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Sustainability Investments as a Risk Mitigation Strategy World Mines Ministries Forum Toronto, Canada March 1, 2008 Kariann Aarup Rio Tinto Alcan.

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Presentation on theme: "Sustainability Investments as a Risk Mitigation Strategy World Mines Ministries Forum Toronto, Canada March 1, 2008 Kariann Aarup Rio Tinto Alcan."— Presentation transcript:

1 Sustainability Investments as a Risk Mitigation Strategy World Mines Ministries Forum Toronto, Canada March 1, 2008 Kariann Aarup Rio Tinto Alcan

2 2 Rio Tinto Alcan Today

3 3 Our Business Strategy Be an industry shaper Be a developer of choice Maximise value for all our stakeholders, and Double our value over the next 5 years

4 4

5 5 Shifting Operational Context Shifts in our own asset base –To meet our growth targets, B&A is expanding into new & challenging markets where risks are high Changing external realities –Increased shareholder/stakeholder activism – NGOs, SRIs, institutional investors –Increased connection between grassroots NGOs & international movements –Increased competition due to globalization differentiation in today’s commodity markets not based on price but being the company of choice globally –Increased regulatory standards & international expectations

6 6 Shifting External Realities Source:Google; Factiva; company Web sites

7 7 Potential Risks Investment risks –Forced abandonment of existing operations –Difficulty to access new deposits Financial risks –Potential loss of a new project Reputational risks –Local actions become global news almost immediately Operational risks –Costs, safety standards, production volume, etc –Stoppage or delays Political risks –Civil unrest Market risks

8 8 Evidence of Risks A Few Headlines from the Mining Press Mining operation seized & nationalized by Bolivian Gov’t. Uzbek Government Revokes Oxus License Kyrgyzstan President's attack sends Oxus shares crashing Uzbekistan seizes some Newmont mine assets Expropriation of a mine by Zimbabwe Gov’t. $1.5 billion project stopped in Trinidad – community protest

9 Sustainability at RTA B&A

10 10 A Sustainability Imperative To improve financial return as well as to mitigate the potential strategic threats posed by these new realities we embed sustainability in our core business globally “As proud as we are, many solutions remain ad hoc and reactive rather than systemic and proactive. I find that approach insufficient for the future. We must close that gap by shifting toward what I call the principle of intended consequences, where sustainability is embraced as a matter of philosophy and practicality. ” - RTA CEO Dick Evans

11 11 Sustainability Guiding Principles RTA B&A will strive to: 1.Maximize value for all stakeholders by addressing local sustainability issues that directly connect to its business strategy and are in line with local, regional and national development priorities. 2.Become a partner in multi-stakeholder processes instead of being the principal actor in bi-lateral engagements. 3.Leverage partnership funding and expertise to ensure sustainability projects are collaborative.

12 12 Sustainability Framework Aligning business strategy with development priorities Local Development Priorities Country Poverty Reduction Strategy / MDGs Regional Development Priorities Site Operational Agenda Site Strategic Agenda B&A 5-Year Business Plan UN Global Compact / MDGs / RTA The Way We Work Multi-Stakeholder Engagement Contribution to Local Development Plan Action Plan/Indicators/Communication Plan Governing Objective: Maximizing Value

13 13 Capacity Building of Local Officials Rio Tinto Alcan supported locally elected council members to go through a World Bank capacity building training program

14 14 A Strategic Shift In Thinking: to multi-stakeholder partnerships Previous Model: RTA as Patron Sustainability as philanthropy Proposed Model: RTA as Co-Facilitator/ Co-Initiator/ Supporter Sustainability as strategy RTA Rio Tinto Alcan Governments Communities Employees Shareholders First Nations Academia Special Interests Unions Suppliers Customers Local Development Priorities Special Interests First Nations Governments Dev. Agencies Unions Customers Community Suppliers Academia Employees Shareholders

15 15 Multi-stakeholder partnership in Ghana

16 16 Sustainable Initiatives Leveraged partnership funding & expertise

17 17 Embedding Sustainability at an Existing Site Have a mandate from the top Raise sustainability awareness on site –Cross functional workshop for management Start with the business strategic issues Understand the communities’ issues Know the local, regional and national development priorities Know the key stakeholders & establish relationships with them Be transparent about the sustainability strategy and include stakeholders in its development –Develop & validate process jointly; monitor jointly

18 18 Supporting Site-level Sustainability Embedding sustainability into: The 5-year business plan Operational monthly and quarterly reporting Major project reviews & evaluation Procurement: Responsible Supplier Initiative Communications: internal & external

19 Sustainability in Green-field Projects

20 20 Embedding Sustainability in Green-field Projects 1.Integrate sustainability into planning templates & processes 2.Start in the earliest of pre-feasibility stages 3.Engage in potential PPP with government, World Bank, African Development Bank, etc. in early stage of pre-feasibility 4.Include the entire initial project team Cultural sensitivity, sustainability and human rights training 5.Implement sustainability across all functional teams 6.Plan for community investments in early feasibility stages Build into project costs & think of as creating an environment conducive for investing 7.Enhance the ESIA process Peace & Conflict, Human Rights and Health impact assessments

21 21 Potential Sustainability Risks for a Green-field Project

22 22 Actions Phase 1Phase 2 ConstructionOperationClosure 1. Carry out local workforce qualification and quantification study 2. Engage in early literacy, pre-employment and vocational training actions. Investment examples Potential value creation and protection potential Phase 1 & 2 Annual salary of HR manager: 500,000$ Training program costs: 1,500,000$ Total: 2,000,000$ If no sustainability investments are made in workforce skills development, the costs associated to the project of hiring expatriate or foreign labour: –Construction workers (expat or foreign): 42.96M$/year –Operational phase employees (expat or foreign): 21.48M$/year Investing in workforce skills development can create a tremendous amount of value as well as reduce costs. These investments also contribute to increasing the general living standards of local populations. Workforce Skills Development

23 23 Actions Phase 1Phase 2 ConstructionOperationsClosure 1. Develop and Implement Community Engagement Strategy 2. Build a program for local, regional and national capacity development to manage revenues (royalties) in collaboration with local NGOs Investment examples Potential value creation and protection potential Phase 1 & 2 Salary & benefits for a community relations manager: 300,000$ Partnership with a local provider/NGO: 300,000$ Total: 600,000$ Based on 20 case studies: Projects cancelled before started: Probability: 3%; Max 100% of Project NPV lost Projects prematurely closed or sold: Probability: 6%; Min 44% and Max 57% of Project NPV lost Projects disrupted or delayed: Probability: 12%; Min 6 months and Max 2 years of Project NPV lost Projects expropriated: Probability: 6%; Max 100% of Project NPV lost Community investment is a key component for value protection and creation. These investments also decrease the likelihood of negative impacts due to community protests, work stoppage and site closure. Local Community Development

24 24 Value creation & protection in sustainability investments Overview of Costs-Benefits of green field project sustainability investments Average NPV of sustainability in this project is US$200 Million Maximum possible value of US$460 Million. Minimum possible value of US$122 Million. The sustainability investment protects value in all cases. Tangible Benefits: Value Created & Protected Intangible Benefits Reputation Community Engagement Developing local economies Local Industrial Diversification Attraction and retention of employees Improved productivity Contribution to Millennium Development Goals Achievement of B&A Sustainability Vision Minimum Sustainability Investments Phase IUS$ XXXX Phase IIUS$ XXXX Construction US$ XXXX Operations US$ XXXX

25 25 Investment Risk Mitigation Decrease risk of stoppage, closure, community protest –We have multi-stakeholder, open processes to deal with any community issues that arise –Local communities are our strongest advocates because we support their priorities and their governance structures RTA seen as the developer of choice by governments & communities –Our sustainability reputation precedes us when we explore for new mineral reserves –Our competitive advantage is our sustainability approach

26 26 Reputational Risk Mitigation Decrease the potential for bad press & NGO activism –We are seen as a leading corporate citizen that engages in local sustainability issues and wider societal debates and invests in the resilience of our host communities –We are partnered with NGOs and we are transparent in our actions –We engage with the NGOs likely to be in opposition to us from the outset and establish a dialogue –Partner NGOs are our best spokespeople

27 27 Operational Risk Mitigation Increased productivity –Reduced absenteeism Healthier workforce & families –Increased skilled labour Reduced health & safety incidents Reduction of work stoppage potential

28 28 Financial Risk Mitigation Reduce CAPEX –Leverage local government funding to share in infrastructure development Reduce OPEX –Reduced costs through hiring local labor and establishing local procurement policies Reduce financial risk –PPP established from the outset

29 29 Mitigating the Uncontrollable Risks “If any function can mitigate against the uncontrollable risks, sustainability can” – so say our finance team

30 30 Sustainability is an integral part of our business strategy. Sustainability is like an insurance policy.

31 Back up slides

32 32 The B&A Sustainability Vision

33 33 Redefining Success “ In today’s trust-starved climate, our market-driven system is under attack...large parts of the population feel that business has become detached from society, that business interests are no longer aligned with societal interests...The only way to respond to this new wave of anti-business sentiment is for business to take the lead and to reposition itself clearly and convincingly as part of society.” --Klaus Schwab, Executive Chairman, World Economic Forum Newsweek, February 2003

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