Copper, steel, aluminium key to data centre boom, says Rio Tinto boss — The Business — ABC NEWS

[00:00:00] Speaker 1: A trillion dollars of spend on data centers, now 70% of the raw materials that goes into a data center comes from the products we produce, aluminium, copper, lithium in particular, as well as steel. And think about that from a trillion dollars, 70% of which of the raw materials comes from those commodities. [00:00:25] Simon Trott: Simon Trott, welcome to the business. Thanks very much for having me, Alicia. You delivered the results with the pitch that Rio Tinto can ride the AI and infrastructure boom. Can you explain that for us? [00:00:36] Speaker 1: So a great set of results yesterday and testament to all the people around Rio that have worked so hard to deliver. 75% increase in free cash flow allowing us to pay 3.4 billion dollar dividend and sitting behind that is a real increase in demand for the commodities we produce. Aluminium, copper, lithium and also iron ore. And 57% of that EBITDA was delivered from aluminium, copper and lithium. And that's quite a change from a few years ago, which allows us to become more diversified both by commodity and by geography. One of the trends that we're really seeing is that AI digital, as well as ongoing electrification, and that's certainly contributing to the demand for those products. [00:01:23] Simon Trott: So are you leaving sort of the China property development boom in the rear window in the Pilbara and then now focusing on the AI highway? [00:01:34] Speaker 1: I think it's just becoming more evenly spread. One of the aspects I talked about yesterday was a trillion dollars of spend on data centers. Now 70% of the raw materials that goes into a data center And that comes from the products we produce. Aluminium, copper, lithium in particular, as well as steel. And think about that for a moment. A trillion dollars, 70% of which of the raw materials comes from those commodities. And so that's an awful lot of commodities that the world is going to need as data centers continue, as well as electrification of the economy. [00:02:07] Simon Trott: Financial markets are getting a little bit shaky about the level of AI spending that's occurring, perhaps not delivering the promised results. If we do start to see that spending taper off in the AI infrastructure area specifically, is there a risk that those commodity prices could fall quite drastically? [00:02:27] Speaker 1: So I think you'll see fluctuations in it. For us, we focus on that medium and longer term. We invest billions of dollars of capital and it takes many years to return on that investment. And so we look at the longer term picture. And so I think you will see fluctuations in the near term and also around the world. I think all societies and communities are grappling with how best to meet their needs for digital. And so you will see varying in pace, but the medium and longer term [00:02:59] Simon Trott: picture is strong. Copper was a big part of the results that you delivered and in terms of that electrification and AI story as well. How big a factor is China in demand for copper? [00:03:13] Speaker 1: Significant and copper though is needed across really all the world's economies in terms of driving electrification as well as other uses like data centers and digital. And so the demand for copper is spread. Clearly China, the US in particular, significant consumers. [00:03:34] Simon Trott: We saw China post one of its slowest growth rates since the end of the pandemic this month. What are you seeing on the ground there? What's the economy like? [00:03:42] Speaker 1: So as we've talked about for a number of years, China's economy continues to mature and part of that maturation is a slowing in overall growth rates, particularly in some areas like construction. And so those trends continue, but it's still growing significantly. And certainly the demand for commodities is is also growing. As we've seen construction pullback, we've also seen a significant increase in exports of manufacturing goods that contain commodities. And so whilst demand has fallen in [00:04:12] Simon Trott: some areas, in other areas it's increased. So you're pretty confident that that will stay a robust source [00:04:19] Speaker 1: of demand? You're not seeing growth rates like you did a few years ago, but that's as expected. But China will remain a really significant market for us. Locally in Australia, the federal government [00:04:32] Simon Trott: announced a pre-feasibility study into a potential oil refinery in Karratha. Do you think that would financially stack up and would it be consistent with Australia's climate targets? We consume energy in [00:04:45] Speaker 1: our businesses here in Australia and we clearly have a lot of focus, particularly in the current context around ensuring we have supplies of energy for our business. And we'll certainly engage with with all stakeholders, including the government around that announcement to see what role we can play. [00:05:03] Simon Trott: So would you imagine that you would be a customer of an oil refinery in Karratha? [00:05:08] Speaker 1: Yeah, potentially. We've got to work through exactly what that looks like, but certainly look forward to [00:05:14] Simon Trott: engaging on it. And how would that align with your climate targets? So we're in a transition, [00:05:20] Speaker 1: so we're building renewables, firstly to replace gas that we use in our power stations. On diesel, we've got to make sure that the equipment that we use can be electrified. And with some of the really large haul trucks, we've still got some work to do to convert them across to batteries. And as we do that, [00:05:41] Simon Trott: we'll roll out renewables alongside it. Yeah, what's the time frame for the conversion of those big utility trucks on the mines to be electric? So we're doing [00:05:50] Speaker 1: the research and development that we need to do as are others in the industry. And we're working with with some of those both peers, as well as some of the equipment suppliers. And there's been good progress, but we've got further to go, particularly on those really large haul trucks. [00:06:06] Simon Trott: On your climate targets, you say that you're on track for a 50% reduction in scope one and two emissions by 2030. How important is that to Rio Tinto? It's critical. It comes in two pieces. [00:06:17] Speaker 1: We've got to decarbonise our own operations. And the largest item there is the repowering of our aluminium smelters here in Australia. And that work is progressing. It'll be one of the largest transitions like that around the world and repowering of those smelters. And so significant work going into that. We've also got to make sure the products we produce and the way our customers use those products, we're able to decarbonise those operations. And so we've got partnerships right around the world to work with our customers to make sure that we're supplying the products they need so that they're able to decarbonise their own operations. In Australia, the safeguard mechanism [00:06:57] Simon Trott: is under review this financial year. Do you think it's currently fit for purpose? And should it be [00:07:02] Speaker 1: strengthened? So we're really clear on the work we need to do within our own business. We'll engage with the federal government and others around the policy measures that support that. So you don't have a [00:07:13] Simon Trott: particular view on whether the safeguard mechanism should be strengthened? No, we supported the safeguard [00:07:18] Speaker 1: mechanism as it came in. And we'll work with the federal government around what that policy looks like in the future and our views around that. So what are your views? So we support decarbonisation of the economy and we've got to look at what the best policy settings here are in Australia, both in terms of providing certainty to business and achieving the decarbonisation. So final question then, do you [00:07:41] Simon Trott: think the safeguard mechanism is fit for purpose in its current state? I think we'll work through that [00:07:47] Speaker 1: as part of the review in terms of how that policy has worked within the economy, as well as providing [00:07:53] Simon Trott: certainty for business going forward. What is the outlook for the next half? Really excited about how we're [00:07:58] Speaker 1: positioned to meet the needs and resource needs going into the future and we'll continue to work on really strengthening our business because we've got to make sure that we're as sharp, as strong and as simple as possible to really position to meet the world's needs going forward. Simon Trott, thank you so much. Thanks Alicia. [00:08:28] Speaker ?: Thank you.