A perspective on critical materials – from super cycle to trend
Alan Davies, chief executive, Diamonds & Minerals
World Materials Forum – Nancy, France
9 June 2016
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Thank you for the kind introduction.
It’s great to be here again in Nancy for my second time at the World Materials Forum.
It’s a privilege to be co-chairing this panel session at the start of a conference which covers so many
fascinating industry trends and issues. I note the conference is about exploring perspectives on critical
materials.
The definition of critical materials really does depend on your perspective and where you sit within an
industry sector or along the value chain:
 for some it might mean strategic - such as say rare earth elements;
 to others it might mean exotic, scarce or new - maybe a relatively new material such as graphene or
maybe a new mineral such as Jadarite we discovered a decade ago; and
 for some it is all about the critical bulk materials and base metals that remain the keys to
infrastructure and urbanisation.
To set the scene and stimulate discussion I’ll try and touch on parts of these themes, and a few others we
need to be alive to.
From our earliest days, Rio Tinto has been a materials company. Starting in Spain the sulphur in the
th
pyrite was as important as the copper. Both were critical materials for 19 century industrialisation.
st
Today in the 21 century we are probably better known for our iron ore, copper and coal, and bauxite and
aluminium.
I’m hesitant to use the word ‘bulks’ because many of these large tonnage products were not developed to
just trade on the spot market as the general public might view them.
In many cases our mines, our materials were built around our customer’s specialist needs for both
premium products and long-term security for their power stations, their mills and their smelters.
This is most definitely the case within my Rio Tinto Diamonds & Minerals portfolio. Home to many of the
specialist elements of the periodic table – uranium, titanium, boron, carbon in the form of diamonds and
even one of the world’s most exotic products Na-CL.
A case in point, our Dampier Salt operation in West Australia in joint venture with our Japanese partners,
was signed almost 50 years ago to meet their emerging material needs for chlorine, for soda-ash, for
chemicals, and for their food industry.
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So let me lay out some of the context for today.
Last year at this forum we talked of the twin drivers of materials demand – humanity and urbanisation.
Those ever present trends remain.
By 2030 the world will need to feed another 1.1 billion people and house an extra one billion people in
its urban centres.
Population growth will continue to drive investment in infrastructure and energy, while urbanisation and
a growing middle class will drive consumption across the materials spectrum:
 be it aluminium and paper for food packaging;
 steel, aluminium and composites in transport;
 copper in electricity, or
 and phosphates and potash in fertilizer.
Beyond the megatrends, new and growing themes are also apparent.
Themes such as the circular economy, the green economy, and the mobile economy.
The recycling economy, or ‘circular’ economy, has been making its presence felt for years.
To reduce, reuse, remanufacture and recycle.
A massive 75 per cent of the aluminium ever produced is still in use today and the world’s developed
economies are building on their sophisticated materials recycling programmes.
The transition to a lower-carbon footprint or ‘green’ economy will require massive investments in new
forms of energy production, storage and transmission infrastructure.
This will be both resource and materials intensive.
It will require more steel and aluminium in windfarms, more copper and silicates in solar cells, and more
lithium and other elements in energy storage.
And technology is leading to an increasingly mobile economy where larger urban populations are
seeking more connectivity by road, rail and plane – all requiring significant private and public
infrastructure.
And we are witnessing the emergence of a ‘shared economy’ through ride or car-sharing as just one
example.
In a few years’ time we may use our driverless taxi, or Renault, to move from Nancy to Paris or
Luxembourg.
And of course there is Industry 4.0 where the old rules of size and scale are now matched by
miniaturisation, speed and artificial intelligence.
Where nano-technology and 3-D printing meets the boundaries of synthetic biology and materials
science.
A fascinating future that will remain reliant on the materials of our modern world.
So where is the mining, metals and materials industry at now?
The McKinsey presentation highlights that the supercycle we all recently experienced will not return in
the foreseeable future.
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China’s industrialisation, and the lifting of hundreds of millions of people out of poverty, is unprecedented
in human history.
The double digit economic growth rates have moderated - as they were always going to - and we now
look to the New Normal.
The transformation of the Chinese economy to one that is less infrastructure driven has been occurring
gradually over a number of years.
2015 was a very bearish year for global commodity markets and I suggest not just due to China’s
moderating demand.
A range of factors all played a part - from oil’s significant price decline, to fears of deflation and lower
growth in Europe and developing economies.
Regardless of how you weight the various factors, the impacts across a variety of industries are clear for
all to see, including:

In exploration where the global spend of US$8.8b in 2015 is less than half the all-time industry
high of US$20.5 billion in 2012. We at Rio Tinto have maintained a sizeable exploration
commitment of almost US$180 million across almost 20 countries.

In cost curves and margins that have become lower, flatter and tighter across multiple
commodities. No doubt our CRU panelist will be able to offer a view as to whether they have
returned to the more normalised or trend levels of a decade ago.

In divergent capacity utilisation with some sectors are curtailing production - often the smelters
and refineries - and some are looking to optimise throughput or keep cash flow running across
installed infrastructure - often to meet take-or-pay contracts.
At Rio Tinto our response to the cooling commodity climate has been clear. We took early decisive action
quite a few years before the rest of the industry to reduce costs and capital expenditure and focus on
cash generation.
That has put us in a strong position to advance our ‘counter-cyclical’ investments in Tier 1 assets.
Assets such as the Amrun bauxite project in Australia and the Oyu Tolgoi underground copper project in
Mongolia.
The $1.9 billion Amrun project near Weipa in Queensland - where we have operated for more than half a
century - is one of the world’s great bauxite deposits, will firmly place us in the first quartile of costs.
Construction is underway, and the planned initial output of 23 million tonnes a year, will replace
production from the depleting East Weipa mine and lift annual bauxite exports by around 10 million
tonnes. It establishes Cape York bauxite as the product of choice for China’s alumina and aluminium
industry.
And just on a month ago Rio Tinto announced the development of the $5.3 billion Oyu Tolgoi
underground project. With an average copper grade of 1.66 per cent, more than three times higher than
the open pit, ‘OT’ is in every sense of the term – Tier 1.
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First production from the underground is expected in 2020 and when in full ramp-up in 2027 is expected
to produce more than 500,000 tonnes of copper a year.
I doubt there is an investment of this size or scale in the resources world, or a company with the capacity
to finance such an endeavour.
It is a project underpinned by our confidence in the future and long-term needs of our modern world.
So let’s talk about the future.
Those of us who have been around long enough know many of the headline catching metal prices of
earlier this decade were unsustainable.
But let’s not lose sight of some key facts on how compound growth builds demand, and builds markets
over time.
Yes prices have fallen significantly from their peaks, but even taking that into account the size of the
world’s major metal markets have grown very significantly in revenue terms.
For example, compared with 15 years ago, in real terms:
- today’s US$100 billion global iron ore market is five times what it was;
- the primary aluminium market has doubled to just shy of US$100 billion;
- and the copper market has undergone a threefold increase to US$120 billion.
The combined market revenues for these materials - in excess of US$300 billion - is three times what it
was back in the year 2000.
And if we look to the future, based on CRU’s outlook, over the next 15 years the world will consume:
- more copper than in the past 25 years,
- more steel than in the past 30 years, and
- more primary aluminium than in the past 40 years.
Be they pounds or tonnages these are very large material needs and I also suggest whichever price
assumption you choose to use, they will remain critical industries to be involved with, and succeed in.
So where will we source such materials?
We have more than enough elements in the periodic table and more than enough resources on this earth.
The issues are not of availability or endowment the issues relate to accessibility, geopolitics, and the
economics of extraction.
Notwithstanding low interest rates, it looks like capital will continue to remain very tight for the time being
driven by lower risk appetites by lenders and by shareholders seeking more robust return thresholds than
in the past.
Average projects are funded in good times.
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Superior projects such Amrun and Oyu Tolgoi are funded in counter-cyclical times.
How should we view the materials landscape?
For this conference McKinsey has framed or categorised our industry into a two-by-two matrix:
First the ‘bulk’ materials characterised by stable supply. Second the ‘minor’ or specialised materials
characterised by riskier or more volatile supply. McKinsey has then split these sectors into either
infrastructure led; or consumption and consumer driven.
Rather than get into a deep discussion about the bulks – for as I mentioned I think the long-term drivers
are sound – I thought I would spend a few minutes on products within my portfolio – titanium, lithium and
borates.
As a general observation if base metals have a cyclical cadence, then speciality materials are more likely
to have rapid spikes as new products emerge and new markets take time to mature.
Owners of these products and projects often have to be patient or ‘make the market’ for themselves
through technology, innovation and collaboration.
Titanium and steel metal powders
For example, let’s briefly look at titanium, steel powders and the 3D printing market.
The titanium value chain stretches from processing ilmenite, zircon and rutile into paints, pigments and of
course high-strength titanium metals used in medical, defence and industrial applications.
Titanium metal is less than 10 per cent of the Ti02 market.
The potential to use titanium in 3D printing as part of the ‘fourth industrial revolution’ sounds fantastic and
really easy - if you say it really quickly.
Reducing the cost of titanium powders and metal would significantly increase the demand for titanium
based-products across many industries.
And yet to date the experimental processes to produce titanium metal powders have not competed well
with the well-established Kroll process (titanium sponge).
Our Rio Tinto Iron & Titanium (RTIT) team has spent years working with researchers on ways to directly
convert titanium dioxide to metal.
One of the fundamental challenges is titanium’s close affinity with oxygen.
We must be constantly innovating to meet our customers’ needs and the key will be collaboration with
universities and technology providers.
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We are currently working with École de Technologie Supérieure in Montreal and the Natural Sciences
and Engineering Research Council of Canada (NSERC) to assess the potential for use of metal powders
in 3D printing.
It may take many years before 3D printing becomes a significant source of new titanium demand – but it
is worth pursuing.
Lithium
Much like titanium metal powders, lithium has had to wait its time and its turn, but it is now powering
ahead. And as many of you know, lithium prices have more than doubled in the past year.
The price driver, to borrow a phrase, has been the expectation and hope of a new generation of batterypowered electric vehicles (EVs).
A range of research reports in recent months have pointed to a potential doubling or tripling of lithium use
over the next decade.
And we at Rio Tinto are in a great place to capitalise on that potential.
Just on a decade ago we discovered the unique Jadar lithium-borate deposit in Serbia, some 140
kilometres from Belgrade.
I visited Jadar a few months ago and we are excited about its potential.
We’re progressing well through the pre-feasibility study and refining our test work and trials at our inhouse Californian and Australian research facilities.
Subject to approvals and investment decision it could be in production early next decade (in the 2020s).
Jadar is among the largest lithium deposits in the world and could supply more than 10 per cent of world
lithium demand.
As important as project engineering and process work is, market development and growth will be key.
World car and commercial vehicle production is currently about 90 million vehicles a year.
Toyota, the world most successful automaker of EVs, has sold eight million hybrids over the past two
decades - including the Prius which next year celebrates 20 years on the market.
New carmaker Tesla is looking to increase its production tenfold, from 50,000 EVs a year to half a million
vehicles before this decade is out.
And industry analysts are suggesting EVs could capture 10 per cent of new vehicle production by 2025.
Such trends point to potentially rapid growth.
Lithium batteries have been around for 20-30 years but new momentum is emerging.
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It’s a reminder the road is long for new technologies and materials, but the opportunities are great for
those who have patience and the right projects.
Borates
From lithium, let me move two elements along the periodic table to boron.
We supply about a third of the world’s borates from our business near Death Valley in California.
This 140-plus year business has never been more alive with potential and product uses.
From the essential and critical element in the borosilicate glass used for your TVs or smartphones, to
textile fiberglass used in wind turbines, it has wide industrial applications.
Across agriculture boron also continues to play a vital role. Time prevents me from talking about the
potential of ‘bio-char’ to improve soil nutrition and assist with carbon sequestration.
So let me briefly share one example and the research we did in partnership with the University of Missouri
on crop yields and corn – one of the world’s most important crops.
Corn removes from the soil each year significant amounts of boron.
Boron is recommended during planting and crop fertilisation because it helps seed formation, pollen
germination and better drought tolerance.
For many years we have been continuously researching, improving and increasing the premium nature of
our refined sodium borate product (Granubor 2) used in agriculture.
Last year a Missouri University study showed it could increase crop yields by more than 21 per cent
compared to a raw or unrefined sodium borate containing calcium (ulexite).
Forget genetic engineering for a moment, a 21 per cent lift is significant anyway you look at it to lift corn
yields and play a vital role in food production.
It’s a reminder that even the smallest of essential ingredients can have the biggest or most critical of
impacts.
With that as an overview of some of the themes and issues in our industry let me summarise.
From our perspective the long-term demand drivers for bulks and key base metals such as iron ore,
copper and aluminium are sound.
We would all like the heady atmosphere of supercycle growth. However I suggest, for those with Tier 1
assets and fit for the future that trend growth is also fine - and I suggest what the industry should plan for.
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With our Tier 1 assets, and strong cash flows, Rio Tinto has the capacity and confidence to invest
counter-cyclically in value-adding growth projects. This builds on our diverse portfolio with a product mix
well-connected to the needs of our customers and well-positioned for global growth.
Second, speciality minerals and metals often have rapid spikes and falls as markets take time to mature
and evolve.
Third, innovation will always be the key in terms of lowering production costs and in the market uptake of
new speciality materials - be it titanium in 3D printing, lithium batteries or century-old products like
borates.
So with that as context, I hope we can have a diverse and spirited discussion.
Thank you.
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