Good evening, everybody. Welcome to Rio Tinto's 2021 Investor Seminar. Today's meeting will be conducted in hybrid format. We have speakers online in Brisbane, Singapore, and Perth, and physically here in London. There's also an audience here in London today. Thank you for those joining us here today. I understand many of you had to battle impossible public transport issues. With a bit of luck, of course, we will all see each other physically next time. For those here in London, a very brief safety induction. There are no scheduled fire alarms today. If you hear a fire or security alarm, leave the building by the nearest safest fire exit. You can see those on both sides of the room here. Please do not use the lifts, and follow the instructions from the fire warden to the muster point.
With that out of the way, a couple of points of housekeeping for today. Can you please switch off your phone or turn it to silent? If you do need to take a call or use the restroom during the presentation, can you please use the door at the back of the room on my right, and take the stairs down, and return the same way, please. There is a lot of material that we want to get through, therefore, there's only a very short comfort break of 15 minutes. For those in the room, can you please ensure you are back in time out of respect to those participating online today? You will have time to mingle here today in London and eat a sandwich with Jakob and the team after the meeting. There will be two Q&A sessions.
For those of you online, if you want to participate in Q&A, please see our website for the dial-in details. In the first session, can you please limit yourself to questions relating to the first presentations? Finally, I would like to point your attention to slides two and three in the pack for the cautionary statements and the agenda for today. With that behind us, we would now like to commence the presentations. Before Jakob starts, a very short video. Can you please play the video?
[Presentation]
Good morning. Good afternoon. Welcome, and thanks for joining us in person and virtually. I have been in this role almost 300 days. It has been busy and challenging, it's also been enjoyable. Rio Tinto is a great company to lead. When I was appointed Chief Executive, my immediate focus was to stabilize the company after the tragedy of Juukan Gorge, to start repair damaged external relationships, particularly in Australia, and set the overall direction to make Rio Tinto stronger. Looking back over the last 12 months, we have completed the biggest management change in Rio Tinto's history. I also believe we are extracting the full learning from Juukan Gorge and have made an important and significant shift in how we see ourself and how we see the external world. We are becoming more humble, more human, and more empathetic.
Strengthening our relationship with society more broadly is clearly a multi-year journey. It starts with us changing, which we are doing. In the first half of 2021, we reported the best financial results in Rio Tinto's history with net income of $12.2 billion and a return on capital employed of 50%, demonstrating the strengths of the amazing portfolio of assets Rio Tinto has built over many decades. Our operational performance this year has not been good enough. We must address this. We absolutely will. We will approach this in a systemic, sustainable way, not taking shortcuts. You'll hear more today about how the product groups will work with Arnaud to embed it for the long term. Today is not about the next three, six, or 12 months or setting 2022 guidance.
It's about addressing the medium to long-term strategic direction of Rio Tinto. Since I appointed the new executive team in late January, we have worked together to build an effective team and address the issues we face. However, we must look beyond addressing yesterday's issues alone and grasp opportunities. As a team, we therefore conducted an extensive strategy process, not only visualizing how we see the future, but also making important choices that will define Rio Tinto. After extensive discussions with our board during September, we are really excited today to share this strategy with you, our investors, the owners of Rio Tinto. For many in the team, it is the beginning of an important dialogue. You will today hear from each member of the executive team, and hopefully you'll see the breadth of talent and capabilities they have and experience the team dynamics of ExCo.
I've also invited Vivek, our Chief Economist, because nobody at Rio can provide better insights in some key industrial matters. In essence, we will today address firstly, how we become the best operator by implementing the Rio Tinto Safe Production System. Ensuring we do this is about restoring Rio Tinto's DNA. Arnaud will provide you some new insights on our progress. Secondly, how we will achieve impeccable ESG performance from our community work to addressing climate change. You will hear how we are making a step change in decarbonizing our business, in line with societal expectation and essential to achieving impeccable ESG performance. Thirdly, after a decade where Rio Tinto in aggregate has not grown, we will outline options to unlock growth. We call it accelerated development. This is essential to ensure our portfolio remains relevant and is well-placed to meet the commodity needs of the future generations.
Bold, Mark, and Sinead will share their perspectives on how we are building capabilities in business development and project execution. Fourthly, addressing the above in the right way, combined with being more outward and in tune with societies, will strengthen our social license. This is of huge importance for our long-term future. We have invested significant time and effort over the last 10 months, which Kellie will outline. We will continue doing this day in and day out to secure and maintain our social license. Our ability to drive these changes will be driven by our leadership. The next item on the agenda today will be culture and people. Not the usual topic at an investor day, I say to you, nothing is more important for Rio Tinto. I'm very excited to share what we are doing to drive change internally, to enable and empower our great people.
Unleashing their full potential will happen through fostering a high achieving and caring environment with a bottom-up culture as opposed to just top-down target setting. This is further emphasized by the launch today of a new set of values to Rio Tinto. These are expressed in just three important human values, care, courage, curiosity. At the heart of this is putting trust in our people. We need to enable those who are the experts to drive change and take accountability. To make a real difference across the board, we need to drive outcomes, not just set targets. These are all essential components in helping us deliver on our long-term vision for Rio Tinto. A vision that the entire team is committed to delivering with the full support of the board. This will ensure Rio Tinto thrives in the decades to come.
While there has been broad consensus on the need to tackle climate change, there has not been sufficient actions. Since the world started discussing the challenge in the early 1990s, emissions have more than doubled. To meet the goals of the Paris Agreement, global emissions needs now to reduce by 7% a year between now and 2050. Things are changing fast. Governments are setting more ambitious targets and are taking actions. China's commitment is particularly significant given that it consumes over 50% of the world's commodity and is also a major energy-intensive producer. We have seen similar determination for action from the U.S. to Canada, from Japan to Korea, and we expect additional momentum on the back of COP 26.
Society at large is also demanding and driving change from switching to EVs or green energy providers to putting pressures on companies to produce goods in a carbon neutral way, or boycotting companies that don't. For Rio, this presents a challenge, but in my view, an even bigger opportunity. We must meet this challenge and work closely together with governments, suppliers, customers, and partners like never before to drive change. As the Prime Minister of Australia said in April, we are going to meet our ambitions with the smartest minds, the best technology, and the animal spirit of our business community. Rio is up for that challenge. We will need to raise our ambitions and take genuine actions. We must switch to renewables at scale, electrify everything we can electrify, work across our entire value chain, and accelerate the development of new technology.
We also recognize that we have a major carbon footprint, significant Scope 1 and 2 emissions, and very material indirect Scope 3 emissions. We are therefore addressing this with urgency. The transition to a lower carbon world offers a unique opportunity for us to grow and remain an attractive investment for decades to come. For over a century, the main drivers of commodity demand have been population growth and urbanization. We expect this to continue, not at the same level we saw in China the last few decades. Looking ahead, the race to net zero will create additional demand for our commodities. All the materials we produce are fundamental. Copper, lithium, aluminum, and minerals are the obvious ones. Let's be clear, high-quality iron ore is also essential, not only for ongoing urbanization, but also in the drive to net zero.
A large-scale move to renewable energy will create additional demand for steel, for example, for the construction of wind turbines. Steel, particularly green steel, has a bright future. That's why we at Rio Tinto continue to love steel, a product for the future. It just needs to be decarbonized, which is not easy, but it will happen. Crucially, there are often no alternatives to the commodities we produce. To underline our commitment to take action today, we are announcing new targets. We will bring forward our 2030 targets of reducing Scope 1 and 2 emissions by 15% by five years to 2025. We are also more than tripling our 2030 targets, increasing it to a 50% reduction in our Scope 1 and 2 emissions. We are now starting an internal race that will activate all our staff, not least all our engineers, to think differently about energy solutions.
We are also engaging and taking responsibility for the wider emissions from the supply chain we are part of, particularly the steel chain. You'll hear from my colleagues about our plans to address Scope 3 emissions. We are committing direct investments of $7.5 billion in decarbonization from 2022 to 2030 inclusive, but our decarbonization actions will result in much more investments by others. I'd say to you investors and owners of Rio Tinto, I am convinced it will in aggregate be valuable investments, future-proofing Rio Tinto, while also enabling us to be part of the solution the world is looking for. We are doubling our investments in growth CapEx from $1.5 billion-$3 billion annually. Rest assured, we will maintain our capital discipline. How are we going to achieve this?
Our starting point is unique as we are not in fossil fuel extraction, and we have extensive hydropower for our most energy-intensive business, our aluminum smelters. However, we must do much more. Firstly, we will accelerate our own decarbonization, switching to renewable power, electrifying processes, and running electric mobile fleets. Secondly, we will increase our investment in R&D to speed up the development of technologies that will enable our customers to decarbonize. Clearly, technology and partnership have a key role to play. Thirdly, we will prioritize growth capital in commodities that are essential for the drive to net zero. We will look to grow further in copper, battery materials, and high-quality iron ore. We will also target our exploration spend to supplement our projects. I appreciate many are skeptical about the ability of a business like mining to deliver on the climate front beyond issuing ambitious and long-dated targets.
That is why we are sharing a clear pathway to material reductions by the end of the decade. We are already a large consumer of energy, a large producer of renewable electricity, and an experienced manager of energy infrastructure. This will help us to determine and drive our own energy transition. We also have very large land positions in 11 out of the global 11 regions that are most advantaged for renewable energy at scale. Our operational, explorational, technological, and commercial knowledge position us strongly to identify additional opportunities. We already have a lot of wins under our belt from automation, discovery of new minerals like jadarite, and progress in game-changing technologies like ELYSIS. We are partnering widely with some of the best brains globally. This is all underpinned by a strong balance sheet and assets that generate stable cash flow in any economic environment.
We therefore have the capacity to invest in decarbonizing our business, securing valuable growth, while also continuing to pay attractive dividends. With that, I would now like to introduce our first of today's panels on culture and people. The panel consists of our Chief Operating Officer, Arnaud Soirat, our Chief Executive of Australia, Kellie Parker, from Brisbane, our Chief People Officer, James Martin, and our Chief Technical Officer, Mark Davies, who's here in London today, moderated by Menno. Over to you, Menno. Thank you.
Great. Good morning again, everybody, and welcome, gentlemen. Arnaud, let's start with you because clearly we heard from Jakob that there is room to improve our operating performance, and as our new Chief Operating Officer, you're clearly very well-placed to attack that. What are you doing to drive Rio Tinto towards best operator?
As Jakob mentioned, the performance of our assets are not where we would like them to be. The key issue that we have had, and therefore, the key opportunity to seize is to tackle variability. If you look at year -to -date, we have had assets that have performed extremely well and others that have struggled. If you look at a single asset, we have had long periods of good performance and then some instability. Even if you go to the next step of comparing the performance of two assets that have got the same critical piece of equipment, one has been performing well, the other one is far from optimum. Variability is destroying value. Therefore, the first phase of our approach is going to bring some stability.
With stability, we'll get on average a better performance, and that will be the basis on which we'll build the better performance up to becoming the best operator, which is one of the four priorities that Jakob described. What we've been doing in Rio is we are starting to build the Safe Production System of Rio Tinto. That's a production system that will simplify the way we work. It will free people's time to be able for them to improve the way they do their work. We'll be identifying best practices, sharing those practices, improving them, and replicating quickly, and we will be upskilling our people from the shop floor all the way to executive leadership. The Safe Production System will profoundly redesign the work, and it will redefine the way we are safely, cleanly, and productively working at Rio.
We'll do it by focusing on upskilling our people, empowering them, and the logical consequence of this will be greater value being created.
Thanks, Arnaud. Clearly, the people in the room and online have seen many productivity systems and improvement programs across different companies and for Rio Tinto. Could you help us understand how this one is different and how you are trying to embed this in the organization for sustainable success?
I think it's fair to say that we've tried several times in the past to improve productivity. Some people in the room and virtual room will remember some of our previous attempts, and it's fair to say that we have had mixed results. We've had a look at why has it been the case, and what we found is invariably over the past 10 years, we always tried top-down approach, taking a number, decided from executives, imposing it to people and looking for delivering quick wins. The problem is that approach didn't stick. Sure, you can get short-term value being created, but actually, what is the long-term value, medium-term and long-term value being created? The reason why it didn't stick is because fundamentally it lacked a profound change in the way we worked, in capability of our people with lasting positive impact.
We've learned from this, and we've designed our approach as a two-pronged approach. On one hand, we're working on the fundamentals of the business and implementing the Safe Production System, which is a bottom-up approach, working with our people to find a more productive, safer, and cleaner way of working. This is foundational work that will take years to implement, and it will deliver benefits to the medium to long term. On the other hand, we are combining this with a more short-term approach, which is aiming at specific initiatives of improvement called Kaizen. We are targeting the bottlenecks in our assets so that we can create short-term value. It's the combination of short-term approach with medium to long-term foundational work, which is going to make it sustainable, and it's going to create value that's for many years to come.
Thanks, Arnaud. Although obviously short-term is not the priority, can you give some examples of the specific improvements we're targeting at those bottlenecks?
In terms of examples. First of all, we've started this approach six months ago, so it's early days, but we've been progressing at quite a fast pace. To give you an idea, over the past six months, what have we done? We've completed a thorough benchmarking analysis both internally and externally. We've compared the performance of each asset across Rio in terms of its best historical performance, and we've compared it to the best performance in the industry. From there, we created a prioritized list of activities that we want to do, both with the short-term improvement of the Kaizen, but also with deploying the Safe Production System. We have also put together a team of representatives from different parts of Rio Tinto, and we've designed the first Safe Production System.
It's not perfect, and it doesn't have to be, because actually what is important is to start. We looked across all of our product groups. Where are the best practices? We've put it into this system, and now we're deploying it. While we're deploying it, our people are fine-tuning it, and therefore, the continuous improvement is hardwired in the way we do business. We've launched four deployments of the Safe Production Systems already in four different assets. We've done also some Kaizen. To go into more specifics in terms of examples, I can talk about the first site where we've deployed the Safe Production System. It's at Kennecott. We chose to deploy it at the concentrator because it's the bottleneck by design. We are aiming at increasing the asset utilization rate by 5 percentage points there. Now, think of it.
The concentrator is just at the beginning of the value chain of Kennecott. This increased throughput, therefore will have a positive impact on the rest of the value chain. The way we'll do that is by revisiting some of our equipment management strategy and reducing downtime, both planned and unplanned. The feedback that we've had from people, particularly from people on the shop floor, has been extremely good. Because we're giving them a chance of being heard. They've got great ideas. They know the equipment extremely well, and they want to contribute. The Safe Production System is giving them a chance to contribute to their best abilities. I'm absolutely convinced that will create value, and it will create value which is going to last.
Thank you, Arnaud. James, over to you. You're clearly very new to Rio Tinto, having joined in March. What do you see as our strengths and our weaknesses, and what can you do to make us better?
The first strength I'd point to is just the sheer quality of our people. We have fantastic people. I've been continually impressed by the caliber of the individuals I've met. Not just intellect, but in terms of drive, commitment, dedication, care, desire to do the right thing, to do it well. Why am I so convinced of that? I've had the privilege of seeing elite teams through my life, from my early days as a fast jet pilot in the Air Force, and later, over 21 years at Egon Zehnder. I've assessed literally hundreds of leaders across many management teams in many sectors, in many business centers of the world. We benchmark extremely well. We've got great people. What are the weaknesses? I'd point to two. The first one, as with all of us, a weakness is often an overplayed strength. We're diligent, analytical.
We want to get it right. That means that we can get analysis paralysis. We can get risk-averse. We can get cautious. We can want to do another study rather than take a decision. Some of that's got a bit hardwired into our systems. Some of our systems have become overly meticulous and a little bit bureaucratic and a bit slow. We're working on that. The second area is more disappointing. It's pretty hard for any of us to open a newspaper in Australia without reading about some very distressing behavior in the mine sites. This is a mining industry problem, and it's our problem as well. We're not kidding ourselves that this is just Australia. There's a lot of work to do to improve the level of respect and inclusivity across all of our sites. What are we going to do about it?
Well, we want to create an environment where everybody can feel at home, whatever their age, race, gender, sexual orientation, gender orientation, we're absolutely determined to do that. The second thing we're going to do is work hard to unleash all the potential in all of us. All of us have got latent potential that we're not using, and we're putting a lot of effort behind our development programs to release that and restore the pride that exists in many centers already. I had an email just this week from a lady in our middle levels. She was talking about a very difficult issue she'd had to deal with, and at the end, she said, "I feel so lucky to work in such a fantastic company." There is so much pride to build on.
I appreciate that some of you might want to know a bit more about the harassment issues we've been facing. Kellie, I don't know if you want to come in here and just talk about that a little bit more.
Thanks very much, James. Before I start, I just wanted to acknowledge the traditional owners on the land that myself and Sinead are sitting. That's the Jagera and Turrbal people, I pay my respects to their elders, past, present, and emerging. I've personally been appalled and really upset by what has been shared by current and former employees. It's just completely unacceptable to feel unsafe, both physically and psychologically in the workplace. We know that sexual harassment can happen when there's inequality. Last year, we actually knew that maybe we potentially have an issue, and we should do some work. We launched the Everyday Respect taskforce to discover and then to address the issues holistically and systemically. We broadened the scope to include sexual harassment, bullying, and racism.
We engaged Elizabeth Broderick, who's an external expert who works with the UN Human Rights on discrimination against women and girls. The team has just finished the discovery phase. That's included focus groups, interviews, written submissions, and a survey which had over 10,000 responses. The findings are confronting. As leaders of this business, we are committed to change. The recommendations will be made available by the end of the year. We will have an action plan to address. James, do you want to talk about diversity?
Sure. Let me start by talking about gender diversity. There's some good news and some not so good news. Actually, we've done okay in terms of our leadership ranks. Over the last five years, our gender diversity has improved from 19% - 26%. We're making progress. Not good enough, but we're making progress. The diversity in our frontline colleagues has stayed stubbornly flat at around 20%. We need to do better. We're targeting 2% a year growth in gender diversity. Most large corporations seem to manage between 1% and 1.5%. Obviously, we want to do better than that. We have a number of initiatives in place, and the results of those are very encouraging. For example, we've got a Women in Pathways mining campaign that we just had, and we had 3,000 applicants for 85 places.
I'm confident that there's more that we can do. Diversity isn't just gender. If we think about our Indigenous colleagues, and let's focus on Australian Indigenous colleagues for a moment. We're actually already one of the largest employers of Australian Indigenous individuals. We have 1,500 today. Again, we don't think that's good enough, and we're targeting a sevenfold increase in our Australian Indigenous leaders by 2025. To back that up, we're putting $50 million into that, which will be spent on targeted recruitment campaigns, on leadership development, on coaching, and mentoring. We're determined to do better.
Thanks, James. We've also changed our core values recently, as Jakob alluded to. Can you help us understand why we've changed this and how the market should interpret those?
Sure. If you think about any values, they need to be memorable and relevant. They need to kind of sing to your heart as well as make sense intellectually. They need to work for an organization, and they need to work for you as a person. When we started on this culture journey, we asked a lot of our colleagues about, "What do you think of the values today?" They gave us a lot of feedback, and most of it was kind of they're fine, but it wasn't quite hitting the mark. We spent a long time just working out how we could articulate something that would play more to people today. That's why we've ended up with care, courage, and curiosity. Care, of course, encompasses all of the physical safety which we're so passionate about but extends it to caring in the broadest sense.
In a psychological sense about the people we work with, but also for the communities and counterparts with whom we interact. We need courage. We're going to have to take some tough decisions. We're going to have to take some risks. We're going to have to face up to some difficult problems. Sometimes we're going to have to face up to difficult conversations. Courage is vital. Of course, curiosity is all about innovation, thinking of new solutions to complex problems. It's about seeking understanding when you're dealing with somebody else. It's also about your self-development. How can I personally learn and grow?
We're delighted with the response that we've had to these new values. They seem to have resonated extremely well with our colleagues, and I think they'll play a part in helping to change our culture.
Thank you, James. Taking that forward, Mark, talking about cultural heritage and communities, what changes have you implemented to the Communities and Social Performance function since the Juukan Gorge events of last year, and do we now have the right structure in place?
Yeah, look, there's probably been three key dimensions to our response. Relationships, it's about capability, and it's about culture. If I start with the relationships, we've actually made it very clear that the accountability for Traditional Owner and community relationships sits with the site general manager, just like we do for safety. That means that our Traditional Owners, our communities, can just pick up the phone if there is an issue and resolve things much, much quicker. On the capability front, we have created a CSP area of expertise that is a very small team of true experts that support our assets around the globe. We've recruited a sort of a global expert, Melinda Buckland, to lead that team.
We've created a CSP leadership team, where we actually get our CSP leaders from all of our assets together to really learn from one another, to get better and better every day at how we do CSP. On the culture, we're going to build on the work that Arnaud's talking about, respect, the values that James mentioned. Actually, we're going to add to that. I think the Indigenous Leadership Program, really getting Indigenous and First Nations people sitting around our management tables can really help build a culture of respect and inclusion. We're also going to make sure that the whole organization goes through cultural awareness training. When I've seen that in action at some of our sites, at Weipa, where our leadership team went out into the field with the Traditional Owners, the engagement is just that much better.
Staying on this topic, Kellie, this is also one for you, but maybe Mark, starting with you. You've clearly met with many, many Traditional Owner groups, many local communities. Do you both think mining is still wanted? If so, what do you think the minimum requirements that communities are looking for?
Yeah, look, Menno, I think the first important point is actually each of our Traditional Owners, each of our First Nations people, they're all unique. They all have their own perspectives, their own objectives, and really, sort of first step is absolutely about listening. It's about relationship. It's about understanding what they need and what they want out of the relationship. I would say that all of the ones that I've engaged with have been very supportive of mining. They just want a partnership. They want this mutually beneficial outcome from this. They actually see it as a core source of achieving some of their objectives. One example is probably the Winu project, where the Martu and Nyangumarta have been involved from the very beginning, from exploration. Actually, we're sort of developing that project at a pace that suits them.
I would say in summary, yeah, absolutely, very supportive. They just want the partnership and those mutually beneficial outcomes.
Kellie?
Yeah, absolutely agreed. No one that we talk to and work with doesn't want mining. The Traditional Owners that we work with want to have more say about cultural heritage, and our mine planning process. How do they look after their culture, not only on current projects, but prospective projects. They're very supportive of mining and development but want to have more say, and that's where we want deep engagement. Know that requires more engagement and time from the Traditional Owners, but it's mutually beneficial, and we're both looking forward to working that way across Australia.
Thanks, Kellie. Staying on this topic, clearly the Western Australian government is in the process of updating the Heritage Act, and there is more focus on cultural heritage across the industry in general. Can you give us your views on what you expect from that Heritage Act, and how do you expect it to impact our operations and our ability to develop projects in Australia?
The first thing is that we're not waiting for the legislation. We're absolutely getting on with improvements. The full legislation hasn't been released. What we do know and what we're very pleased with is the definitions of cultural heritage is being broadened to include tangible and intangible values, which is very important and a very big lesson we learned from Juukan. We also believe that agreement making is the primary means of determining heritage protection and mitigating unavoidable heritage impacts, and that is why we agreed to modernize our agreements, and we're having ongoing conversations with different Traditional Owner groups that would like to modernize their agreement. Look, the more we learn, the more our heritage practices evolve, regardless of the pace of legislation reform.
Traditional Owners can freely oppose or comment on any aspect of our proposed or current operations, and we'll maintain that going forward. We are committed to meaningful engagement and acknowledge that this does take time for Traditional Owners, and it will increase the dialogue, but we know that we'll get better participation and better mutual outcomes. We don't know the impact of the legislation because it hasn't been released, but we know that we're actively working on this every day.
Thanks, Kellie. Mark, back to you. Obviously, you're our Chief Technical Officer. You're also our head of projects and head of CSP in the last couple of quarters. Based on the four priorities that we have set and the strategic direction that Jakob has set out, what specific people and technical skills do you think we need, especially in the projects division, to make that vision come to life?
On the people front, I think there's probably two key elements. One is about the nimbleness. It's that business builder sort of learning from the juniors and moving faster. I think James talked about making decisions quicker, and I think we absolutely need to reinforce that. I think the second element on people is about what we just talked about, it's about partnerships. Many of the problems that we're trying to solve, climate projects, we're never going to be able to do on our own. It's how we work with others to get them done that will be really important. If I move on to the technology, I think there's two key elements. One is R&D and expanding our portfolio of R&D. We've had a great history of automation and productivity-driven R&D. AutoHaul, automated trains, automated trucks, bringing that system together. We need to expand that.
If we're going to be able to grow in the future, we have to address ESG, we have to address green energy. We've appointed a chief scientist this year to really expand our portfolio of R&D to leverage our strengths, but actually to look at areas that allow us to grow. The last area, I think, is our technical expertise and having the right engineers, the right scientists to really drive it forward. We're being very deliberate about a career pathway for those technical experts where they don't have to move into management. They can stay technical experts and still grow and develop.
We want that to attract the best technical talent into Rio Tinto.
Thank you. Final question, a very short answer from each four of you, please. Clearly beautiful words on a page, but can you just help the room understand, and also people listening online, how you are going to try and convert those beautiful words on a page into something that is really embedded in our culture and makes people change. Arnaud, may I start with you, please?
When thinking about the Safe Production System and all the opportunities that we've got in operations, I can see that it's firmly anchored into our new set of values of care, courage, and curiosity. Just imagine if we can empower our people, if we can engage each single of our employees and harness their creativity and implement the ideas that they've got to improve our business, Rio will be looking like a significantly better place. That's actually my vision for SPS.
Kellie, a few words from you, please.
Look, if we create environments that allow people to reach their full potential, they're safe, they're empowered, they're valued. We're listening to our communities, we're working in partnerships. We are absolutely going to kick goals on our performance.
Thanks, Kellie. James?
Well, culture change starts with all of us individually every day, and we're investing heavily in the development of our leaders. We've just finished a program to put the top 110 through a program, which is essentially about how can we be the best version of ourselves more of the time. That's what all of us are trying to do every day.
Mark, some final words?
Look, I think it's about leading by example. I think it's every day I have to demonstrate those values, the way I interact with my team, the way I interact with the rest of the business, the way I interact with communities and partners. I think if we do that, and I expect that of my own leaders, yeah, we will move the culture.
Great. Thank you very much, everybody. That's the end of the first panel, and we'll now hand over to Vivek to talk about decarbonization and the impact on commodity markets.
Thanks, Menno, and hello, everyone. Achieving the ultimate environmental goal of the Paris Agreement will require the world to move toward net zero greenhouse gas emissions over the next 30 years. This would necessitate nothing less than the green energy revolution, leading to profound shifts in almost every aspect of global economic activity and policymaking. Most importantly, the world will need to engineer a wholesale replacement of carbon-based fuels with bioenergy, green hydrogen, and fossil-free electricity. The greatest absolute shifts will occur in power generation. In the IEA's net zero scenario, electrification mostly replaces direct combustion of fossil fuels, and the share of electricity in final energy consumption rises from 20% today to nearly 50% by 2050. At the same time, wind power increases 16-fold, while solar power rises by almost 30 x as renewables replace coal and eventually gas in electricity generation.
These shifts require enormous amounts of battery storage, partly to deal with intermittency, but especially as electric vehicles replace the internal combustion engine. Advanced urban mining methods will optimize the collection and processing of scrap in a rapidly advancing circular economy. Green hydrogen and ammonia will become critical inputs to a range of industrial processes, including steel production and heavy transport. All our commodities are vital in this green economic revolution. For example, the competitiveness of green aluminum relative to fossil fuel-based aluminum will escalate in a carbon-constrained world. In the construction sector, with the replacement of cement, green steel will allow substantial reductions in greenhouse gas emissions. Copper demand will rise with the renewable electrification of energy. Lithium-ion batteries will be the preferred storage technology for EVs, and they'll also be important contributors to renewable grid firming.
I'll take you through some more detailed analysis of these points in a moment. First, it's important to acknowledge that the transition toward net zero will not be smooth. The large investments needed to construct a carbon-free economy will not happen overnight. Aggressive policy frameworks to restrict fossil fuel use will be necessary at a global level. Around the world, we are already seeing taxes on carbon, border adjustment taxes, emission quotas, and administrative restrictions on carbon-intensive industries, including their inputs. In this context, as investment in fossil fuels winds down, there will be mismatches between supply and demand across energy and industrial value chains. We're seeing this right now, whereby efforts to limit growth in fossil fuel-based energy are intersecting with the effects of economic stimulus to create shortages in energy markets. China provides an important example of recent energy shortages with the impacts shown in this chart.
The shortages have led to curtailments in aluminum, as well as reduced utilization rates in electric arc furnaces for steelmaking. The broader strategic context is China's impressive progress toward achieving peak emissions by 2030 and carbon neutrality by 2060. Power and steel are priority sectors given their large share in total greenhouse gas emissions. In the case of power, considerable progress has already been made. Total installed capacity of renewable energy grew by more than 85% between 2016 and 2020, and now accounts for around 30% of total generation. In the case of steel, China's carbon emissions did rise as production increased from around 880 million tonnes in 2016 to over 1 billion tonnes in 2020. There was progress on carbon intensity, with emissions per tonne of steel declining by around 10% over the same period.
Technological developments will be a key feature of China's approach to the climate challenge. There will be a focus on reducing battery costs and on the initiation of hydrogen-based industrial ecosystems, including for green steel production. The importance of achieving cost-effective carbon capture and storage will begin to escalate, especially beyond 2030. Looking over the long term, our low-cost hydro-based aluminum smelters will grow their distinct structural advantage as we move toward a net zero world. Since 2000, coal-based smelters have accounted for more than 70% of the growth in primary aluminum production. The carbon footprint of the industry has more than doubled from 300 -700 million tonnes. These trends will need to be reversed. The main operating cost differentiator in aluminum has always been access to competitively priced power from any source. But as carbon is penalized, this differentiator will increasingly become competitively priced green power.
The chart here shows that with long-run carbon penalties, there is a widening cost difference between aluminum based on competitive hydro versus aluminum from coal-fired power. More generally, net zero policies will drive smelters away from fossil fuels, putting pressure on future supply. This is because the global availability of hydro is limited and nuclear power for smelting will be expensive. At the same time, the inherent variability of wind and solar generation will make running a smelter exclusively on these power sources challenging with today's technologies. The next slide illustrates the power of steel, or more specifically green steel, to drive carbon emission reductions in the construction sector. Around 50% of China's carbon emissions are attributable to buildings. That's about 30 percentage points from the materials used in construction, primarily steel and cement, while the remainder is attributable to heating and cooling.
This means that the building sector is likely to become an increasingly important focus of China's emission reduction policies. At the same time, however, there has been an emphasis on improving building standards, and this has increased the intensity of steel use per square meter of construction. The policy conundrum with this is that that has also led to higher carbon emissions. With a shift to green steel, this equation could be turned on its head. By replacing reinforced concrete with green steel structures, carbon emissions can be reduced by up to 60%. At the same time, the shift in construction method would lead to an increase of up to 80% in the steel intensity of some buildings. This would be a potential win for the environment, for steel, and for iron ore, especially higher grade material. Copper demand benefits directly from the green energy revolution.
Over 1/4 of copper consumption in 2050 would be attributable to the additional demand associated with the transition to net zero. Key aspects of the green energy revolution, such as the increasing share of electricity, including additional electricity for green hydrogen, would add substantially to copper grid demand. At the same time, the electrification of transport and the transition to renewables entails an increase in copper intensity across the automotive and power sectors, contributing even further to demand. For example, an average EV can contain 4x more copper than an average internal combustion engine car. Solar power systems consume about 4 tonnes of copper per megawatt of installed capacity versus around 1 tonne for thermal power. The copper intensity of wind power ranges from 3-6 tonnes per megawatt.
The positive implications for copper demand from these higher intensities amplified because more renewable capacity is needed to replace thermal capacity given relatively low average utilization rates for renewables. The green demand growth shown in the chart would ensure a persistent emerging supply gap for copper. This will only be filled by incentivizing the development of high-cost projects, by mine life extensions, and by the uncertain discovery of new ore bodies. Finally, I'd like to turn to lithium, which is already experiencing rapid demand growth on the back of accelerating EV uptake. In a trajectory toward net zero, the global share of light vehicle sales for EVs could exceed 50% as early as 2030, reaching up to 65 million units. This would imply around 3 million tonnes of lithium demand compared with just 350,000 tonnes today.
Lithium will remain the preferred basis for battery chemistries in EVs, and the expected future development of solid-state batteries with improved energy density and safety performance could provide further upside by increasing lithium intensity by 30% per kilowatt. At the same time, lithium consumption per EV is growing as battery sizes increase to improve vehicle range, addressing a key consumer concern. On the supply side, there are a variety of sources available, and there is room for all of them. Recycling will start to make a substantial contribution only after 2040 as vehicles that are currently being purchased are eventually scrapped. Existing operations and projects will contribute just 1 million tonnes to lithium supply, implying that a substantial gap will need to be filled within the next 10 years. In conclusion, the world's journey toward achieving the environmental goals of Paris will require nothing less than a green energy revolution.
In turn, this will necessitate a three-decade transformation in the world's industrial systems, in its mobility systems, and in its urban environments. The minerals and metals produced by Rio Tinto and its customers are vital ingredients in this change. Now over to Mark, who will speak about how we will decarbonize our own business. Thank you very much.
Thank you, Vivek. I'm going to discuss what the energy transition means for our business. Let's start by looking at our position today. Our Scope 1 and 2 carbon footprint is equivalent to 31.5 million tonnes of CO2 on an equity basis. Here we've broken that down by commodity into four areas: electricity, anodes and reductants, process heat, and diesel. Electricity accounts for 45% of the total, despite 75% of consumption at our managed operations coming from renewables. The combustion of carbon anodes in our aluminum smelters emits about 2 tonnes of CO2 per tonne of metal produced and is our second highest contributor. While emissions from process heat for our alumina refineries are our third largest. Despite having one of the lowest carbon intensity aluminum businesses in the world, 70% of our total emissions are from our aluminum, bauxite, and alumina operations.
The final area is diesel. More than half of the emissions are from mobile fleet and rail in the Pilbara. We're taking a range of actions. We have made progress, and we are stepping up our efforts. Today, 75% of the electricity in our managed operations is from renewables, and to further grow that share, we've approved solar projects at Gudai-Darri, Madagascar, and Weipa. These projects are only a start, and we are committed to scaling up their deployment. For the remaining three areas, investing in new technologies and R&D is essential. Some examples include ELYSIS, which Ivan will talk to more about later, hydrogen pilots, and cross-sector partnerships to develop zero-carbon trucks. Our priority is to reduce our emissions through abatement projects.
Although carbon offsets will remain an option of last resort, we are developing internal capability to create a portfolio of offsets, including both technology and nature-based solutions. For example, we are starting to explore carbon capture and mineralization options, leveraging our exploration expertise and nature-based solutions based on our extensive land holdings. It is clear that we can, and we must accelerate the decarbonization of our operations, and we're pleased to announce today some new Scope 1 and 2 targets to strengthen our alignment with the Paris Agreement and our long-term ambition of achieving net zero -emissions by 2050. We are bringing forward to 2025 the delivery of our existing target of a 15% reduction in emissions, and we are more than tripling our 2030 target from a 15% to a 50% reduction against our 2018 equity baseline.
We'll achieve this through developing 1 GW of solar and wind power in the Pilbara, green energy solutions for the Boyne and Tomago smelters, and introducing an internal carbon price of $75 a tonne of CO2. The introduction of this internal carbon pricing will provide the incentive to accelerate the delivery of abatement projects. As a result, we expect to increase our decarbonization spend to around $1.5 billion over the next three years and around $7.5 billion overall to the end of the decade. In the Pilbara, we have one of the world's largest microgrids, underpinned by 480 MW of gas-based power capacity. The solar plant we approved at Gudai-Darri in 2020 is expected to come online next year. We want to accelerate the transition by targeting the rapid deployment of 1 GW of wind and solar renewables.
This will replace gas power to meet demand from our fixed plants and infrastructure. As well as support the early electrification and decarbonization of our mobile fleet. This will abate about 1 million tonnes of CO2, or around 1/3 of the carbon emissions from our Pilbara operations. The full electrification of our Pilbara system, including all trucks, mobile equipment, and rail operations, will require further gigawatt-scale renewable deployment combined with advances in fleet technologies. The Boyne Smelter and Gladstone Power Station in Queensland, and the Tomago Smelter in New South Wales all operate in coal-based power grids. These facilities account for 27% of our Scope 1 and 2 emissions and more than half of our emissions from electricity use. Green repowering solutions are essential to the long-term sustainability of these operations.
Last week, we announced a partnership with the Queensland Government to develop Central Queensland into an industrial and advanced manufacturing hub, helping deliver a more sustainable future for the area by fast-tracking renewables and attracting new green industries. In 2019, we completed a bottom-up asset by asset analysis of mitigation options to inform our 2030 targets and our long-term decarbonization pathways. This gave us our first group-wide marginal abatement cost curve, or MAC curve, and we're using this in our planning process to prioritize carbon abatement projects, align our climate-related spend, and track progress against these targets. This shows our latest MAC curve, excluding the projects I've just discussed in the Pilbara and at our Australian smelters. As you can see, it covers projects across all four sources of emissions, and about half of these are NPV positive at a zero-carbon price.
With an initial carbon price of $75 per tonne of CO2, we aim to accelerate these projects and incentivize efficiency and abatement. As Jakob mentioned in his introduction, our products are essential today as enablers of the energy transition and a net zero world. As well as decarbonizing our assets, we need to develop the products that can help our customers decarbonize. Our Scope 3 emissions are nearly 520 million tonnes of CO2, and around 95% of this is from the processing of iron ore, bauxite, and our other products by our customers. 87% of these emissions take place at our customer facilities in China, South Korea, and Japan. Korea and Japan have pledged to reach carbon neutrality by 2050, and China by 2060. Just as we are stepping up our Scope 1 and 2 reduction efforts, we are also sharpening our focus on our Scope 3 goals.
Steel is one of the best construction materials available, and as Vivek shared earlier, it has a central role to play in decarbonizing buildings. The carbon intensity of steel is similar to hydropower-based aluminum today, but steel is a much bigger market, with total emissions of approximately 3.3 billion tonnes of CO2, which accounts for about 8% of global carbon emissions. The transition of the steel value chain towards net zero will need new technologies, and we believe there'll be at least three phases of transformation. Firstly, blast furnace optimization. This means the use of higher grade ores, including more lump and pellets, and new processing techniques such as the use of hydrogen in the blast furnace instead of pulverized coal injection. Optimization and cost-effective carbon capture will be the key to achieving net zero here.
We also expect to see an increase in the use of scrap in electric arc and basic oxygen furnaces with stronger growth in China as the scrap pool rises, although this will be quality and quantity dependent. As a second phase, we see the accelerated deployment of direct reduction iron. This technology is available today using natural gas, and the industry is working to switch to hydrogen to create a net zero pathway. Using sustainable biomass with iron ore could also provide a green product, as we announced just last week with our low-carbon research project. The last phase of the transition will be new technologies. This will include direct smelting, as well as more speculative technologies such as electrolysis, which require a number of technical breakthroughs.
The shift to new green technologies will require more high-quality iron ore. We are seeking to bring additional tonnes of high-grade iron ore to the market from both IOC and Simandou. We've built a dedicated Rio Tinto steel decarbonization team to support transition by continuing to work closely with our customers on blast furnace optimization, cracking the code to find future pathways for Pilbara ores, which Simon will speak to later, and we're also committed to developing a high-grade Simandou deposit in Guinea. The resources contain a significant proportion of ore that can meet direct reduction specifications. Lastly, we're studying building a hydrogen-based hot briquetted iron plant in Canada. The plant will have access to high-grade direct reduction pellets from IOC and renewable electricity with the prospect of producing green hydrogen. No one company alone will solve the decarbonization challenge.
It will require deep collaboration across industry and beyond, including partnerships with our customers, technology providers, research institutes, governments, and other stakeholders. I'll now hand over to Alf, who will talk about our customer approach.
Thank you, Mark. Greetings, everyone. Great to be talking with you today from Singapore. Climate change is one of the biggest challenges facing our customers and our supply chains. It will take a coordinated effort to make meaningful progress. We have an important role to play on this journey. Our commercial business is part of an ecosystem. We are the primary interface with our markets, customers, and suppliers, local, regional, and global. We have a network of 37,000 suppliers and 1,700 customers. We can utilize our insights across the value chain and our deep relationships to form partnerships to build a more sustainable future. It is fundamental to our values, it's critical to staying relevant with our customers. It makes good business sense. We're delivering on our strategic priorities by partnering with our suppliers to accelerate the decarbonization of our assets and developing sustainable supply chains.
Working closely with our customers to provide products and services for a more sustainable future, innovating with our customers to enable them to decarbonize. As mentioned by Mark, we're collaborating with steel mills, research institutes, and technology providers, focused on both blast furnace optimization and green steel pathways. Simon will cover the focus for our Pilbara ores later. I will now take you through some of the key actions we're taking to lead this change. Rio Tinto spends around $20 billion annually on goods and services, we are a major dry bulk charterer with over 230 vessels on charter at any given time. This scope and scale creates opportunities to play a leading role in decarbonization.
We're driving our partnerships to fast-track the development of zero-emission haulage, hosting a Komatsu pre-production trial and targeting the world's first deployment of 35 Caterpillar zero -emissions autonomous haul trucks at our Gudai-Darri site in the Pilbara. By 2025, we'll be piloting both zero-emission haul trucks and locomotives with a goal to stop buying new diesel haul trucks and locomotives before 2030. More broadly, we have embedded greenhouse gas emissions in our sourcing criteria and are expanding to include other ESG factors. We're also supporting the communities where we operate through investing in supplier development and substantially increasing our local and Indigenous spend. Similarly, we're accelerating delivery of our climate commitments on shipping. We have already delivered 30% intensity reduction on our own and time chartered fleet and will exceed the IMO's 2030 targets by 2025.
We have done this with the use of more efficient vessels, supported by tools such as weather routing and scheduling optimization. We expect further gains in the short term as we explore broader efficiency solutions and the integration of alternative fuels, such as the use of biofuels and our investment in nine LNG dual fuel vessels this year. On our ambition to be net zero from shipping by 2050, we will introduce net zero -emission vessels in our portfolio by 2030 and support the development of enabling technologies using net zero carbon fuels. As supply chains change, we also expect an evolution in market mechanisms, be it a green premium or an emerging advantage for low -carbon offerings. To stay relevant and capture market opportunities, we must be at the forefront of meeting customer needs.
We are already seeing a change with a growing number of our customers requiring products to be responsibly produced and willing to pay a premium, not only to meet climate change targets and consumers' increasing expectations, but also, for example, to access favorable green financing or participating in infrastructure tenders that mandate green credentials. Price reporting agencies have started to publish green aluminum premium. Added to this, the expanding enactment of new green government policies advancing these developments. As we accelerate our decarbonization, we're also moving rapidly to enable our customers and their customers to lead the transition. We're working with them on carbon and beyond across all ESG areas, and in some products, as in aluminum, we have been the industry leader. Since 2016, we delivered the world's first low -carbon aluminum renewal, the first Aluminium Stewardship Initiative certified product.
In 2019, the first ELYSIS zero-carbon aluminum was sold to Apple. The following year, we formed a partnership with the world's largest brewer, AB InBev. In copper, our Kennecott operations and OT became the world's first producers to be awarded The Copper Mark in 2020. More recently, a multi-product partnership with Schneider Electric. START, launched earlier this year for our aluminum products, is the next step on this journey, delivering transparency and traceability. It is a nutrition label of our products on a blockchain technology, capturing 10 key ESG metrics facilitated by digital transparency. In combining ESG credentials with provenance, we allow customers to make informed choices that affect the value chain, enable them to demonstrate they're meeting their goals and evolving regulatory requirements. Leveraging the expertise of our research centers, we're creating solutions that meet our customer needs for a greener future.
As an example, we have worked with industry partners to enable large-scale gigacasting for EVs. A section of the car which required 70 different parts built separately can now be made as one single part. This means the next -generation of EVs can be built more efficiently with a reduced carbon footprint. As we transition to a low-carbon economy, a key component is the Jadar lithium project that Sinead will cover later. We're also growing the battery ecosystem with InoBat, an innovative partnership to accelerate the establishment of a battery manufacturing and recycling value chain in Serbia. In addition, we are providing holistic solutions for the circular economy. Our partnership with AB InBev is a great example of leveraging ELYSIS and our low-carbon aluminum, combined with beverage can scrap recycled in our own cast houses to create slab products for cans with a 30% lower carbon footprint.
We have recently announced investments in two Canadian aluminum recycling facilities, in our own cast house and in partnership with Shawinigan Aluminium, where we create custom alloys combining the lowest carbon metal with our customers' scrap. Our multi-product partnership with Schneider Electric will see the use of responsibly produced materials. Our products go into each other's value chains to reduce Scope 1, 2 and 3 emissions. We also continue to leverage our technical and commercial capabilities to extract critical minerals from our waste streams, such as scandium, tellurium, selenium and rhenium, and develop pathways to market these materials, which are essential in solar panels, electric vehicles and wind turbines. Another illustration is the development of a new high-strength lightweight aluminum scandium alloy supplied to a new customer in Australia, used in their breakthrough 3D printing for aerospace.
The alloy is made in Canada with a low-carbon aluminum and high-purity scandium oxide produced from waste streams using an innovative process developed at our Iron and Titanium R&D center in Quebec. To conclude, this is a long journey, but we are already moving forward at pace. Our commercial team plays a critical role in partnering with our customers and suppliers to ensure we remain market leaders, staying relevant and delivering value while working together to create a more sustainable future. I will now hand over to Jakob for our first Q&A session.
Thank you, Alf. We'll now take the first Q&A panel of the day. As I said before, please focus your questions in this Q&A session on the sessions that have gone before. There's plenty opportunity at the end for questions on iron or on aluminum after the presentations have taken place. We'll mix the questions between the audience online and here in the room. There will be a roving mic. This is a whole new experience, obviously COVID-19. The mic will be cleaned between speakers so you can feel safe to ask difficult questions. We will not cause any damage. Operator, can you please start collecting questions online? Can I please ask Jakob and the other speakers to come to the front? Thank you. Yeah.
Thank you. If you wish to ask a question on this audio, please press star and one. Star and one to ask a question.
While we are waiting, we have questions here in the room. Let us start here.
Good morning. Liam Fitzpatrick from Deutsche Bank. Nice to finally see everyone in person. Hopefully, I'm not jumping ahead. It's a question on downstream decarbonization. You've outlined your plans on Scope 1 and 2 and some high-level goals on Scope 3. I guess my question is, we've seen some very different plans from FMG and BHP. One is going downstream in a big way, the other not so much. Where do you see Rio's within that very wide range, and when will we start to see more details in terms of those plans and what it could mean in terms of capital commitments? Thank you.
Well, step by step. Mark?
Yeah, no, I think firstly, we are very much at the early stage in some of those. Some of that work is very much R&D on that pathway, and we need to work through that R&D. I think the one probably closest to making a decision around is the HBI plant in Canada, but that's still in study stage. I think Peter will talk about this a little bit later, but any investment that we make will still be subject to our key investment criteria. We do need to make sure we incentivize that technology deployment. We want to make sure there's multiple pathways because we don't know which pathway is going to win in that green steel transition.
I think the other development of Scope 3, which Ivan will talk about a little bit later, which is much nearer term, is ELYSIS. Obviously we'd hope to scale that one up sooner.
Excellent. Let's take one more question from the room.
Thanks. It's Jason Fairclough, Bank of America. You seem to be really styling yourself here as the green and greening miner, and I'm just wondering, is that the new pitch for Rio Tinto, and do you expect this to drive a re-rating in the shares?
Jason, we are running a business, and we are trying to be relevant to societies, and we are trying to grab the opportunities as we see them coming along. We have an amazing business, amazing assets. Look at our first half results. We need to be sure that those great assets are also great assets 10 years and 20 years from now. Plus, we need to build new assets, and we need to build assets where there is growth. What is happening in the world is an energy transition. That's what we are responding to.
Just to follow up, if I could, the CapEx seems to have gone up a lot, and it's not really so clear that that's translating into a dramatically increased volume. Is this, if you like, enabling CapEx because you have to decarbonize the business, or how should we think about that?
Look, I suggest we take it a little bit later on because Peter will explain the CapEx, and we'll talk about what we concretely are doing. The way you should think about it is, the energy transition basically goes from a lot of energy you pay on a variable basis when it's oil and gas towards you get energy for free, but you have quite an investment upfront. Of course, we're not going to make very stupid investment decisions, but we actually think that there are certain things that can work for us. Let's take it later on.
Thank you.
Next question. We take one more from the room here. Let's see. We have a question here.
Ephrem Ravi from Citigroup. On the three levers for decarbonization you mentioned, on the 1 GW of Pilbara, would you be putting in the investment yourself, or is it a build-lease-back kind of approach that you're thinking of to reduce your invested capital? Then on the $75 carbon cost that you are putting internal projects, I'm sure you have done some backtesting on those. Can you give some examples of projects that could not have gone ahead, which you have done in the last 10 years with a $75 carbon cost?
Yeah. Thank you. Let me answer the first. I think we'll come back on. Peter is covering the carbon tax later on. On the first gigawatt, time will tell, but we are prepared to use our balance sheet and do it ourselves. That's what we are developing it towards right now. Look, let's take a couple of questions from the sky. Are you helping here?
Thank you. Your first question comes from the line of Rahul Anand. Please ask your question.
Hi, team. Thanks for the opportunity. On one of the slides, you outlined the potential Scope 3 emission savings you can make through better-grade iron ore. I wanted to touch on that a bit if I can, please. Have you thought about how much you can beneficiate your current iron ore product using conventional techniques, especially in light of the increasing mix of SP10 going forward? Thanks.
Yeah, look, absolutely. We are looking at that. There is some challenges with the different ore types in the Pilbara. There are some ore types that are very amenable. We're absolutely looking at all of those options, including some sort of the novel research project that we talked about, that we announced last week is really about specifically designed for sort of upgrading our Pilbara-specific ores in a carbon-friendly way.
Would I be correct in thinking that this is largely focused on wet processing? How much do you think you can achieve? Have you done any testing so far?
Yeah, look, we have done a lot of testing. Actually, ironically, I think our Bundoora facility in Melbourne was built in the 1990s to do a lot of this work, and we're using that now. To be honest with you, look, I think we're looking at a range of options. The green project we announced last week is actually about using microwaves and biomass, to create a reduced product that actually can go into a lot more low carbon steel pathways.
Great. Let's take one more question from there.
Thank you. Your next question comes from the line of Paul Young. Please ask your question.
Yeah. Hi, Jakob and team. Can I start by saying this seems like a complete change of strategy for Rio Tinto? Well, certainly a massive pivot, a focus on decarbonization and green metal over real fundamental production growth as a mining company, it seems. I'd say that maybe the whole industry must do the same, but that's another discussion. The question I have is very high level. How do you create value for shareholders with this strategy? How do we value these decarbonization investments? Is it through setting the cost of carbon? Is it through capturing green premiums? Is it through generating a lower cost of capital or attracting green funds into your stock? I'm just high level trying to actually just grapple with this, what I've seen as it's quite a big change of strategy, Jakob.
Paul, thank you very much. On one hand, I would say yes, on the other hand, I would disagree. We haven't still covered. We are having the first Q&A session. We will talk about growth in the business in the second panel, Paul. Maybe, please wait with your judgment. Your question about green investments, it is about future-proofing our business. A number of those things actually makes economic imminent sense. I mean, just as an example, I know it's a small example, but what we did at Madagascar, I think we announced it a month or two ago. It was actually very economically attractive to go to renewable energy, and we've done that a number of places. Kennecott and BHP are doing it with our share at Escondida, et cetera. It's a natural extension, what we are doing on the West Coast in the Pilbara.
I just think this is not going to happen tomorrow, but a decade down the road, we cannot continue using coal-fired power for aluminum smelters. We think that there are economical, viable paths forward for our future for the Alcan smelters, and that's what we are working very hard on. Actually, Paul, I disagree with you. I think actually we have an amazing opportunity ahead of us to start growing as a company. We haven't grown for many years as Rio Tinto, but we'll talk about that in the second part of the seminar. Thank you. Let's take a couple of questions from the room. We have one at the back end.
Thank you. It's Doug Upton at the Capital Group. Looking at Kellie, actually. A year ago, Rio Tinto was in a bit of a hole with society, especially in Australia. How do you think you are now, and what would you point to encourage us that you've made good progress there?
Yeah, thanks for the question. I've certainly done a lot of listening, and heard some very confronting feedback about how we had become, and we'd been very focused on our business processes, and whilst we'd been engaging, we hadn't really been listening. As we now start to really deeply listen, part of that is ensuring that we get feedback. I regularly go back around to multiple stakeholders and ensure they're seeing progress and asking what else are they wanting from us. That includes the Traditional Owners, Indigenous Australians, includes our governments, both state and federal. It includes influential stakeholders, particularly in Australia. What they're overwhelmingly saying is that we are listening, that we are taking a different approach. We want to work together, but actions are always louder than words.
I think that the work that we've done with the governments in different states and federally has significantly changed, and commitments that we're making into the different states has changed, most recently a statement of cooperation with Queensland Government. We are very, very pleased with the work that we're doing in Gladstone and the future commitments that we want to make into the regional area of Gladstone. We will always have a long way to go with Indigenous Australians and rebuilding the trust with Traditional Owners. We most recently published the CSP report, which has feedback from the Traditional Owners, which we are pleased that they took the time to let us know what they're thinking. We're going to continue to report on that feedback.
Great. One more question here from the room. We have a question over here.
Thanks. Yeah, thanks. Morning, Richard Hatch from Berenberg. Just a question. The gigawatt of renewables in the Pilbara, can we put a hard number on that? How much is that going to cost, and then what's the cost of full electrification? Just on the Scope 3 goals, why not come out and set a hard Scope 3 target like, say, Vale has? Thanks.
Yeah. Mark, you can answer the first part of the question. Second part of the question, we will. Today, we are actually telling you a lot about what we are doing to help on Scope 3, but we also need to assess what the industry is doing, and that's the work we are undertaking now. I expect we can be much firmer at the annual report, talking about where do we see Scope 3, because we cannot just from our own actions determine a Scope 3 goal. We need to understand what the industry is doing. Mark?
Yeah, look, I think the best guidance we have at the minute is that $1.5 billion over the next three years and $7.5 billion to the end of the decade is what we think we need to spend to move our projects forward.
Good. Let's take a couple from the operator.
Thank you. Your next question comes from the line of Saul Kavonic. Please ask your question.
Thank you, folks. My question's just on summary this $7.5 billion of CapEx to decarbonize spend, plus the additional $200 million odd per annum OpEx. I guess I'm struggling to understand here why market should just immediately just wipe all this value off Rio Tinto's share price here. What's the advantage of moving this earlier without there being any kind of value accretion or additional green premium price point actually in place yet?
I would take this one.
I must say, I'm struggling a little bit on the question about the value creations from the CapEx. I do want to really make a plea for, it is what we are covering in the second part of the seminar. If you don't mind, we'll take it in the second Q&A. Again, please, everyone who asked questions in the first Q&A, please do it to the presentations we have done so. The other things, this one is specifically being addressed in the second part of the seminar. Let's take another question from the operator.
Thank you. Your next question comes from the line of Glyn Lawcock. Please ask your question.
Oh, good morning, Jakob.
Good morning.
I was just wondering if you could maybe talk a little bit about if you've made any changes to your views on Chinese production around steel, aluminum, and the capacity cap in aluminum, whether stick to it. Obviously their goals and their policies are changing quite rapidly, and we're seeing that impact short-term production. Just wondering if you could talk a little bit about how that's impacting your medium-term production views of China. Thanks.
Yeah. Why don't we ask Vivek, how do you see the medium-term outlook?
Thanks, Jakob. Thanks, Glyn. Look, we haven't fundamentally altered our medium-term outlook. I mean, for example, just take the aluminum production cap of 45 million tonnes in China. Today's production level is only about 38 million tonnes, so they haven't yet hit that 45-million-tonne limit. We don't see a fundamental shift in that.
In terms of the other commodities, again, the fundamental views that we had formed based on the idea that urbanization and industrialization would continue to be drivers of demand haven't really changed. We're now at that 1+ billion tonne mark, and we've essentially taken a view that levels of production like this are broadly sustainable in China for a little while. Obviously, ultimately, they will plateau and then come down over a period of time. I think we haven't really changed our views on any of this since the last time we presented.
Okay, Glyn. Let's take one more from the operator, and then we shift to the room.
Thank you. Your next question comes from the line of Robert Stein. Please ask your question.
Hi. Thanks for hosting the call today. I've got a question on how you trade off between the growth agenda of a host country like Mongolia that's looking to develop a coal industry and utilizing its resource versus the Scope 1 and 2 emissions targets that you've committed to today.
Yeah, thank you. Look, it's actually, in a way, covered in our good old capital allocation framework. You could almost see that some of the things we're doing on decarbonizing is kind of sustained CapEx. It's about future-proofing your existing business. I think you can actually look at it quite separate. Whereas in more directly focused growth CapEx is kind of a different angle. We'll cover that in the second part with a panel debate. I think we have an exciting future. It might be for the same reason, namely the energy transition, that gives us extra demand. It's actually two very separate things, and different parts of the organization are dealing with it, et cetera. You're not too dependent on the one for the other. Thank you. We'll cover it later on. Let's take a couple of questions here from the room.
We have a question at the back seat here.
Great. Thank you. It's Myles Allsop from UBS. Just a question for Vivek. Thinking about some of the long-term goals of China, if they're looking to cut sort of carbon emissions of the steel industry by 30% by 2030, what does that mean for pig iron production and iron ore demand? Are we looking at, with the growth of scrap coming through, surely we're looking at a very, very weak demand environment for iron ore in the second half of this decade?
Vivek?
The assumptions that we make on China are that China will plateau its steel production during this decade. We still think that has legs, that their consumption still has legs. That we'll start to see growth in consumption from other jurisdictions, so ASEAN and India, for example, and other developing economies. There is, in a sense, a view that we will continue to see growth in steel demand globally while China does slow. Yeah, those issues are captured. In terms of scrap, look, I think a rough rule of thumb is that about 30% of demand is basically met from scrap. That's not just the case for steel, it's approximately true for other commodities as well. We see those ratios broadly holding constant over the next 10 years or so.
They'll increase a bit as the availability of scrap improves and as we move toward a greater decarbonization. Again, we continue to see growth in steel demand. Certainly not, as Jakob said, certainly not at the sorts of rates that we have seen over the past decade or two. Nevertheless, some growth.
Let's take another question. We have a question here. How many?
Thank you very much. It's [Carsten] from Credit Suisse. Just a question on this green steel transition. We heard from other competitors that they're actually going down the value chain because you need to be close to your customers, steel in particular. What is your strategy with regard to DRI and HBI? That will be the new product out of iron ore going forward, and that needs more CapEx. The steel industry is not really willing to put the DRI and HBI facilities in place themselves.
Yeah. Thank you. Time will tell, and as Mark said, it's early days, but we are starting. It depends a little bit if you have the combination of ore and competitively priced renewable energy next to each other, it's worthwhile considering the next step. Mark?
Yeah, no, look, I think we're about creating options right now, I think. If those options are in the money, that's something that we will look at. I think as Jakob said, if he's thinking about the future of transitioning to a sort of a net zero steel, the advantage of low-cost renewable energy, it's going to be the key competitive advantage. As we sort of showed on the slides, some of the regions in which we operate actually are really highly advantaged in terms of that low-cost renewable energy. If that optionality around resource and low-cost energy comes together to create an attractive option, that's something that we will pursue, but it's going to be driven by the attractiveness of the option.
Excellent.
One follow-up on the biomass. I believe it is lower carbon footprint, but it is not zero carbon footprint. Is that just a middle step in order to bring down the carbon footprint, on the Scope 3 perspective for you guys, and the industry as such? Or is that something which you actually would consider a longer-term strategy because you need a lot of biomass in order to transfer that into lower carbon steel?
Look, it is one of the options. Look, the process that we're working on is really deliberately using waste biomass. We're trying to make sure that it doesn't come from a few food or energy sources, the lignocellulosic biomass. As I said, it's combined with microwave energy, so that the energy source can come from renewable electricity. Look, it's a step, but actually you can combine it with other things to actually make a material impact.
Okay. Thank you.
Hello. Dominic O'Kane, JP Morgan. My question was on the renewable power opportunity. We've got the number for the $7.5 billion CapEx, but can you help us put our fingers on, again, some of the longer term cost benefits?
I'm sorry. We're going to cover it in the second half. I promise you we'll cover it there. You ask the question. We take one last question because we need to have a break. There's one question here.
Thank you. It's Danielle Chigumira from Bernstein. In terms of you getting a much more ambitious 2030 greenhouse gas reduction target going to 50%, what work have you done internally to drive that higher ambition? Is it using a $75 carbon price? Is it something else?
We have gone through a very extensive strategy process. We have activated our organization. We realized that there's limits on how much we can do by 2025. We can do certain things. There is a lot we can do by 2030. That's why we've come to the 15 and the 50. I would say to you, I was trying to emphasize it in my speech, I don't think we have activated all our engineers in our organization. That's what we are starting now. Every time I go and visit a site, there are so many opportunities to reduce our carbon footprint. I think we have not emphasized it enough in the past.
What I expect coming out of this is right now, yes, it has been deep strategy process, been deeply thought about, but when we really get engagement from all our engineers around the world, many more things will arise that we might not have seen yet. We have started the journey, but I am quite confident that we can deliver. It is not easy, but I actually think we need to put some stress targets. I was trying to make the point of Rio and the world, we have not really made a lot of progress. We need to force ourselves to make that progress. It is doable today. Quite frankly, many of these things are actually creating value standalone. Plus, it future-proofs yourself. What if you suddenly have to pay a high carbon tax? If you have done nothing, you are in a very, very difficult position.
Yeah, Kevin, just to add, I think we showed you that marginal abatement cost curve. About half of the projects on that cost curve are value accretive at a zero-carbon price.
Exactly.
Thank you. Are you still identifying projects that will help you get to the 50%, given you said that engineers are still coming up with ideas?
Targets are here to be beaten. I'm not going to promise you anything more. What I'm saying is that we already have a lot of projects. You can see the abatement curve in the presentation. What I'm saying is I'm absolutely convinced that we will find more, because the reality is there's only a percentage chance of achieving every project. I realize that. Right now, the biggest thing that really can make a difference is decarbonizing our smelters on the east coast of Australia. Of course, we're dependent on the willingness of state government, federal government, and other partners to make that happen. I cannot stand here and completely 100% promise that. If certain things doesn't happen, certain other things will happen.
Great. Thank you.
Thank you.
Thank you very much, everybody. There is now a 15-minute break. Can you please be back on your seat here at five to? Back on your seat, please. Thank you.
[Break]
Very good. Thank you everybody for rejoining. Thank you everybody online for your patience. I appreciate it. It's later in the evening, so your patience is very much appreciated. One point of housekeeping before we go across to Perth for Simon Trott. There's a small addendum to slide number 47. It is on your seat here in the audience, and for those listening online, it is posted on the website. Slide 47, there's a small addendum to that. The years have shifted a little bit, but the one on your seat is the correct one. As I said, it's on the website now as well. Having said that, Simon, over to you.
Great. Thanks very much, Menno, and hello everyone. It's great to be here. I'm joining you today from Perth, on the land of the Whadjuk people of the Noongar nation, who are the traditional custodians. I would like to acknowledge their leaders, past, present, and emerging, and I extend that acknowledgment to all Indigenous peoples where Rio Tinto operates. As First Peoples, I recognize their unique connection to the land, waters, and the environment. Over the past decades, our business has gone through a number of phases of growth. When I first joined Rio Tinto at the end of the 1990s, we were producing a bit over 50 million tonnes per annum of iron ore, and moving into the first phase of development as China's expansion accelerated.
We then commissioned 14 new growth mines, acquired North with its Robe River assets, and then expanded our infrastructure towards 360 million tonnes per annum of capacity, the combined investment of over $40 billion. We created innovative partnerships with the first Indigenous land use agreements with traditional owners, and we also led the industry with innovations such as the creation of Pilbara Blend, automation of our truck fleet, the first operation center, and more recently, AutoHaul, our driverless trains. This has led to more than $50 billion of free cash flow over the last seven years, EBITDA margins in excess of 60%, and average return on capital employed of more than 50%. We have a fantastic business, great people, proud history, deep resource base, and amazing assets. The past few years have been challenging.
Whilst financial returns have been exceptional, we have not met our own standards or values, none more so than at Juukan Gorge last year. Our mine planning and development schedule, variable operating performance, and transactional approach with Traditional Owners have impacted on our partners and reduced our ability to respond to market demand. As our recent third quarter operations report showed, we have a lot of work to do to stabilize and improve our performance. We're at a pivotal point, a point where we must refocus around four main pillars to build the business we need to take us forward. We must transform our safe operating performance. Secondly, deliver the new mines of the future. Thirdly, create value with our partners and finally, position Pilbara ores for a green steel future. To achieve this, we're putting people at the heart of our business.
By unleashing their full potential and ensuring we have a workplace that is safe, respectful, and inclusive for everyone, we will achieve our goals. Let me tell you how we will transform our operating performance. The latest review shows that our system capacity over the medium term is between 345 and 360 million tonnes per annum. Port capacity is in place. We have rail capacity in excess of 350 million tonnes. AutoHaul is really starting to deliver and will take us beyond this. The most significant constraint we face is at the mines. To address this, we're doing four things. Firstly, we're commissioning 90 million tonnes of brownfield mines in 2021 that replace depleting ore bodies. Secondly, Gudai-Darri, our first greenfield mine in more than a decade, will be completed in Q1 2022. This will replace depleting ore bodies, plus provide some incremental capacity.
These projects combined are more than 40% of our existing mine capacity, and this is the largest replacement program in our history. To safely achieve this and during COVID, is an exceptional outcome by the team. Thirdly, to reach and sustain the upper end of the range requires the next tranche of replacement mines due between 2025 and 2027. Finally, I need an uplift in operating performance, which I'll talk about now. Turning to our mines. Our brownfield expansions over the last decade have delivered growth and a significant return on capital. However, timing of new mine developments and waste movement has been behind what was needed. Changes to heritage management and COVID restrictions have compounded this challenge. Our work index has increased by around 40% over the last three years, with higher strip ratios and longer haul distances.
Our mining-related costs, which make up around 30%-40% of costs, are subject to this work index escalation. Focusing on waste movement and maintaining pit health is a priority. The amount of waste we need to move each year is increasing. Our strip ratio was 1.4 in 2018 and has increased year -on -year to 1.8 in 2021, placing upward pressure on our mining costs and reinforcing the importance of our productivity program. Improvements in fleet productivity have offset some of these impacts. In the last three years, our haul truck effective utilization has improved by 5%, as well as better use of maximum payload. This year, we will commission more autonomous haul trucks than in any prior year, meaning around 80% of our fleet will be autonomous by next year.
The commissioning of Gudai-Darri will help moderate the increase in strip ratio and the proportion of mining below the water table. There is much more to do to lift our mine performance. In addition to load and fleet productivity, I'm expanding our focus to mine development activities, including drill and blast, where we are focusing on improving broken stocks to build resilience. I'll cover this in more detail later. Turning to heritage. We have redesigned our blasting practices to ensure we protect heritage sites. This slide shows two examples. The image on the left illustrates where we have a heritage site that needs to be protected from vibration. For these cases, we use a 70 m standoff distance where no mining activity occurs, as demonstrated here by the inner green ring.
In this example, this resulted in a slight change to the boundary of the pit to ensure the standoff distance was maintained. Beyond the 70 m exclusion zone, we've implemented blast management plans with different restrictions depending on whether the blast is within 200 or 350 m of a significant site. The purpose is to manage both vibration and flyrock to ensure a site is protected. To achieve this, we typically include a combination of smaller diameter drill holes, reduced bench heights, and lower powder factors. These measures protect heritage sites. Impacts to our operations include sterilized ore due to pit design changes, lower drill and blast productivity due to the use of smaller drills, reduced bench heights that impact loading unit productivity, and poorer rock fragmentation from lower powder factors causing more oversized material at the crushers.
The graphic on the right is an example of how mine plans might change in order to respond to new information regarding a heritage site. The shaded red area outlines the land within which no mining activity will occur. Here, there are two impacts, ore within the boundary being sterilized and the haul road being lengthened. Making these changes is absolutely vital. We've learned a great deal over the last 12 months about how we can mine more efficiently, ensuring we respond to new information. This means better protection of heritage. Moving to our plants. We've experienced challenges relating to our processing plant reliability over the last 18 months. Improving this is an immediate focus. We've had to ramp up maintenance to address under-investment from previous years, which was compounded by labor shortages during COVID, as well as the closure of interstate borders.
As part of the Safe Production System, we will enhance our plant performance by addressing the maintenance debt, improving shutdown alignment across the system, optimizing maintenance tactics and schedules, and improving conveyor reliability through better rock breaking. This will be assisted by completion of the brownfield tie-in projects. Our focus is on improving overall asset health and reducing maintenance debt. I will not compromise on this work, and we expect to see benefits from late 2022. Turning now to infrastructure. In order to optimize our rail network, we require an efficient operation and a healthy asset base. Let's start with AutoHaul, where the benefits have exceeded original expectation. It provides the following benefits. It adds extra capacity through more efficient use of our consists, mainly because we've eliminated driver changeovers. It provides more flexibility for how we manage trains.
For example, during a shut, we can move a large number of trains through, both before and then after the shut. Through more consistent operation, there has been a significant decrease in train separations, and we're more resilient to labor challenges. For example, skill shortages and COVID impacts. As we continue to refine AutoHaul through the next phase of transformation, we expect to better integrate our maintenance strategy with how we operate our train schedules, as well as improve our driving strategy to reduce wear and tear on our assets. Our port capacity is a competitive advantage. It provides us with optionality. Just last quarter, we had capacity in excess of 360 million tonnes for nine of the 14 weeks. We'll invest in sustaining capital work to future-proof the port.
Key initiatives over the next three years include high-density ore upgrades in 2022, replacing the Parker Point reclaimer in 2024 to optimize capacity beyond the end of this decade. Bringing it all together. We will improve operational performance and drive productivity improvements via the Safe Production System, which Arnaud spoke about earlier. For me, it provides the blueprint for how we run our business, how we do maintenance, embrace simplicity, and replicate best practice. It is centered on our people, who are our greatest assets. I believe unleashing our people's full potential will lead to our success. I have five key focus areas. The first is successfully commissioning and then ramping up our brownfield and greenfield projects. The second is improving our mining productivity to reduce wait for feed at our primary crushers, including dewatering, load and haul, and our drill and blast activities.
For example, we've already completed a detailed improvement project on dewatering at Yandicoogina that has delivered a 10% uplift in performance. Drawing in teams from across our business together with Arnaud's team, this is now being replicated. We have also commenced drill and blast initiatives at West Angelas to pursue similar improvements and incorporate and codify learnings. The third is material handling, which will focus on fragmentation and feed strategies, including the deployment of technology and minor capital upgrades to improve our material flow. The fourth is achieving improved fixed plant reliability. The focus areas here are conveyor reliability, shutdown efficiency, and improved maintenance tactics and execution. Finally, the resilience of our port and rail network.
On operating costs, over the past three years, we've faced work index pressures, more below water table material, and underinvestment in the underlying health of our assets, in particular at our processing plants. This, combined with increasing input costs from a tightening labor market in Western Australia, increased energy prices, and COVID-19-related supply restrictions, has meant that we've seen unit cost increase to our current guidance range of between $18 and $18.50 in 2021. In 2022, we expect the trajectory of a number of these factors to continue upwards. Whilst we will continue to strive to improve productivity, we will not put at risk the integrity of our asset health, and we will continue to undertake sustainable investment in our communities. Moving to our longer-term outlook, we are close to completing a tranche of new mines, and we will be ramping up each of these in 2022.
Over the next 12 months, we will look to progress the next tranche of options required to deliver the overall system capacity, which we're working so hard to optimize. We have a number of studies underway with key projects Western Range, Bedded Hilltop, and Hope Downs 2, as well as Brockman Syncline 1 to be delivered between 2025 and 2027. We face a high volume of environmental approvals for new mines and an increased risk to approval timelines. We will continue to engage with and work closely with our communities, Traditional Owners, and our governments to achieve the right outcome. Gudai-Darri sets a new standard for mine developments and supports our product mix over the medium term. The Pilbara Blend is the market benchmark. It has acted as the base load for our customers in China and will continue to underpin our product strategy.
We work hard to maintain its quality, which requires the blending of different ores to ensure tight specifications are maintained. In order to achieve this, we also mine products like SP10, which is a bleed product. We will continue to produce SP10, forecasting around 6% in 2024. With the introduction of portside trading, we're also able to use some of this product in our global blending strategies, utilizing our position at Iron Ore Company of Canada and potentially Simandou. Turning now to green steel. Steel is a bedrock of urbanization, and we will now support the world's decarbonization. It is currently responsible for 8% of global CO2. This needs to change. New technology and processing routes are required to fully decarbonize. Steel recycling will play a role, but there are quality and supply limitations. What does green steel mean for Pilbara ores, and how will we crack the code?
Pilbara ore's relatively high in impurities. These must be either removed via beneficiation or during processing. This is costly using current technology, so we're exploring ways to beneficiate more cost effectively with universities and research institutes. We're also working on opportunities to process Pilbara ores in a different way. For example, this slide shows two potential innovations. Both are at an early stage of development but are showing some promise. Path 1 is a low-carbon research project announced last week, which uses sustainable raw biomass and microwave technology to reduce Pilbara ores and produce green iron. This is our own intellectual property. Path 2 is via hydrogen direct reduced iron plus an electric melter. This enables the removal of impurities in the form of slag, making Pilbara ores usable.
The combination of some beneficiation technology and new processing routes will allow us to crack the code for the Pilbara and provide a pathway to net neutral steel. The last few years have been a wake-up call. I have reflected deeply on how we interact outside the mine gate, how we connect externally, and how we contribute to society. For me, it's about relationships, how we interact with others, how we treat others, what we leave behind. For Traditional Owners, placing accountability for these relationships at the heart of our assets means we can create a direct and long-term partnership. Key to our relationship is embedding a deep respect and understanding of culture and heritage. I am committed to genuinely and meaningfully working with our Traditional Owners to modernize and strengthen our agreements and work towards co-management of country.
I'm grateful to the traditional owners for the time they have spent with me as I've moved into this role. Last week in the Pilbara, I opened a regional office at one of our centers as a statement of intent to engage more deeply. By facilitating a direct shipping service into Dampier, we're also supporting small business in the Pilbara and the city of Karratha's vision to reduce the cost of business and lower the cost of living. We're excited about creating and supporting local supply chains. For example, through the recent release of a tender for the manufacture of rail cars locally in Western Australia. We support long-term community programs such as enabling improvement in statewide access to emergency response through the WA Flying Doctor Service. We're also partnering with the Western Australian Government to provide logistics for COVID vaccines for communities in the Pilbara.
In summary, I believe we have great people and a great business. We know what we need to do. We know where we need to focus. Our strategy is fully aligned with the strategic pillars that Jakob has outlined earlier. Transforming our safe operating performance, delivering the new mines of the future, creating value with our partners, and positioning Pilbara ores for a green steel future. Through this work, we will build the business we need to take us forward. Many thanks for listening, and with that, I will hand over to Ivan.
Thank you, Simon. Good morning, good evening, everyone. It's great to be here. While I've only spent six months in our aluminum business, I've quickly learned that this business has a very proud and strong history. What's really captured me is the capacity in this business to solve the most significant challenges. The genesis of Alcan precedes the First World War. Since this early stage, our business has been involved with some very courageous and bold steps. Some of the moments that really stand out for me were the decision to start building hydro facilities about 80 years ago. The vision and sheer determination to build extraordinary projects like the Nechako Reservoir and the Kemano Power Station that took over 10,000 workers 10 years to construct in the 1950s.
Over the following decades, our technical teams have delivered industry-leading improvement in the smelting technology that saw energy required to make a tonne of aluminum drop dramatically. In the last decade, the business has had to transform and demonstrate its resilience as the market became much more challenging. China rapidly developed new supply and put margins under pressure. More recently, in the partnership with Alcoa, we're progressing the incredibly challenging technical development of ELYSIS to produce zero carbon aluminum. The breakthrough of ELYSIS will help us address the paradox that aluminum represents. Aluminum is an essential material in the low-carbon world, but it's currently one of the most carbon and energy-intensive materials to produce. The DNA of our business, its engineering excellence and its sheer courage is exactly what we need to solve the kind of problems the world has as it decarbonizes.
Today, I'm very excited to share more on our progress on this ambition. Our aluminum business is unique and structurally advantaged. We stand out in the industry with our integrated value chain, a strong suite of assets, outstanding technical capability, and a market position that is unrivaled. Bauxite is one of the most ubiquitous minerals in the Earth's crust. However, not all bauxite is made equal, and we have an enviable suite of tier 1 resources. We're the largest seaborne exporter, and through our long-standing relationships with our customers, we provide technical support to ensure they can achieve the very best value and use. We have options for replacement and expansion of two of the world's best and most strategically located resources, Weipa in Northern Australia and the CBG joint venture in Guinea. In alumina, we have an integrated, globally balanced supply chain and one of the largest alumina books.
This gives us both flexibility and market insight. Naturally, our primary focus is to ensure that our smelters have the right quality and quantity of alumina at the right time. In Canada, all of our smelting capacity is hydro-powered, and collectively they operate in the first decile of the cost curve, also producing the lowest carbon aluminum in the world. Over the past 10 years in the Atlantic region, we've consolidated our portfolio of smelters. We focused on those with hydropower, naturally also those ones best positioned to perform throughout the commodity cycle. Our integrated set of smelters in the Saguenay predominantly serve the North American market, provide a lot of flexibility to our customers, and their shared infrastructure helps underpin their low costs.
Of course, energy is fundamental to the production of aluminum, and in a decarbonizing world, we're very well-placed because 80% of our aluminum is produced with green power. Our hydro facilities in Canada are unique with their water rights. Collectively, we have just over 4 GW of capacity. They rely on enormous watersheds of several hundred thousand square kilometers. In these regions, we continue to build our relationships with First Nations. Their partnership with us is critical to our future success. The industry has been challenging over the past 10 years. The incredible supply growth, driven primarily by the Chinese, has kept the market largely in surplus and margins quite suppressed. The industry is capital intensive, and with China's ability to rapidly construct smelting facilities, they have built a formidable advantage. Of course, this is further underpinned by their relatively cheap captive thermal coal power sources.
Despite this challenging context, our business has performed well and delivered sector-leading EBITDA margins. The high capital intensity of this industry and the low relative returns has resulted in relatively modest ROIC when you compare it with other materials like iron ore and copper. Of course, this has changed rapidly with the recent shift in the market, allowing our business to prosper and deliver very favorable returns. We continue working hard to improve our performance. Safety has continued to improve over the last five years. A stable, well-attended smelter will safely produce metal of a superior quality with a lower environmental footprint. Our aluminum management system helps sustain these routines and disciplines. The rollout of the Rio Tinto Safe Production System will take this to the next level.
While aluminum has been no stranger to this type of management operating system, we are very excited to see the production system focusing heavily on the insights that our operators and maintainers can bring into our business. With the rollout of this production system across our operations, we expect to further improve our productivity and reduce variability. This year has been challenging in our bauxite business. In both Gove and Weipa, our operations have lacked stability. We have had a strong focus on improving this and we are recovering some asset debt. We expect these operations to be stable in 2022 and reestablish their consistent performance. Across our value chain, we continue to focus on productivity and incremental improvement. Our smelters have continued to creep and steadily increase the amount of metal produced each year. In the Saguenay, this has translated to about 1% per annum of increased production.
We've also been optimizing our operations using data analytics to improve process control. In areas like our cast houses, we've started to use machine learning and automation to optimize the processes further. Learnings from our experiences in iron ore have also been implemented in integrated operation centers, remotely overseeing and helping to optimize our operations. A final example of improvement I wanted to share is called Flexpower. This is a developing technology that allows us to modulate the power required to run a smelter without disrupting the smelting process. In a world that is more dependent on renewable energy, this type of flexibility in energy demand could make our smelters even more valuable and critical as a component of a stable, low-cost renewable energy grid. Over the past 12 months, there's been a shift in the market in both supply and demand pressures.
A variety of changes and challenges in China have affected their market balance, and more recently, they've been a net importer for the first time since 2001. Most of the growth in supply in the last 20 years has not only been in China, but also powered by fossil fuels. Currently, about 60% of smelting capacity globally is fossil fuel powered. The ability to continue growing at the same rate will be quite challenging given the pressures on fossil fuel-sourced energy. Aluminum businesses operating with access to existing hydropower will be better positioned to justify any new growth. We expect to see continued increases in demand from packaging and energy-related transition sectors, including vehicles, and our projections see average market growth over the next decade of about 3.3%. Meeting this extra demand, when combined with the need to move away from fossil fuel energy, will be very challenging.
The secondary market will continue to develop and mature as an important component of supply to meet this gap. However, scrap collection and sorting is still evolving. China's indicated an intent to implement a production cap at around 45 million tonnes, and we're also seeing indications that governments are becoming more discerning about how they might export green energy during this energy transition. They're likely to want to deliver strong benefits beyond the immediate GDP, such as more high-paying jobs, other regional development, or flow on industry. Collectively, these factors are all creating headwinds to new production capacity. In producing aluminum, firm or dispatchable power is required. There is no question shifting to interruptible renewables will be challenging. The firming of wind and solar will add cost and complexity.
To put this in context, 1 GW of hydropower is roughly equal to 4 GW of wind and solar in a good location, firmed from the grid or large long-duration battery storage. While we recognize the challenge in using wind and solar energy for our smelters, we believe the large stable demand they offer can help us as a catalyst for accelerating the broader energy transition across Australia. Our smelters are located in structurally advantaged regions for wind and solar capacity. We've been working on a win-win solution with government to find the best pathway to repower these smelters, making them more competitive, more sustainable, while protecting the important economic contribution they make to these regions. As you saw in the announcement with the Queensland Government last week, we are committed to playing our part in developing these renewable energy-based industrial hubs.
Our aluminium is already the lowest CO2 per tonne in the world. We continue to focus on several areas to further decarbonize the aluminium supply chain. First, developing the inert anode electrolysis technology, ELYSIS, to remove carbon from the production process. The second, fuel replacement and electrification to remove natural gas and diesel from other parts of our operations. The third area we're looking at, of course, is the exploration for the potential of carbon capture and storage using mineralization. Two weeks ago, Jakob and I visited the ELYSIS project team in the Saguenay. It was incredibly exciting to see the team making progress on this groundbreaking project. It's still late-stage R&D, and it is very complex, but I have high confidence in our team working in close partnership with Alcoa on this breakthrough project. The work we're doing is reinventing 100-year-old technology for producing aluminium.
ELYSIS technology produces P1020 grade material. To our knowledge, no one else in the world has been able to produce P1020 carbon-free. The team has started constructing the first commercial scale prototype cells of this inert anode technology at our Alma smelter in the Saguenay. The partnership with Alcoa, the governments of Quebec and Canada are all critical to delivering this significant piece of innovation, and I can't wait for the next update from the team on this progress. Of course, the carbon footprint of aluminum is not the only area of focus for us. For aluminum to be green, truly green, it must have several other characteristics. It needs to be responsible, and that includes addressing all of the impacts through the value chain.
Environmental impacts, water management, partnership with host communities and First Nations, contributing to small business and regional development, and naturally, the health, safety, and care for our workforce. It also needs to be traceable, so the ability to identify and trace the characteristics of our material throughout its life cycle. Alf talked earlier a little bit about START, the work that's going on there. It's continuing to build momentum with our customers. Circular. Aluminum is 100% recyclable, and there are more and more uses that lend themselves to recycling. We need to play a bigger role in this space and work closely with our customers and partners as secondary supply grows at about double the pace of primary over the next decade.
We have made considerable progress on each of these areas, and while all materials in time will need to demonstrate these characteristics, aluminum is leading the way. The destruction of the Juukan Rock Shelters triggered deep reflection on our relationships with First Nations and Traditional Owners across the world, and in particular in Canada, Australia, and New Zealand. Our relationships with Traditional Owners in the Northern Australian region, both in Gove and Weipa, are longstanding and deeply held. We are proud of our history, and we've built this over many years, but it's very clear that there's still more to do, both in creating economic and employment opportunity, but also supporting the protection and celebration of their culture. In the last year, we have strengthened our connections with First Nations in Canada.
We've made progress with the Nechako First Nations on the flows from the Nechako Reservoir that feed the river that they depend on. This relationship has been strained for decades, so it's so pleasing to see the partnership that's now emerging. On a different front, our teams are invested in finding ways to valorize waste from our production processes. One example is making cement from the refractory materials that we use to reline our cells in the smelters. Another example is producing fertilizer from other waste from our smelting processes. As we look forward, there are opportunities to leverage our business strength, demonstrate resilience through the cycle, and pursue targeted investment as the market structure shifts.
Some of the areas that we'll look to invest for increased profitability and growth are firstly, investment that can reduce our costs in our tier 1 bauxite resources, and also in technology that can maximize the value from processing of our bauxite. Secondly, I've already talked about ELYSIS. Naturally, this represents an incredibly exciting opportunity, and while we've still got some complex problems to solve, as you can expect, we're already planning for the next phase once we reach commercial maturity. Any growth in our smelting capacity will demand on more green power. Our presence and our relationships in key advantaged regions are fundamental to unlocking this opportunity. Our commercial team continues to work with our customers to ensure that we're agile in meeting their specific needs, and we'll continue to differentiate our product based on its industry-leading credentials.
Lastly, recycling is another important area that could enhance our profitability and our service offering to customers. Aluminium is a critical material in a decarbonizing world, and one that we expect the demand will continue to grow while supply is more challenged. The pressure of addressing carbon is impacting the structure of the market. The global energy transition is creating uncertainty across all energy-intensive industries, and this is pronounced for aluminium. While it's too early to be definitive about how the market may shift and the pace of this change, our deep technical expertise, strong competitiveness will give us an unrivaled position in this growing market. In this context, we're extremely well-positioned with our unique integrated assets centered around our hydro facilities in Canada. They have been resilient through the last decade and are ready to perform in this shifting context.
I see more opportunity as we pursue productivity in line with our ambition to be the best operator, and we are working to make our aluminum truly green. While we already produce the lowest carbon aluminum, we need to complete ELYSIS and produce zero-carbon aluminum. Of course, work is continuing to ensure that our aluminum is responsible, traceable, and circular. The strengths of our business allows us to lead on driving technological advancements like ELYSIS and hydrogen calcination in our refineries, but also in working with governments and partners to find a way to repower our Australian smelting assets. We're also well-placed regardless of how the market evolves. We have options to grow the business, but we also recognize that we need to continue to address our capital intensity. I'm optimistic about our aluminum business and the critical role it will have as the world faces the climate challenge.
It offers real promise and positions us to deliver attractive long-term returns. Thank you, and I'll hand over to Jakob now for the next panel.
Well, thank you, Ivan. Wow, what an amazing business. Aluminium, iron ore. We need to think about the future as well, not just building on the existing, but also building other businesses. There are, though, enormous opportunities within iron ore and aluminium. Now, our second panel, our Chief Executive for Copper, Bold Baatar, our Chief Executive for Minerals, Sinead Kaufman from Brisbane, our Chief Technical Officer, Mark Davies, will share what they are doing to drive our current portfolio of projects and deliver additional growth. I've challenged them to think differently, and you'll hear about how we could double our annual investments in this area. This team are responsible for identifying opportunities, executing and ensuring we're meeting our strategic ambitions to deliver value for our shareholders, host countries, communities, and partners. Again, over to you, Menno.
Great. Thank you, Jakob. This is an extremely exciting panel. This is about growth. This is about new things. It's also very complicated, so bear with us and please listen carefully. Mark, let me start with you. Clearly, as the head of our project development organization, there'll be a lot resting on your organization to drive our objective to successfully double CapEx. What type of assets are you looking at in terms of scale, in terms of jurisdiction, and in broad terms, what do you think the portfolio will look like in 2030 if you are successful together with the product groups in identifying the opportunities?
Yeah, look, I think it's very difficult to tell actually what the portfolio is going to look like in 2030, because we need to remain opportunity-driven. We just shouldn't be spending for the sake of spending and growing. We need to find attractive value-accretive opportunities. If you look at our history, that's probably the way we have grown.
Over the last 140 years, our portfolio has changed every decade or two, and I think that will continue. For the last decade, we've been very focused on tier 1 copper assets in nice jurisdictions, and that's a pretty small set. Resolution we have. The world's fantastic ore body, but it is really difficult to make it happen. I think one of the key changes that we're looking at making is really for our exploration and our project development teams, opening up the portfolio. A broader range of options, I guess, a broader range of commodities. Probably focused around those commodities that support the energy transition. A broader range of countries. Probably only one or two exceptions, maybe Russia we wouldn't touch, but I think really opening up that portfolio.
Looking at smaller projects, and a minimum viable project approach where we start small and grow and create optionality. Many of our assets actually over time have come from that. If I was to summarize, Menno, I would probably say we're going to move from a short greenlist to a very short red list, and open those options coming into the portfolio. I think that'll allow us to actually not only better chance of success, but we can kill things quicker because we've got the next thing to move on to. Which I think will be successful.
The group here and online has heard a lot about accelerated development as a clear priority for us. What are you going to do differently in the project group to ensure we are indeed excelling in development and developing the returns on that additional growth investment?
Yeah, look, I think there's probably at least three dimensions. Firstly is about alignment, secondly around our capabilities, and last, I think Ivan mentioned capital intensity. On alignment, projects work really well when we bring together the best of the organization. These things are hard to do. If we get our projects organization, our exploration, our commercial, our product groups all working together, and that alignment of that clear goal to grow is really important. I think on capabilities, we have some fantastic capabilities. We've preserved our exploration capabilities. I'll use Bundoora as an example. The Jadar project we have, we have the Jadar project because that Bundoora facility could unlock a way to process that ore. That team is also working on unlocking other ore types, and that gives us a competitive advantage as we move forward.
Thank you. Bold, some people would argue you are one of the luckiest people in the room because you head up our copper division.
I think so.
Clearly, copper is a very exciting commodity. I think everybody in this room and online wants to own a lot more of it. The whole industry wants to own a lot more of it, which is easier said than done, as we all know. Can you help us understand how Rio Tinto can deliver on doubling the investments in value-adding growth in copper?
No, thank you. We're actually very privileged with an amazing resource endowment that were discovered by our pioneers, our geologists, our projects team. If you actually look at our pipeline of grade resource scale, no one has this. Not many companies can boast around 2% copper in some actually incredibly nice jurisdictions. The first thing I would say is, of course, the elephant in the room is around OT, and I reflect on my own personal story. Oyu Tolgoi led me to Rio Tinto. I joined Rio Tinto because I saw what an amazing company it is to transform a nation and build capabilities and truly invest in the communities, in the partnership, in the spirit. When I look at our copper pipeline, we're going to go from a consolidated base of about 600,000 tonnes of copper to over 1.2 million. It's actually pretty simple.
400,000 tonnes of incremental growth is going to come from OT. I'm going to work on that. The next is, of course, Resolution. Resolution in many respects is actually not a greenfield, but a brownfield on the back of an amazing existing infrastructure in the Arizona Copper Triangle with existing power lines, with existing rail lines, with amazing workforce, existing supplier base. This is not a greenfield in the Gobi Desert. It is actually quite amazing to think about. Of course, we have to respect the wishes of all of our stakeholders and the local communities. I must say that there's huge overwhelming support from the government in the state, as well as the town of Superior, the labor unions, of course, our supplier base. Of course, we have to make sure we reach and have an open discussion with one of the tribes.
There's also very strong support for many of the other tribes. It's very important to focus on the voice of support, but also listen to the voice of dissent. I think when I think about Kennecott, this is the pride and history of Rio Tinto, and it's truly a flagship asset with over 120 years of history. When I go there, I'm just always struck by the amazing American can-do attitude and creativity to get things done. It is one of the only two U.S. smelters that are operating. If you think about the U.S. self-dependency on copper and its electrification of the U.S. vehicle industry, I get very excited about the smelter future. Of course, the grade of the underground that we haven't really fully explored is amazing.
We're talking about 2%-3% copper in the brownfield right next to our open pit. We're going to touch the ore body with $100 million and look at further characterization of that. Combination of those three projects, I actually have a very good organic growth pipeline that doesn't call for inorganic growth. I think our Winu project in Australia will test our ability to get things done faster, avoid bureaucracy. We'll see. Obviously, it has to respect the timeline of our Traditional Owners. Lastly, I promise, the project that I'm actually very excited about is Nuton, which is really the sulfide leaching nirvana. If you can crack that code in primary sulfides, it opens up massive districts for us in the Andes, and there's, of course, extracting copper from waste and tailings.
We're going to spend a bit more time there, and I think we're looking for further partnerships. I must say, it's not a new technology. We're rebranding it in Nuton. This has been going on for over 10 years to resolve the acid rock drainage in La Granja. We actually now think it has far broader commercial deployment beyond a single resource.
Thank you, Bold. It wouldn't be right if we don't touch on our biggest copper growth project, Oyu Tolgoi, where we are tripling copper output with the development of the underground. Can you talk us through where the project is and how your discussions with the government of Mongolia are going?
Well, Mongolia is my homeland, so I love my country dearly. Of course, it continues to be an attractive investment destination for us because I think about the people. 12,000 Mongolians, 95% workforce. We have 30 flights a week. We're using 74,000 gloves. In all this COVID time, they continued to build the project. It hasn't stopped. It's been a very difficult operating environment and globally due to COVID. I think in terms of our discussions with the government, of course, I see some journalists here. Don't believe everything you read in the media. The relationship, of course, needs trust and repair. It needs to make sure that we have to listen, and we have to be humble. Of course, we do make mistakes. We're not perfect. Every day, our teams get up and strive to do things better and learn from the mistakes.
If there are mistakes we have made, we acknowledge, but we want to look towards the future in building the project. We're over 80% complete, and I was just reading the underground progress update. We're 99.8% finished on the material handling system, and that's a massive feat. It's a conveyor to surface system, 16 km underground. Now they're, I think, Mark, they're cleaning the walkways or something. Look, I think it's a massive investment. Of course, the government is disappointed. So are we, that we had a cost overrun, a schedule overrun, and it has delayed the dividends. It potentially implies a bit more debt on the government entity. We are trying to resolve that, and we're working and negotiating, and it's a very sensitive moment, so it's not the best time to react publicly in media what's going on.
I must say, I'm a Mongolian. I don't have a Rio Tinto passport. I have a Mongolian passport. We are partners in the country, and we have to listen to the voices. That's absolutely what I'm committed to do, make sure that I bring my home company and my homeland together to resolve this issue. I'm working through it. It may take time, we'll just have to listen and be respectful.
Thank you both. Sinead, thank you very much for your patience. Jadar, clearly our most recent project announcement. Can you explain to the group what makes Jadar so attractive and what the outstanding internal and external, importantly, steps are in terms of approvals before we can commence construction?
Yeah, sure. We took the really unusual step for us earlier in the year to seek early support from the board of the Jadar project, and we'll finish the feasibility study at the end of this year. I really see Jadar as playing an important part in our battery mineral strategy. It is a long-life, low-cost lithium and borates business. It is first quartile for both products. It is 58,000 tonnes of lithium carbonate and then the additional boric acid revenue as well. It is going to be one of the largest operations in the region that it is in on a lithium carbonate equivalent basis for quite a while.
We see the boric acid obviously will bring in significant volumes, additional volumes into the market, and see that as a real opportunity to review how do we maximize that value across the portfolio with those additional boric acid tonnes in that area. With the board's support, the next steps for us are to work through with all of the stakeholders around approvals. That's really about working with the local communities, with the local governments, and also with the government of Serbia and civil society around what are the permits and licenses we need next. Our next step is what's called the exploitation field license, and that essentially is the approval for us to publish our environmental impact assessment that we've been working on for quite a while and sharing that publicly for comment and feedback.
Once we've done that, the next step is to seek the construction permits. We expect at this point to be starting construction next year and then in production in 2026.
Thank you, Sinead. Clearly, Jadar very attractive as a standalone asset. How does it tie into our overall battery mineral strategy? Can you provide some color to the group of where you would like that battery material business to be by 2030?
Yeah, sure. I recently visited Jadar, and I was just struck by what a fantastic asset it is. It's the key building block for us to develop a battery minerals portfolio. Obviously, we've had Jadar in the portfolio for a while. It was discovered in 2004. It's a great time to bring it to the market, and I see it being a core part of our vision on how we supply materials going forward into a transition for a low-carbon economy. As I said, it's low cost, it's long life, and it's a really large resource right on the doorstep of the European market. Our ambition is to be a significant player in the battery materials area and really to create compelling value for shareholders.
In doing that, we can use the technologies and the capabilities that we have, such as our demonstrated refining and processing capabilities that we see across several commodities. A good example of that also is in our Critical Minerals area, where we can see future battery materials business will really build on those skills and expertise we have upstream in exploration, also in some partnering, and also leveraging some of the technologies that we already have to extract materials from existing ore bodies and near existing ore bodies. I think one thing we have to consider in this is battery materials, as we know, is a really hot market right now. Whatever decisions we make need to make sure that they can add value for Rio Tinto, and that we're very rigorous in how we evaluate and determine what the best projects are to take forward.
Thank you, Sinead. Bold, coming back to you. Clearly, high-grade copper resources are the industry's nirvana, but they're often found in locations which some would argue are maybe challenged in terms of geopolitical conditions. Can you talk about our approach to operating in these slightly more difficult environments for copper?
No, thank you. The Apple phone gives you reminders of the locations where you've been, and I was recently looking at the African continent. Of course, I've run the assets in Madagascar, South Africa, Namibia, Guinea, and I've passed through Rwanda and many other African countries. I must say, we have a long, proud history of operating in difficult jurisdictions, but everywhere I went, we were part of a nation-building project. Incredibly proud of that history. I don't think jurisdictions scare us away. I think we actually go in, and we have amazing team members that go and build projects anywhere. I think, in terms of our existing projects, of course, my fellow country nomads in Kazakhstan, it would be an amazing project if I can get it to be. We're going to look at that with exploration. We have existing, obviously, agreements in British Columbia.
We have, obviously, the Paterson province in Australia. We are definitely looking, and we're open to many forms of collaboration in terms of minority stakes, earn-ins, and et cetera. Definitely is on the list.
Thank you. Sinead, you obviously have managed through a particularly challenging situation at Richards Bay in South Africa. In August, you mentioned you had restarted the operations there. How should we think about Richards Bay going forward and our ability to operate effectively in South Africa?
The loss of Nico Swart in May this year was an absolutely tragic event, and I think the first priority for us across the Richards Bay Minerals business has really been around how we can prioritize the safety and wellbeing of our employees and their families. I really am impressed with the resilience and the leadership of the team in Richards Bay as they've worked through those really challenging issues and restarting. Part of the work that we've done during that time is do a review of our ability to operate in jurisdictions like South Africa, and really make sure, as I said, that we are aligned with how do we maintain that safety for our people and also for their families.
I happened to be in Richards Bay the week that the operation started to get back on its feet and restart, and I'm really confident that we can continue to operate in places like South Africa and deliver value both for shareholders, but also for the surrounding communities. Continued collaboration in that area with the government of South Africa and also with the host communities that we're based in is really important to maintaining that stability and reliability. Richards Bay and the community stakeholders in the area have reached agreement to modernize some of the community trust agreements that we have with the host communities. The intent of those agreements is to achieve broad-based benefits for the communities themselves.
I think it's really great to see that symbol of confidence that we have, that we can continue to work in that area, and also make sure those agreements will stand the test of time. The other thing to call out is during the shutdown, the team did some really interesting, innovative work on how they could maintain the furnaces and do that through what was a longer time than traditionally we would've been able to do that. Some examples of that were running the smelters at a really low electrical rate so that they could continue to maintain the integrity of the furnaces as much as possible for a prolonged period of time. The other example was using tailings and reprocessing some tailings material to be able to make sure that we could maintain the integrity of feed for the furnaces.
As I said, Menno, we've restarted the operations now, and we're continuing to ramp up and hope to be back up to full production early next year.
Thanks, Sinead. Obviously Richards Bay is part of a broader, I would say, very good TiO2 business. How is Richards Bay aligned with that overall broader titanium dioxide strategy that you see for the near future?
RTIT as a suite of assets is a key part of the portfolio. It's a long life asset. They're low cost. What I really like about them too is they really maximize how they can extract all of the materials that we mine, and we've been doing some really interesting work on that recently from an innovation perspective. Within RTIT, Richards Bay is a key part of that around the supply of ilmenite and zircon, QMM in Madagascar, which Bold has just mentioned, and also RTFT in Canada. Between those three assets together under the one umbrella, they really help us to offer a wide range of compelling different products in Iron and Titanium, and also are at the forefront of innovation around some of the other products we can develop.
Alf, I think mentioned earlier on the scandium aluminum alloy and producing that scandium out of our process stream at RTFT is a really good example of that.
Thank you, Sinead. Bold, back to you. I wanted to talk about Simandou. Clearly a fantastic ore body.
Copper asset.
Copper.
Copper asset.
A fantastic ore body, obviously people want to understand how you can turn it into an interesting business and interesting project. There are lots of moving parts, not in the least in the last couple of weeks, clearly. Can you talk us through how Simandou fits in the world of green steel and how you are working to move that project forward?
I'm a huge fan of our exploration team, and everything starts with the ore body. Simandou is the Rolls-Royce of iron ore at 67 grade. The maximum you can achieve is 70%, so it doesn't get any better. Mother Nature has endowed it with an amazing quality and grade with low impurities that is absolutely necessary for decarbonization of steel and potentially for direct reduction iron. Simandou is not about the ore body, it's actually about the infrastructure and the cost of the capital infrastructure. I think that is actually about a partnership. It's how can we crack the code in a partnership with the government of Guinea, our Chinese stakeholders, large customers, some of them are shareholders, and of course, an amazing high-speed disruptor that's coming to the Guinean bauxite industry called WCS.
They have built a track record because they have just completed a railway in Guinea. Stars are aligning in terms of capacity, local capabilities in building a railway. Of course, the time is coming for Simandou to come into the market to reduce, decarbonize the world. How this partnership is going to be shaped and how we interact with the government, and obviously we need to still work that through. More to come on this, but I think another exciting prospect for our iron ore portfolio because it gives us a range of options across a broad spectrum of assets.
Sticking to iron ore, Sinead, you run a quite unique business as well, Iron Ore Company of Canada. A very large ore body, its own railway, its own port, and great quality for green steel ironmaking. Can you just remind the group of how you plan to lift the base performance of that asset and clearly what things you are thinking about and exploring to drive this business onwards, either DRI or other types of expansion?
Yeah, look, IOC is a fantastic ore body, as you said. It's really well-positioned with respect to high grade, low impurity iron ore. To continue to provide that for future years. The business has been going a long time. It still has over 50 years life left in the current ore body. It's in an incredibly attractive low-cost jurisdiction that we know and understand. Look, the priority for IOC in the short term, and short to medium term, is really around how we uplift current operating performance. As Arnaud mentioned earlier on, using the Safe Production System, it really is about how do we ensure we can debottleneck the business, and use leadership routines and rigor around how we make operational decisions and engage the workforce to really get full potential out of the asset. We're working through that at the moment with the team.
The other is really to approach how do we maximize growth of the existing asset and then look at brownfield expansions of the mine, the plant, the rail, and the port. We have significant latent capacity in our railway system as well at IOC, which could, in the future, become an enabler, a key enabler for greenfield expansions in the region. From a broader Canadian perspective, as Ivan touched on earlier, we also have to look at how can we best use the renewable energy that's available to us in that region. With partners, as I think we've mentioned a couple of times now, we're developing the HBI, hot briquetted iron, project, which will use green hydrogen produced from renewable electricity.
Part of that process, once that's running, is actually to help have customers reduce their steelmaking carbon footprint by about 85% for that part of the process. Our studies and site selection in Eastern Canada are ongoing at the moment. The ambition there is to initiate development of a 1- 2 million tonne a year HBI plant by 2026. That'll be moving along at pace. I think there's a really fantastic, exciting future for IOC as a part of the low-carbon economy, but also, really maximizing the benefit from the fantastic asset that we have.
Thanks, Sinead. I would like to stay as a last question on the topic of innovation and exploration. Mark, for you as well. How are we going to use, as a company, exploration and more innovation to build an early project pipeline? How are we going to make sure we build businesses for the future? Mark, maybe to start with you here.
Yeah, look, as I mentioned earlier, I think it's about expanding that portfolio that we allow exploration to go looking at.
Yeah, moving from that very short green list to a very short red list. Not to say that we're going to move away from copper.
We have 36 copper projects in our exploration pipeline today.
We have heavy focus in North America and Australia, including, I think we have 70% of the Paterson under exploration rights. We've got a great opportunity there. It is about creating options. I think the example I would quote is the diamond joint venture in Angola last week.
We're expanding a set of horizons, creating more options for us to move forward.
Thank you. Sinead, do you want to chip in there?
Yeah, sure. Look, I'm with Bold on this one. I think we have a fantastic exploration team. From a battery materials and a critical minerals perspective, we're working with exploration and also with the strategy teams on how can we identify growth options in those areas. We really are looking, as Mark said, at an unconstrained view of the globe and where we can be looking at materials. We're really partnering on promising projects as well and continuously looking at greenfield opportunities, downstream opportunities, and also focusing on how do we maximize benefit from the existing ore bodies and the surrounding deposits as well. This includes mining waste and valorizing products from the existing processing activities. Maybe an example of that I've mentioned is the Scandium project in Canada.
That's a commercial-scale demo plant, which is basically producing high-quality scandium in Canada out of the process liquor from our existing operations at RTFT . That will make us one of the largest scale producers in the Western world of scandium, and it's a capacity to supply about 20% of the world market at the bottom of the cost curve as well. A really clear market, really high margins, and scalable as we continue to expand that project. Alongside our aluminum business, that produces the scandium aluminum alloy that Alf mentioned earlier on. The other example is with lithium in our Californian operations, our boron operations at California.
We also have a demo plant that's been built there. That's about extracting lithium from a centuries-old tailings dam from the boron business and looking at the potential of how we can, again, expand that plant to larger scale. It really has the capacity to produce enough lithium for about 70,000 light vehicles. That's from existing mine waste. Some very exciting opportunities there that we look at both upstream and downstream.
Thank you, Sinead, and thanks everybody for listening, and over to Peter now for the final presentation.
Thanks, Menno, good morning and good evening, everyone. I would now like to demonstrate what all this means in financial terms. We are starting from a position of outstanding strength, having significantly outperformed our peers over the last five years. Cash flow generation is exceptionally strong, our balance sheet is in very good shape. Our financial discipline will remain consistent, there are actually few material updates to our guidance today. We've chosen not to have a net debt target, but a single A credit rating that puts us well within our comfort zone. Should a value-accretive opportunity arise, we would be prepared to drop below single A, only where there is a clear pathway back.
Our balance sheet strength and world-class assets mean that we can invest in growth and decarbonize at a faster pace while continuing to pay attractive dividends in line with our policy. Although our financial position is strong and stable, we are not satisfied with our operating performance. Our teams are doing a good job adapting to very difficult conditions with COVID-19 still prevalent and creating significant restrictions on the availability of labor and supply chains. Nevertheless, our year-to-date performance is clearly not where it could be or where we want it to be. The Rio Tinto Safe Production System has a long-term focus to ensure we properly embed the gains for the future, including enhancing operating and leadership capabilities. However, we are not ignoring the near term and are already rolling out this significant improvement program, as Arnaud alluded to. We're fully aware that we do need to prioritize maintenance.
This is reflected in our increased guidance for sustaining capital, which I'll come onto shortly. We will focus on the highest risk areas and ensure that all capital is deployed with discipline. There is one thing that will not change at Rio Tinto, and that is our approach to capital discipline. This does not mean not investing, but rather investing consistently through the cycle, balancing near-term returns to shareholders with reinvestment and de-risking future cash flows. It involves carefully testing all opportunities and taking controlled risks. Essential CapEx to maintain future cash flows remains our priority for capital allocation. It includes sustaining CapEx to ensure the integrity of our assets, high-returning replacement projects, and investment to increase and accelerate decarbonization. This is followed by ordinary dividends within our well-established returns policy. We test investment in compelling growth against debt management and additional cash returns to shareholders.
I'd like now to give you more insight into the rigor that we apply to all our investment proposals. Our stage-gate approval process ensures that we prioritize the best opportunities that align with strategy and generate the highest returns. There are three key inputs. It starts with the development of investment themes, such as the relative appeal of each product, market size and structure. Commodities which enable the energy transition and decarbonization are now front and center. We constantly look at new options, both organic and inorganic, and are opportunistic rather than trying to spend some predetermined budget. Secondly, we evaluate each opportunity using our global scenario assumptions on commodity prices and carbon with the appropriate discount rate applied as determined by our independent economics team.
Finally, we apply a set of ranking criteria centered around standard metrics such as IRR and NPV, but supplemented by risk profiling and value ranges. For decarbonization, a key requirement would be the efficiency of the use of capital to reduce carbon intensity. For growth, we should also look at embedded optionality and position on the cost curve. Finally, for M&A, we would assess strategic fit, whether we are the right owner, and of course, valuation. To be clear, we are very much open to growing externally, but remain mindful that the most value-accretive growth does tend to be internal. There is also an independent review process.
Our business evaluation team assesses the commercial and strategic appeal of an investment, while our technical team confirms the geology of the asset, its risk profile, operational challenges, and any new process flow sheet, which is more likely actually to be more prevalent in a decarbonizing world. It is then the turn of the evaluation committee, which I chair, to review each project, followed by the investment committee chaired by Jakob, and finally the board, who make the ultimate judgment on major projects. This model supports controlled risk-taking, but it's important to do this at pace in order not to stifle investment or lengthen the process. We're committed to quickly exiting projects with fatal flaws, which would only be addressed with expensive or uncertain engineering solutions. Our preference would be for small starter cases with optionality. Let's now turn to our capital forecast.
We still expect to invest around $7.5 billion in 2021, with essential sustaining CapEx of around $3.5 billion. We expect that level of sustaining CapEx to repeat in the coming years. Additionally, we now expect to invest around $500 million in each of the next three years on decarbonization projects, mainly related to the repowering of the Pilbara. This would accelerate from 2025, bringing our best estimate to around $7.5 billion this decade. Rest assured, we will apply the same rigor. These projects deliver a range of economic outcomes, but in aggregate, they are value accretive at a very modest carbon price. Most importantly, they safeguard the integrity of the assets over the longer term and reduce the risk profile of our cash flows. As you've heard today, we believe that the low-carbon transition will drive additional demand for our commodities.
By prioritizing accelerate development, we aim to double our growth in capital to around $3 billion per year from 2023, developing new options and finding innovative ways of bringing projects on stream faster. Let's put this in perspective. We are a $100+ billion company. We won't be betting the shop here. Again, the same discipline will apply. All in all, we expect a modest increase to around $8 billion of capital next year and somewhere between $9 billion-$10 billion in 2022 and 2023 and 2024. I would stress that any M&A would be an addition. Now, if we cannot develop or find value-accretive options, then we will simply not spend the money, but we'll follow our well-established capital allocation policy. We are clearly very focused on decarbonization.
Our $7.5 billion best estimate to 2030 includes full decarbonization of the Pilbara energy system, an initial deployment of ELYSIS, and other capital projects, for instance, around redesigning industrial processes. There will be incremental operating expenditure on building new capabilities, energy efficiency initiatives, and R&D in the order of $200 million a year. After the first few years, we would expect this to reduce as energy efficiency work matures. For the avoidance of doubt, this does not include spend for the replacement of carbon-intensive OpEx with zero-carbon alternatives. We have also not included any funding for offsets, as we do expect to be able to deliver our targets through operational improvements. We will also work with third parties through long-term contracts. For our standalone Pilbara system, at least initially, it makes sense for us to fund renewables. We may leverage third-party investments, particularly where our assets are grid connected.
This is the more likely solution for our two coal-fired powered smelters in Australia. These will, of course, go through the same investment process outlined earlier, and we will remain open-minded about the right mix of investment and third-party contracts. As Mark said earlier, it would require the deployment of 5 GW of solar and wind power with robust firming to decarbonize the two Pacific smelters on an equity basis. That equates to CapEx of about $5 billion-$7.5 billion on current estimates. We are also forming multiple new partnerships, around 25 so far in green steel alone. Some will proceed, and whereas others will lead to success, a bit like our exploration program. In general, business and funding models for successful programs are yet to be determined. Clearly, the dollars needed for green steel at scale would dwarf the numbers I've talked to above.
Consideration of any investment we might make is for another day. Under all circumstances, we would need to see attractive economics. For now, our interest is in cracking the code on technologies to catalyze investment. Moving on to shareholder returns. Our policy, well known to most of you, dates back to 2016. We have committed to returning 40%-60% of underlying earnings on average through the cycle, with additional returns in periods of strong earnings and cash generation. It is tried and tested and has resulted in record returns. It is, of course, a variable policy in terms of the absolute number, with the denominator moving up and down, mostly in line with commodity prices. As you can see from this chart, over the last five years, we have paid out at the top end of the range for the ordinary dividend at 60%.
Overall, due to our very strong cash flow and modest rates of investment, we have consistently exceeded the policy with a total payout ratio of 73% when you include specials and share buybacks. We see the dividend as paramount for maintaining financial discipline. Our financial strength means we can reinvest for growth, accelerate our decarbonization, and continue to pay attractive dividends through the cycle. Let me conclude. We have an outstanding foundation of long life assets producing vital commodities for a decarbonizing world. Our balance sheet is stronger than ever, and we have a world-class pipeline of projects. This means that we can double our delivery of value-adding growth and accelerate the decarbonization of our portfolio while continuing to pay attractive dividends in line with our policy.
By accelerating our own decarbonization transition, we will de-risk the company, generate growth, maintain our financial discipline, and enhance our competitive advantage. With that, let me pass back to Jakob for further Q&A.
Great. If I can ask all the speakers to come forward. We are now starting our second Q&A session. As before, we will rotate between the cloud and the room. I suggest we start with the cloud, given that they have been waiting very long in their evening. Operator?
Thank you. Just to remind you, it is star and one should you wish to ask a question. That is star and one to ask a question. Your first question comes from the line of Lyndon Fagan of JP Morgan. Please ask your question.
Thanks very much. My first question is just on the Pilbara. I guess we've covered a lot of ground today, but I was more concerned on going back to the basics of looking at your overall output potential. It's been about 10 years or so since the Pilbara 360 project was first announced. I guess today we're still looking at a range below that in terms of the outlook. That's despite 133 million tonnes of new capacity being tied in. I guess what I'm asking is, why can't Rio commit to 360 capacity across its mine port and rail? What's actually changed in the last little while to sort of, I guess, create some doubt over that? That's the first question. The second question is also on the Pilbara.
With all of the money being spent on decarbonization, I'm wondering if you can commit to an OpEx saving. At the moment, I guess from a modeling point of view, we're putting in lower sales, we're putting in more CapEx, and what I'm really looking for is some sort of OpEx benefit? Thanks.
Well, that's firmly with you, Simon.
Yes. Perfect. I'll go to the field, do them in order. Maybe working through on capacity. 2021 shipment guidance we gave recently, 320, 325 million . Included in that number is some of the one-offs from this year, so things like the tie-in projects that we had. Our first focus is then on getting to 345 million, we've got the brownfield projects, which we'll complete through the back end of this year, and we'll have Gudai-Darri, which will come on in Q1 2022. As we've talked about before, Gudai-Darri is a mixture of both incremental as well as some replacement capacity. That'll come on, and we'll ramp that up through 2022. Go beyond that, we need improvement work, which I talked through in the presentation in terms of the sorts of areas that we're focusing on, to really drive our performance.
We absolutely acknowledge we need to improve our performance. We also need the tranche of mines 2025, 2026, 2027, that I talked to really reach and sustain that upper end of the guidance. That's how we're looking at it. Certainly, one of the things we're really focused on is being really clear about what we need to do to deliver the outcomes that we need. On the decarbonization, stepping back, for us, decarbonization is really in two blocks. About 70% of emissions from diesel, about 30% of our emissions from our gas turbines. The things that Peter and Mark talking to, really focused on that first chunk on our emissions from gas. Pilbara is very advantaged for solar and wind, and so we've got a program in place to deliver the first gigawatt to really repower those gas turbines.
As you say, technology has improved for renewables, they've got to the stage where we can really bring those in on a financial basis, and use those to repower. We'll do it in a way that provides optionality. Optionality then to do that next tranche of decarbonizing, which is HME and our other equipment. Also look at the potential to go further than that. We'll build that option into that first phase.
If I may just add a little bit because this question, of course, is we're getting a lot, particularly in Australia. I just want to remind you, it's an amazing business that we have built over decades. Then just back to the beginning of Simon's answer, and 345 as the first step and towards 360. We have never produced 345. It's going to be a new record. We are this year the world's largest producer of iron ore. I hope you can see the challenges the team are facing. I think it makes imminent sense. I'm actually very, very impressed with what the team is able to lift right now. We can see a path forward, a path of growth. There's demand for our products, and I'm absolutely convinced that we, this time around, are getting there.
It goes without saying, we don't want to overpromise here. I am acutely aware of that we have had to cut guidance in the past, and we need to get out of that. I think what you have got is a very precise, deliverable path forward seen from Simon. Thank you.
Thanks.
Yeah, next question. Sorry. I thought it was rolling.
Thank you. The next question is from Kaan Peker of RBC. Please ask your question.
Hi, Jakob and team. A bit of a specific question for Simon. I saw in one of the presentations, SP10 will be around 9% of the product mix. Just wanted to get an understanding of what's actually driving those higher volumes. Is it the mines or the plant availability? Why will it take two years to resolve? I suppose the follow-up there is, with the next tranche of replacement mines in the Pilbara, do you envisage an impact on the quality of the Pilbara Blend? Thanks.
Talking then first to the SP10 question. We are seeing elevated levels of SP10 through the back end of 2021. That's really about those new mine developments. The brownfields mines, and also Gudai-Darri, which we now expect to come in at Q1 2022. Whilst we're waiting for those new mines, we are seeing elevated levels of SP10, as we really protect the quality of Pilbara Blend. SP10 is a bleed product, which we use to protect PB, and the delay in those mines has certainly caused elevated levels. We will sell SP10 going forward. SP10 we've been selling around about 2014, 2015, in varying quantities. The chart we provided today showed around about a 6% SP10 as we look more longer term 2024 and beyond. Once we've got those new mines up and ramped up.
Longer term, we've got that next tranche of new mines 2024, 2025, 2026, which really goes to support the quality of Pilbara Blend, as we look forward. We've got a fairly deep resource base, and so we're pretty comfortable we can continue to produce Pilbara Blend, well into the future.
Next question.
Thank you. Your next question comes from the line of Alexander Pearce of BMO Capital Markets. Please ask your question.
Great. Thank you. Sinead, you highlighted the significant potential that IOC has, and particularly with regards to the low-carbon steel, as well as obviously some of the challenges you've had there. I wondered if you could go into any more detail on some of those bottlenecks and how confident are you that you'll get the asset to its theoretical capacity? Would it take more significant investment to get there?
Yeah, sure. From an asset perspective, what we've seen, particularly in the last while, is an opportunity, and we've been doing that this year to improve the mine production productivity. There's still work to do, but we've seen some good outcomes from that. Hence with the Safe Production System, we've identified the concentrator now as the next opportunity to debottleneck the concentrator, and make sure that we can operate that to its full capacity. Once we've done that, we know we have, as I said, latent capacity in the rail system, but we'll be investing some money next year in the car dumper and rail offloading system so that we can also maximize throughput there. It really is around that continuous debottlenecking and expecting that to move and change over time.
Really in the next 12 months, now it's the mine and the concentrator work that's starting now, and then I'd expect next year we'll start to see some improvements in the rail downstream as well as we bring on that additional capital.
Excellent. Let's take another question from this guy.
Thank you. Your next question comes from the line of Paul Young of Goldman Sachs. Please ask your question.
Thanks again. Jakob, it looks like 2022 is shaping up to be a big year for project announcements and also project approvals. Can I ask the first question maybe to Ivan about aluminum capacity additions? It's been probably three or four years now since we did talk about the potential expansions, Alma and Arvida. You have said in the past you need $2,500 a tonne aluminium sustainably and also lower capital intensity before you look at expansions in Canada. Does ELYSIS, if it's commercial in 2024, does that change that thinking around potentially adding capacity? I actually have a second question on Simandou, which I'll come back to.
Okay. Thanks, Paul. Good question. Look, ELYSIS is a big part of the puzzle as we look forward. The conditions are very favorable in the Saguenay. The hydro facilities that we've got give us a low-cost base and put that together with ELYSIS, that gives us the kind of pieces that we need for that next step of growth. We haven't finished the work on ELYSIS yet, it is really one step at a time. There is that extra half a line there at Alma ready to go, that's where we're starting to put those first commercial scale pots in for ELYSIS to see how it operates in that environment.
Great. Thanks. It does sound like you get some pretty big productivity gains as well and OpEx reductions from ELYSIS. A question now on Simandou, maybe for Mike or Bold, anyone who wants to take this. Two things on this project. One is that can Rio Tinto actually commit to this project before democratic elections take place in Guinea? Secondly, have you been able to get Winning Logistics or Winning to the table on a joint venture on discussions?
They are good questions. I think, first of all, we do have to find a way to engage with this government. Of course, we would be keen to understand when the elections will take place and et cetera. I think we have a long-term commitment to Guinea as a country. Obviously we're going to be patient and work through it in stages. As far as Winning is concerned, I've had myself two meetings with them. A number of my colleagues had, we're continuing the dialogue. It is about the question around what does that future sharing of infrastructure look like? I think that is going to take some time to shape up. Unfortunately, I can't exactly give you the time and precision and the capital, but all I would say is that we're actively engaging.
Very much so. Thank you, Paul. Last question from the cloud, and then we go to the room here.
Thank you. Your last question is Silvia from Sylvia van Waveren of Robeco Asset Management. Please ask your question.
Thank you, a very good day to you, Jakob and team. My name is Sylvia van Waveren from Robeco. Just to pronounce it a bit better than the operator. No worries. Happy to see you strengthened and accelerated your decarbonization plans and your CapEx guidance. We hope to see some more harder commitments on Scope 3 soon. However, we acknowledge that you need your clients for this as well. I have two questions.
First of all, to what extent are you exploring to scope and connect the company performance targets in relation to the global challenges addressed by the Sustainable Development Goals? My second question is, are you considering to install long-term incentive plans for ESG tied to your remuneration in the coming years, and then, I mean your strengthened decarbonization ambitions. Thank you very much.
Yeah, thank you. Let me start with the second question. Absolutely so. We have an upcoming board meeting where, because it's not us, but it's the board that determines remuneration. Clearly the scorecard should reflect where our focus is. Climate change is clearly increasingly important. My sense is that the board wants to hold this team accountable for us delivering on that. That goes without saying. I would say it goes in two ways. Short term, you can look at some very tangible impacts. Long term, we are tied to shareholder return. Quite frankly, I believe it's good business to be in tune with what the society needs. What we are talking about here today is about future-proofing our business. I firmly believe that this is in the interest of the shareholders, what we are suggesting.
You should see that measurement coming across in both the short term and the long term. Back to your question, I couldn't hear completely what you were saying in terms of sustainable goals. Could you just repeat the first question?
Yes, I can do that. I'm having now my speaker out. I was wondering to what extent will you connect your performance targets to the Sustainable Development Goals. That means mapping, connecting, and delivering impacts on the Sustainable Development Goals.
Yeah, thank you. Okay. We're definitely using the UN sustainable goals in terms of how we communicate out, how we ensure ourselves. I laid out four objectives. One of them is about impeccable ESG credentials. Actually, it's a very holistic thing to achieve. It's a quite big value statement. It's very helpful to check the boxes of the sustainability goals. It goes without saying our previous question came around Simandou. Yes, there is a little bit about how do we make that has as little climate change as possible, but there are some much bigger things around biodiversity, in-migration, et cetera. Mining is a very holistic discipline. We are tapping into a lot of the UN sustainability goals. We are using that methodology. You'll see that in our reporting out at year-ends, et cetera. Thank you very much for the question.
I think we should now turn to the people sitting in the room here. We have many questions. There was a question here.
Thank you. Alain Gabriel from Morgan Stanley. My first question is for Simon on the iron ore costs. Clearly, you've articulated on slide 40 that there are quite significant structural drivers lifting your cost base and probably accelerating inflation from here. Is 2021 a good starting point for these costs, or are there any elements in 2021 that are transitory in nature and will eventually fall away?
Thanks, Alain Gabriel. Maybe to put it in some context, if we look at sort of the increase 2019 to where we are today, around about half of that increase, a bit over half of that increase, is exchange rates, as well as some of those COVID costs that we've seen, that we certainly hope are transitory. In addition, we've had work index, which has flowed through. The other component is some of those infrastructure and joint venture payments that are between the different areas. As we outlined on the slide, we do have some headwinds. Certainly, the labor market here in Western Australia continues to be fairly tight. We've seen obviously, areas like the energy costs increase of late as well. We have our own challenges, the work index increases that I outlined on the slide of around 20%.
We'll work through all of that and obviously provide guidance in time. We do have some things going in our favor as well. Obviously high production lets us amortize some of those fixed costs. It just underlines the work that we're doing on productivity, and the program that we've outlined. Aspects like Gudai-Darri obviously helps as well. Gudai-Darri, a strip ratio of a bit less than 1, compared to, on average, our strip ratios at the moment of about 1.8. It's obviously a little bit closer to the coast as well. We have some of those factors, also providing us some assistance as we go forward.
My second question is for Peter, on the growth CapEx budget that you've set. Clearly, you do have a framework for allocating your capital, but do you think that by setting very precise growth numbers or growth budgets for 2023, 2024, you're signaling to the market that you're prepared to take budget-driven decisions instead of opportunity-driven decisions?
Absolutely not. I think what we're saying is we believe the options are out there if we work very diligently to bring that enhanced level of growth. We think for a company this size that we should be looking to have a broader range of options to pursue. We look at what we're spending now. We've got projects that are in flight. We look at the options. We're studying very hard. We look at our exploration program and what we can do through business development. We look at the new options that are evolving from discussions we've had today because as we talk about the decarbonization, things start to change, and new options start to evolve. We think across all of those, we've got enough to work with to start working towards those numbers.
If we don't have the options, we will not commit the money. It's as simple as that. We're going to be very disciplined, but we've got ambition. We think that's what we should be looking for in terms of growth for this company.
Yeah. Let's take the question over here.
Hello. Dominic O'Kane, JP Morgan. I've got two questions.
just want to be sure if the microphone works?
Hello? Can you hear me?
That people can hear it.
Can you hear me okay? That's better, I think.
Yeah. It's okay.
Two questions. I think the comments on strategy were slightly different in terms of countries that are creeping onto the green list. Given you're already in South Africa, is South Africa increasingly on that green list for new capital? In the past you mentioned PGMs as being a commodity that you were potentially strategically interested in. Is that still the case? My second question on Simandou. Could you maybe give us some insight when we next hear from Rio on Simandou in detail? I guess my specific question is, does Simandou as a project across its entirety, will it comply with your impeccable ESG credentials aspiration?
Let me start off answering it because I think actually you have heard Bold, what he's saying around operating in different countries. I have, of course, worked very closely with Sinead Kaufman during the year because the situation has been difficult at Richards Bay. It's not just South Africa, but the KwaZulu-Natal province have had particularly security issues and it's just a very challenging environment. I'm very impressed with how the team have coped with extraordinarily difficult conditions, and we had to shut it down, and we have started it up again. I think we are right now demonstrating that we can actually operate not just in South Africa, but in the KwaZulu-Natal province. That gives me a lot of confidence that we can operate in difficult conditions. I think that's totally aligned with what Bold was saying in his presentation.
On Simandou, look, there is no doubt it has to be done to the same standards as everywhere else. It's impeccable ESG credentials. I think it's possible. Quite frankly, I think we are very aligned with our joint venture partners, Chinese SOEs as well. Did you read the speech from President Xi last week about biodiversity? I thought that was very interesting. Definitely, it's possible, and we have started this for many years. We really know how we can go about the development in Simandou. Do you want to add anything, Bold?
No. Look, we have been working over a decade now with one of the leading independent experts and research scientists around the behavior of the chimpanzees. Even through the worst of times, we've been consistently funding that research project to make sure that whatever the future of development is doesn't impact the potential livelihood of the 25 chimpanzees that are living in that area. We're absolutely committed to make sure we do the right thing around biodiversity and in-migration. Of course, one thing that you have to think about is if you would like to reduce CO2, the steel furnace, blast furnace emits 2 tonnes of CO2 for every tonne of steel production. If Simandou ore comes in, it has a potential to reduce it by more than half.
I think impeccable ESG has a very broad balance of many considerations, and I think decarbonization and the future of DRI is definitely in the cards.
Excellent. Let's take a question from the back here.
Thank you. Christian Georges at SocGén. On this anode technology you're developing, two questions. One, will it give you a commercial advantage which you will be able to monetize once you have your sufficient production available? Two, eventually, do you need to rebuild all your smelters so that they can adapt to that anode technology? At what cost?
Great questions. Obviously the world's still coming to terms with the rate of decarbonization and how consumers will reflect on that and value that. There's a lot of talk about green premiums in the aluminum market. It's still very premature, but it's just starting, and naturally, that's something that we would be pursuing for zero carbon aluminum. There are operational benefits as well, without getting into the specifics. It's a different approach to generating or producing aluminum, and we'd obviously want to pursue those opportunities. You finished on the critical issue, which is, of course, how you then scale it. Is this a retrofit process or is it better from a capital intensity point of view to actually build fresh assets? That's exactly the kind of homework that's ahead of us to understand what's the best economic pathway to take that and make that mainstream.
Going from what is an R&D project to large-scale zero carbon aluminum is still a very big task.
Look, let's get it to work first. The point is, of course, the more the world is prioritizing to decarbonizing, if we can get it to work, the more we have to push ourselves to think about how can we roll it out in our amazing aluminum business. Quite frankly, that will be the ultimate future-proofing of our aluminum business. I cross my fingers for that the research is going well, but it was an amazing trip and going and seeing it there. I'm very excited about it. There was a question here.
Thank you. Jatinder Goel from Exane BNP Paribas. Couple of quick questions on CapEx. Are you able to split your $7.5 billion decarbonization spend into Pilbara, ELYSIS, and MAC? Just a broad indication. Secondly, which of the unapproved projects are part of your growth CapEx guidance? More specifically, what are you budgeting for Simandou up to 2024 CapEx? Thank you.
Thanks very much. I think that's for me.
Yeah, it is.
We've set out a very broad basis, that $7.5 billion. We've really said, for the next four years, $500 million , and then it will accelerate in the second half of the decade. That's very much aligned to our overall view of, firstly, what we can do right now, and the really big things we can do right now is around the deployment of renewables. Quite clearly in the business, that's what we can do in the Pilbara. That's why we've talked very firm centrally about that sort of 1 GW. As we get into the second half of the decade, more opportunities open up. That's when we're getting much more into the industrial processes and to actually move forward. That's when we can start to think about ELYSIS as well as part of that rollout.
Think of the $7.5 billion, not in terms of concrete sort of steps, but in terms of that roadmap, if you like, and what we think is our best estimate of those dollars. With a fairly clear picture of what's going to happen the next few years, and then a conceptual roadmap in the second half of the decade made up of a whole variety of projects. We think that is about the right level of CapEx that would be required to deliver that 50% reduction in emissions, which we've set out today. That's the first part of the question. For the next few years, exact timing, we're still working, but we're working really fast now to accelerate those projects. In terms of growth, listen, again, we've set out that as an ambition to double.
We're fairly clear on the $1.5 billion layer, if you like, and what that will be for the next few years. Over and above that, there's a whole number of things that I could see coming in or coming out. We've set ourselves the ambition to bring them in. If they don't, then that second $1.5 billion will be pushed out. There's a whole number of things we're working on from Resolution, Winu, Simandou, other projects in that stage. We've got other projects coming through the exploration program that we've sort of talked about today. We've got other options that we've started to sort of talk about around Canadian HBI, for instance. All of these things, we think that's the right level, but is there a sort of concrete list that makes up the number? Not at this moment in time.
We think we've got enough to work with if we can really deliver against it to achieve that degree of growth. It's valuable growth. That's the key. We're going to do this with real discipline.
Excellent. We have one last question. Jason, you'll get the last question here. The good advantage of you in the room is we can meet afterwards and we can answer questions. Jason, an upbeat question, please.
Okay.
Last one.
Yeah, exactly. I defer. You've been talking a bit about future-proofing the business, but there's also some real present issues, and you've addressed some of them here in terms of ESG. One other clear and present issue seems to be this supply chain issue vis-à-vis China. Probably this is going to go to Ivan. There are some of these critical metals that we need for aluminum that come out of China. They're not coming out. What does that mean for your customers? What does that mean for your business? Is this something that you need to take on board? Could Rio Tinto build a magnesium plant or a silicon plant?
This is wonderful. Actually, I'm going to ask first Ivan, then Bold, and then Sinead to talk about it because it affects us a lot. Ivan?
Sure. Well, let's talk short term. Absolutely. It's very clear that there are supply chain issues across all sorts of materials in the world. Our procurement team is very proactive there in managing it well, and we're not having any impact on our VAP at this stage. Of course, we can't predict the future, how long these challenges will play out. In the medium term, I think the reflection is, well, how do we make our business more resilient to create the green materials and the in-demand materials, more importantly. If we start looking at some of our waste streams, it's not just doing the right thing with the waste stream. A lot of them actually have valuable minerals in them.
When we start to look at processes that can actually valorize and extract those, and I didn't get into the specifics, but our bauxite residue, you start to pull those apart, the amount of opportunity there is quite significant. We're working hard on that, and I'm sure Sinead will talk further Bold about the work that's going on. You heard something about [new] as well.
Maybe Kennecott from your side and then critical minerals in general and Canada.
No, absolutely. I think the one benefit of having a smelter and the refinery is actually at the tail end being able to recover other minerals. I think that is something definitely we're looking into. As you may have seen, we've done an announcement and investment in a tellurium extraction. There's definitely more work we're doing actually in partnership with the U.S. state government on Critical Minerals Institute to look on how to optimize more out of the ore body. It's a multi-product group approach, and I'm sure Sinead will cover what she's doing in the mineral space.
Yeah, thanks, Bold. It looks certainly from our perspective, a bit like Bold at Kennecott, we have a smelter complex associated with our titanium dioxide business in Sorel. Sorel's also the location of our Critical Minerals and Technology Centre, working with Mark's team, with the chief scientist, to look at what are the opportunities out of process liquor to extract materials that we haven't previously done. I've mentioned scandium and also extracting lithium from the boron tailings, we continue to look at other opportunities to extract materials that exist in those process streams and also in our existing tailing dams. That work will continue, we continue to look at other opportunities to produce materials that typically we've imported from elsewhere.
Excellent. Well, thank you very much. Can I just two minutes of concluding remarks. Today, we have set out how Rio is very well-positioned to thrive for decades to come while being aligned with societal expectations. We are taking actions to strengthen our business and improve our performance by unleashing the full potential of our people and assets, working in partnership with a broad range of stakeholders. All our commodities are vital for the energy transition and continue to benefit from ongoing urbanization. We have a clear pathway to decarbonize. We are actually developing technologies that will enable our customers and our customers' customers to decarbonize. We have a portfolio that is well-positioned with a focus on ramping up our investments in commodities that will see strong demand in the coming decades.
We are able to do this while continuing to provide attractive returns to our shareholders because we have a strong balance sheet and assets that deliver strong free cash flow throughout the cycle. As we position Rio for the long term, we will not lose focus on the need to deliver against our four priorities, with safety continuing to be our absolute priority. We will make Rio an even better company, better placed to thrive in the drive to net zero. Thank you very much. Thank you.