015: March 2015 indicative tariff (+/- 25%) October 2015 binding tariff (+/- 15%) No capital investment until Final Investment Decision (FID) (currently expected CY2016) which is subject to: Overall project economics being competitive irrespective of commercial framework Obtaining appropriate credit security for all counterparties Execution of take or pay contracts for infrastructure services for the life of the mine Project financing with no recourse to Aurizon balance sheet Aurizon to be majority equity holder in InfraCo, with no MineCo equity First option of InfraCo minority equity will be to MineCo partners 13
Sustainability Aurizon s First Report Aurizon recently released its first Sustainability Report Aurizon Beyond 2020 We aim to build a sustainable business, taking the safest, most efficient and least resourceintensive approach to the services we provide The report addresses our most significant sustainability priorities defines our view on the outlook for the future of coal and the drivers which support our continued investment in coal-related infrastructure in a carbonconstrained world 14
Sustainability The Future of Coal Steel is a key requirement for ongoing Asian urbanisation, and metallurgical coal has no substitute for oxygen based steelmaking. However, energy can be produced from a variety of sources, including gas, nuclear, renewables and thermal coal. We see a robust future for Australian thermal coal underpinned by four key drivers: 1. Increasing global energy demand 2. Increasing volume of thermal coal required to meet demand into the future 3. Australia s high-quality / lower-emission coal 4. Increasingly efficient coal technology 15
Sustainability The Future of Coal 16
Sustainability The Future of Coal 17
Questions? 18