I'm very pleased to welcome our next company, Rio Tinto. Representing Rio Tinto, we have CEO Jakob Stausholm. Jakob is a very experienced global executive. He's worked at Shell, he worked at Maersk before joining Rio Tinto. He and I also share the experience of having worked in Argentina back in the 1990s. Jakob, maybe we'll do this one in Spanish. Okay, Jakob's chosen the hybrid format. He'll present a few slides, and then he'll join me over here for a fireside chat. Jakob, over to you. Welcome.
Thank you, Jason, and good morning. Before I start, I just would like to acknowledge and pay my respect to all traditional owners and First Nations people that host our operations around the world. Jason, let's come back to Spain. We are, of course, in Barcelona, and we are in Spain, that's where it all started for Rio Tinto. Two months ago, we turned 150 years old, the name of Rio Tinto stems from a mine next to the river Rio Tinto in Andalusia.
Yesterday. We did that.
Fantastic. Fantastic.
Still going.
The learnings is important to extract here. That mine had actually been producing for 5,000 years by the Phoenicians, by the Romans, and it was seen as a depleted resource. The king tried to get money out of it. He lost money on it. He also lost the throne. The new republic, they were interested in getting a little bit money. They decided to sell the mine. Exactly 150 years ago, a few English investors established the Rio Tinto Company and bought the mine, which was seen as a very risky investment at this time, buying a depleted resource in, at that time, an unstable country. With innovation, with technology, they rebuilt the mine. They built a railroad, which you probably saw, and they built a port.
Mm-hmm.
Within 10 years, this mine was the world's largest producer of copper. It's an amazing story. We are right now writing our history book for the 150 years, and I've had some sneak peeks, and it's just an amazing history. There are, of course, some wonderful chapters, and there are some more less wonderful chapters, but that is what goes with the history of a company. The key thing is you learn a lot, and you become stronger, both from the high points and the low points, and there's still so much we can learn from our history. As you see here, it's not that different what we have started upon in Guinea by building a mine, building a railroad, building a port.
I believe right now, Rio Tinto is entering a new exciting chapter in its history. I believe we have the right strategy, and I believe that we are facing an opportunity-rich world. We have laid out a clear path for to building an even stronger Rio Tinto. By meeting our four objectives and progressing our strategy to set the business up for long-term success. This is a journey, but we are making genuine progress. The rollout of the Safe Production System, our investment in lifting the health of our assets, and a shift in culture and mindset in achieving results. This is particularly true for our iron ore business in the Pilbara, where we consistently improve performance. In the last two quarters, this business achieved record operational results.
We must maintain this momentum if we are to become the best operator, but it does demonstrate that the changes we are putting in place are the right ones. We are also making progress as we shape our portfolio for the future. Starting underground production at the Oyu Tolgoi mine is a significant achievement. 1.3 km beneath the earth in the remote Gobi Desert. It is set to become the world's fourth largest copper mine by 2030. Through our acquisition of TRQ's minority shareholders, we doubled our exposure while simplifying the structure. The end result of this acquisition is less, not more work for our teams, as we unlock increased production and value from an asset we are already operating.
This shows the disciplines and thoughtful approach we are taking to managing our portfolio in a way that enhances and not distract us from the delivery of our strategy. As does the agreement we recently entered into a joint venture to unlock La Granja in Peru, one of the largest underdeveloped copper resources in the world. Partnering with First Quantum Minerals will bring our combined development capabilities and knowledge to bear on this exciting but complex project. We continue to progress the Rincon Lithium project in Argentina. These three projects will add tons in materials essentials in the energy transition and strengthen our ability to deliver strong returns for the long term. Turning to iron ore, another commodity essential to the energy transition and ongoing urbanization. We continue to secure replacement and potential growth tons in our Pilbara operations.
At the Simandou Iron Ore Project in Guinea, we're working on finalizing the shareholder agreement. Cost estimates and regulatory approvals necessary to progress the co-development of rail and port facility and unlock this high-grade resource by drawing on the respective strengths of the partners to the table. All of the materials we provide are needed for today's world. Looking to the future, we expect the demand for our products will continue to grow at around 3.9% per annum for the next 10 years. This will be driven by the dual drivers of ongoing urbanization plus the energy transition. This is why our strategy is about growing in the materials the world needs, a strategy that will ensure Rio Tinto remains strong in the short, medium, and long term, with the ability to invest for long term while also paying attractive returns.
A key task for our industry will be about how we meet the growing demands for all our products and the need to develop new mines. We are well-positioned for the role of steel as core materials in a low-carbon future, and the impact this will have on the iron ore industry over coming decades. The Chinese steel industry emits around two billion tons of CO2 per year, with gradual but ultimately very ambitious decarbonization plans that will see ores with lower impurity and more generally, ores with lower CO2 iron-making emission increase in value. Rio Tinto is positioned towards a well-balanced iron ore portfolio, which will be resilient to the various ways in which steel decarbonization could play out.
Pilbara Blend fines will continue a base load for conventional steelmaking, even as the process improves its carbon footprint. Pilbara lump will increasingly be valued as a low-CO2 substitute for sinter. We have the potential to deliver significant value over the long run from further beneficiation of Pilbara ores together with our technology partnership approach. Our IOC products are some of the highest grades iron ore in the market, while Simandou potentially provide a large DRI feedstock complemented by a premium blast furnace product. In grasping the opportunity offering by increasing demand driven by the energy transition, we must not lose sight of the other fundamental drivers of commodity demand, urbanization. While GDP growth in China isn't what it was five or 10 years ago, we expect to see a compound annual growth rate of 0.6% in global steel demand through to 2050.
Supplying the iron ore to help meeting this demand will be key not only to both the energy transition and ongoing urbanization in China, India, and longer-term Africa. Executing our strategy is a long-term journey. We are making notable progress, but there's much more to do. We are energized by our purpose of finding better ways to deliver the materials the world needs, underpinned by our values of care, courage, and curiosity, and our four objectives. These are the foundations for improving our culture and unleashing our people to do their best day in and day out. One recent example of finding better ways is that our Blue Smelting demonstration plant in Quebec, where we are trialing new technologies to produce titanium dioxide, steel, and metal powders with radically reduced emissions.
The plant has now started to produce reduced ilmenite using gas that is a by-product from the smelter process. The next step will be to run continuously and later to trial pre-production using hydrogen as we work towards meeting our aim of industrial size plant in 2025. We are also investing in the health of our business while improving our operational performance through the rollout of the Safe Production System. This is how we once again will become the best operator. We are growing the business in a disciplined way and shaping the portfolio to mirror the growth in demand we are seeing for all the commodities we produce. We have a very strong balance sheet that enable us to run our business and maintain investments regardless of where we are in the cycle.
In summary, we are uniquely positioned to accelerate the decarbonization of our portfolio, to invest and grow in the commodities needed for the energy transition, and to grow our value and future dividend potential. Thank you.
Thanks, Jakob. Thanks for those introductory comments, Jakob. The theme of our conference is the pivot to growth. Now, when some mining companies decide to grow, investors get worried. I guess, how do you think about growth, and I guess both inorganic and organic? Maybe you could talk a little bit about which of your growth options you're most excited about?
Thank you. You asked the same question to Mike, and I thought he answered it extremely well. Let me not repeat that. I understand the concern. I have been a CFO for 25 years, things has to add up here, and you have to be careful of not getting too carried away. I read newspapers as well. I see there's more M&A activities, it doesn't change anything for us. What we are trying to do is basically to develop the company in the best possible way and create most value. We are blessed with having a lot of opportunities, a lot of options in the cupboard, and you can see we are trying to unlock those. There are a few places where we have seen that we could actually do a transaction always with what is the logic behind it?
How can we create value? As we also heard Mike saying earlier today, being sure that you don't try to do more than you actually can do. If you look at some of the things we have done, look at TRQ, it doesn't lead to more work, it leads to less work. Look at like La Granja, we have had that for a long time. We are getting help from First Quantum, who has got some really good skills. Together, I think we can unlock that one. Look at Simandou. It would have been really hard for us to do that project on our own, and we have some very competent Chinese partners that we are doing it together with.
The reality is, there is a financial constraints for us, but there's more than anything, also a human resources constraints, and we are trying to navigate within that. Rio Tinto hasn't really grown for a decade. If you look at just first quarter to your numbers, you can see we are back growing again. A lot of it is coming from operational excellence, and a lot of it is also coming from we start unlocking some things. I can assure you we will remain very disciplined. Discipline comes a lot from just being committed to delivering a dividend that puts some pressure into the system and makes sure that you don't get too carried away.
Okay. As exciting as growth is, I guess, you know, the engine for cash flow at Rio Tinto still remains iron ore. We have a session with Simon later on. It's our deconstructed iron ore panel. Bottom line is you undercapitalized that business for a long time. You've got a huge new mine, Gudai-Darri. Is iron ore fixed, or is there more to do here?
Look, nothing is ever fixed. We are on a really good journey, and maybe you can do my job this afternoon and ask some of the tough questions to Simon, asking him about how Gudai-Darri is ramping up and whether Gudai-Darri could get beyond his nameplate capacity, et cetera. I would say we have had some really good quarters, and I've spent some good time in the mines, and I can see the culture change happening right now. I can see how we are unleashing the full potential of our staff. I would say, there's much more to come, but it takes time. I just wanted to make the point, it is really a five-year journey we have embarked upon.
Yeah. Just to follow up on iron ore, I was marketing in the U.S. recently. Investors were looking at your strong Q1 performance in iron ore, and they're like, "Hmm, that's kind of interesting." Unfortunately it was into a weakening market. I guess one question I had from investors was, you know, how does Rio Tinto think about value over volume these days?
Look, I heard you saying a weakening market. I don't think you can say it's a weak market. We had $125 per ton average iron ore price in Q1.
Mm.
It's a good market. The supply we supplied to the market was needed by the market. I have less concern on that front at this point in time. We will of course, never produce more than what the market needs. Right now, we have stepped up and there's been a demand for it.
Okay. let's switch directions a little bit and chat about the balance sheet and shareholder returns. We had several years of you returning way above your target payout ratio. With the most recent set of results, I think some investors were a little bit disappointed that there wasn't a top up. Are those years of supernormal returns behind us?
First of all, to all of you investors being a bit disappointed, I do like to remind you that our ordinary dividend last year was the second highest dividend in our 150 years history. I get it was not as high as the year before, it's still a significant payback and a high dividend yield on it. Look, we are blessed with a very profitable business, it basically means that we have the ability both to pay a high dividend and grow our business. We're never gonna be a high-growth company, growing a little bit towards with the market where we are facing growing markets makes sense.
Our dividend policy, which says 40%-60%, I'm very keen on every year since we changed the policy, we have delivered the 60% in ordinary dividend. I'm very keen on trying to stick with that. Then in the past, for various reasons, we have, particularly when we have sold things, we have paid out much more on top of the 60%. Last year, we did some acquisitions. We didn't do any divestments, therefore we stick with the 60%. On average, the payout ratio have been 72% the last five, six years. Anywhere between the 60% or the 72% I consider, you know, what we are looking for. But we do ultimately have to look towards value.
If there's values in investments and we don't wanna sacrifice the balance sheets too much, then maybe there's not extra dividend above the ordinary dividend.
Let's talk about your now 66% controlled world-class copper mine, Oyu Tolgoi. Somebody called it a copper pearl in the Gobi Desert. I don't know who that was. You've taken out the minorities in TRQ. You have a new agreement with the government. You've invited analysts to site. Is the asset fixed? How long till it's producing 500,000 tons a year of copper?
Yeah, you're right. Look, there's a couple of things here. There's a technical development. We had three or four years ago, some challenges, and we have learned from that and become better. I think it's an amazing technical team. We are making great progress. Even during COVID, we were able to progress that. You know, we started to undercut a year ago, and we now have sustainable production. I went there a month and a half ago and celebrated with the government that everything now seems to be going to plan, which is amazing, not just for us, but probably even more for Mongolia. On top of that, we did have relationships issues, and I think we have made significant progress on that. Now we are really in a good place, very aligned.
We are two shareholders, the government and ourself, and we wanna progress this, and we wanna progress it to its full potential. Not a bad time for analysts to come and see what we are working with. Nothing is ever solved here, but so far, the blockade is caving as well as we could hope for. We are optimistic.
500,000 tons when?
Look, we have. You typically have a four to five years ramp-up period. We have already been going for a year.
Yeah. We'll do the math.
This is something we talked a little bit about at the full year results.
How do you think about the geopolitics of Mongolia, sandwiched as it is between China and Russia? You know, the West seems to be, you know, if you like, going in the wrong direction in terms of China and Russia, and you're doubling down on your investment there.
Yeah. Look, China is a very, very important market for us. We have our biggest customers there. We have a major part of our business there. We have a major part of our business in the West. We don't do business in Russia. That's how we look at the world from a geopolitical point of view. Mongolia, they have always had an enormous ability to focus on their independence and how they work effectively where they are. They're doing that very well, and we work very well with the government. I think we are helping them on their economic development. We also work with the neighbor, the neighbor country in that sense, with China, because we are selling copper concentrate into China. We are getting power from China.
It actually works, it works very well.
Okay. we can take a question or two from the floor. Anybody have one? There's one right here, please. Thank you.
Can you build up with what's your strategy for lithium?
For lithium, yeah. Yeah, look, right now we are progressing the Rincon Lithium Project in Argentina. The aim is to have a project that can be sanctioned by the end of the year. We have a little starter case where we're learning from. That's the first part on the brine. We're making really good progress on the technology development. We really start cracking the DLE technology. I went to our research facilities in Melbourne a couple of weeks back, and it was most encouraged on that part. We also have a hard rock mine in Serbia, where we have the technical solutions, but we're still working with the government on finding a pathway forward. I'm still hopeful that we will find a pathway forward.
I believe it's in the interest of the country and we are very keen on developing Jadar. Ultimately, let's see where things are going. I mean, we're not just gonna throw ourself into paying high prices for lithium companies. That makes little sense. We have actually a lot of technology we can contribute and there needs to be developed some new lithium mines. I'm looking at things a little bit from a case-by-case basis because no one can predict the lithium price. I can see that we have some technologies to provide. Thank you.
Any other questions from the floor? Just looking.
I don't think so. Maybe, back to me for one. Were you just in China?
Yeah.
Two weeks. What are your big takeaways?
Look, I'm very encouraged, quite frankly. The Western world is entering the year at a difficult state with high inflation and low growth. You see China opening up, and they are experiencing the same as many other economies when they come out of COVID, namely a kind of a economic spring.
Mm-hmm.
It was very visible to me, both to meet people in the government in China, and I did go to a number of steel mills as well and could see what is happening there. I do think the economic indicators are going in the right way and China is very focused on getting back on a sustainable growth pattern and path, and that's good for our business. I left on a very positive note.
Any other questions from the floor?
I might just ask one last one, Jakob.
Yeah.
A couple of years ago, It's an ESG question?
Mm-hmm.
A couple of years ago, you might have probably received a failing grade in ESG. You know, if you're moving on, what grade would you give yourself today?
Look, that's very easy. That question I cannot answer.
Okay.
That's for others to answer.
Okay.
We're very focused on, we have had deep learnings since, let's just call it by name, the Juukan Gorge incident. It's super dangerous when you start giving yourself scores on things that others should assess. We're trying to reach out, engage, and talk to people and make sure we get unfiltered feedback as an organization.
Mm-hmm.
That is absolutely critical. I hope and believe, now I start half answering, that we are moving in the right direction. The absolute score you should ask elsewhere.
Okay. ladies and gentlemen, could you join with me please in thanking Jakob for his presentation.
Thanks, everyone.