Demographic pressure: Skilling challenges in the mining sector Discussion paper: Prepared by Damien Woods L&PD

In this presentation Resources sector challenges – the global shift Strategies to consider People challenges – the macro picture in Australia

Australia: A macro view of the labour force The challenges of an ageing population: In the last 80 years, we have added 20 years to life expectancy, however, we continue to retire at the same age (roughly aged 60) – meaning retirement today is measured in decades rather than years. In 1970, there were 7.5 people in the working aged population to support every one over 65 (the dependency ratio). Today there are 5, by 2050 there will be just 2.7. Due to the ageing of the population, real GDP in Australia is projected to fall from 3.3 to 2.7 over the next 40 years. Participation of mature-aged Australians is lower than many other comparable economies – we have much room to improve this aspect of our economic performance as a country. Many mature-aged Australians are at a significant disadvantage to younger workers in today’s labour market. Responding to the implications of ageing: Economic growth is a result of productivity, participation and population. Rio Tinto can’t do much about population growth, however we can make great inroads to support labour force participation of under- represented groups (with a focus on employment, education & training).

Challenges: Australia’s ageing population Whereas people aged under 35 once made up the most significant proportion of those in society, shortly it will be those aged 50 and over. Whilst our working age population grew by 180,000 per annum in the 1980’s and 1990’s, it will fall to just 175,000 for the entire decade of the 2020’s.  The mature-aged participation rate in Australia is below that of many comparable countries – including the United States, United Kingdom, Canada and New Zealand. *  Australia must improve the productive participation of mature aged workers to maintain a healthy economy. Historically, there have been many more younger people then those aged 45 and over in the Australian labour force. Population ageing in Australia will radically alter the structure of the labour force – we are ageing rapidly and significant challenges need to be addressed to maintain a productive economy. * Data sourced from The Intergenerational Report 2010.

The impact of demographic change on labour supply in the mining sector A Global Perspective

Challenges: Working age population Source: Deloitte Research/UN Population Division ( It’s 2008: Do You Know Where Your Talent Is? Why Acquisition and Retention Strategies Don’t Work, p.6 MexicoBrazil IndiaChina South Australia Canada US Netherland Spain France UK Russia Italy Japan Germany Korea Historical population growth compared to projections out to Australia can still expect modest population growth (though only due to net migration). Countries such as Germany, Japan, Spain, Italy & Russia can all expect a shrinking working age population. As available talent becomes more scarce, employers like Rio Tinto have to compete more aggressively to attract and retain a suitably skilled and motivated workforce. Our remote operations add a layer of complexity to this challenge, as does our skills profile and the competitive nature of our sector. Australia can expect moderate labour force growth Many economies are faced with a significant reduction in their working age population. These countries will be likely to target overseas workers more aggressively.

Age of Workers Percent Growth in U.S. Population by Age: Dramatically Different Patterns of Growth by Age 1. Declining number of mid-career workers 2. Few younger workers entering 3. Rapid growth in the over-55 workforce Source: U.S. Census Bureau International Data Base

A Pattern Found ‘Round the Industrialized World Source: Demography is De$tiny, The Concours Group and Age Wave, 2003

In 2000, A Fairly “Young” World... Under 5% 5% to 12.4% 12.5% to 20%Above 20% Source: U.S. Census Bureau Percent of Population Age

... Rapidly Aging by 2025 Source: U.S. Census Bureau Under 5% 5% to 12.4% 12.5% to 20%Above 20% Percent of Population Age

Implications for Companies Different workforce –older, more diverse, and more variation in needs, preferences, lifestyles Talent shortages –as labor markets tighten and there are fewer educated/ skilled candidates to replace the "brain drain" of Baby Boomer retirements Corporate pressures –on training and development, HR practices, and management practices generally

Opportunities: An ageing workforce Labour force & business risks: Concentrated loss of people as the baby boomer generations retires. Loss of difficult to replace organisational, technical and management knowledge and skills. Competing for labour supply as labour market growth diminishes. Attracting and retaining critical skills – the employer offer. Wage pressures in a low unemployment environment. Increasing occupational health and safety risk in some areas – particularly where manual labour is require. Rio Tinto opportunities: Focus on targeted improvements in education, health and attachment to the workforce amongst older workers. Continue to focus on healthy ageing, to maintain the productive capacity of our labour force. Investigate ways of supporting more targeted sourcing of under-represented groups. Invest in training & re-skilling workers to maintain productive capacity and engagement. Review workplace flexibility and transitions to retirement for older workers. Invest in the knowledge capture and transfer from mature-aged employees to our next generation of leaders. Review Rio Tinto culture and attitudes to mature aged employees in our workforce. The global working age population is ageing, we cannot change this. We can however respond by focussing on the productive participation of older workers. This makes good business sense for Rio Tinto, and supports the economies in which we operate. Rio Tinto is likely to have an ageing workforce today in many job families (engineering, trades, non-skilled labour), so our focus should be on strategies that support an ageing workforce profile through maintaining productivity and participation.

Canadian picture Taken from the report “Prospecting the Future”. In Canada, workers aged 40 to 54 represent over 50% of the workforce in the mining industry, compared with 38% for the overall labour force. Moreover, certain occupational groups within the mining industry are experiencing even greater challenges. For example, in mining, almost 30% of Physical Scientists and Professional Engineers are over the age of 50, but only 12% are under the age of 30. The situation is much the same for skilled trades and technologist/technicians. Retirement risk Student enrolments (projected) in mining related tertiary study will not go close to meeting the demand create by retirement. Employers predict 24.5% will retire in the next 10 years, whereas 40% of employees indicated they will.

Supply-demand gap Prospecting the future – supply-demand gap scenarios Canadian research in 2005 examined three future scenarios in the mining sector and the skills ramifications. No growth - no-growth scenario, the industry will still face a potential labour supply gap of 27,560 workers over the next 10 years. Low growth - supply gap with a low-growth scenario will be 47,350 workers. High growth - the high-growth scenario, the labour supply gap will be 70,810 workers over the next decade. Three key drivers shape the size of the skills pool available to the mining sector: 1.Impending retirements; 2.Entry of new workers, & 3.Competition from other sectors. Competition for skills will remain, employers compete based on EVP to attract talent. Retaining workers once we have them is critical (especially experienced older workers.)

Strategies to deal with supply gaps The report “Prospecting the Future” made a series of recommendations to mitigate against the risks of an ageing mining labour force: Objective A: Meet current and projected human resource demand by increasing and making best use of all potential sources of supply. Objective B: Address existing and expected skill gaps in the industry. Objective C: Ensure standardization of skills and consistency of training delivery in order to facilitate recruitment, establish clear educational requirements and increase worker mobility. Objective D: Ensure that all stakeholders are aware of and understand the critical human resources issues currently facing the minerals and metals industry.

Strategic responses Prospecting the Future

Objective A: Meet current and projected human resource demand by increasing and making best use of all potential sources of supply. The research results suggest that Canada will need to hire as many as 81,000 new employees to meet current and future demands, and to fi ll positions vacated by retirees. Strategy A1: Promote the minerals and metals industry to youth as a safe, modern environmentally friendly and technologically advanced career option. Strategy A2: Develop a national strategy that focuses on the engagement, recruitment and retention of the Aboriginal workforce focusing on sites and operations that neighbour Aboriginal communities. Strategy A3: Actively target non-traditional groups in promotion and recruitment efforts to expand labour supply sources 60% of engineering graduates intend to work overseas in their first 3 years. Attracting them back will be a challenge. * * Engineers Salaries – Key trends and issues in remuneration of engineers. John Vines OAM 2007 China produces 300,000 engineering graduates per annum with degrees comparable to a Western 4 year degree. * Women make up 20% of those entering engineering degrees but only 9% of the profession.*

Objective B: Address existing and expected skill gaps in the industry. Research findings suggest that the industry (Canada) could lose up to 40% of the existing workforce in the next 10 years due to retirement and early retirement. This significant loss of Skills represents a major risk to the sector, especially given that skill gaps currently exist in The workforce. Strategy B1: Mitigate the risk to industry associated with an ageing workforce and pending retirements through proactive human resource-practices and succession planning (especially for long-life mines). Strategy B2: Develop programs to bring back retired workers and retain older workers to minimize the impact of the workforce exodus and facilitate the capture of knowledge and experience that will be necessary to maintain skills levels within the industry. Strategy B3: Encourage industry to develop mentoring programs to facilitate the transfer of knowledge from older experienced workers to their replacements. Strategy B4: Develop a collaborative, cross-industry strategy for educational preparation, training/educational programs, continuing education/life-long learning, and employer provided training to facilitate the availability of a skilled labour force. As population ageing redefines the traditional life expectancy, we need to redefine the concept of the traditional working age. Government changes to pension eligibility is a start, employers must also restructure to support people to work longer. Participation and productivity are key employer focus areas. We can review and address professional leakage. Today, less than 30% of those starting an engineering degree are still engineers after 15 years. * * Engineers Salaries – Key trends and issues in remuneration of engineers. John Vines OAM 2007 In 2007, 1800 Civil engineers reached retirement age in Australia, there were only 900 Civil engineering graduates in 2007.*

Objective C: Ensure standardization of skills and consistency of training delivery in order to facilitate recruitment, establish clear educational requirements and increase worker mobility. Mining-specific occupations are generally not credentialed in Canada (with the exception of basic common-core training in Ontario and Quebec). In the future, there will be a need for advanced training and further education to help employees meet increasingly complex tasks. In addition, there is a need to identify required common-core skills to facilitate the development of career paths, maintain occupational and professional standards and enhance worker mobility. Strategy C1: Present a clear case for the potential benefits of occupational standards, certification and program accreditation to employers and other industry stakeholders. Strategy C2: Develop and implement occupational standards for key industry occupations. Strategy C3: Implement national occupational standards and standardize credentialing of professional occupations within Canada.

Objective D: Ensure that all stakeholders are aware of and understand the critical human resources issues facing the minerals and metals industry. It is critical that key players in the minerals and metals industry understand the importance of human resources to the continued success and competitiveness of the industry, and that they begin proactive, strategic human resources planning. Strategy D1: Develop and implement a communications strategy that emphasizes the impending human resource crisis facing the minerals and metals industry. The strategy is intended to raise awareness and understanding of the issues and to promote collaboration between the industry stakeholders who have an important role to play in overcoming the human resource challenges facing the industry.

Further initiatives to consider Industry stakeholders can minimize the impact of this ominous retirement wave by working collectively to: –attract more people to the vast array of careers in mining, –increase enrolment in mining post secondary institutions, –expand the number of co-op placements / summer work terms, –encourage worker diversity in their organization by recruiting non traditional employees such as women, immigrants and aboriginal people, and –increase the effectiveness and frequency of training, –focus on targeted retention of workers nearing retirement.

Mining Daily – 18 January, 2010 By 2020, the mining sector in Queensland alone will need an additional 41,000 people to support growth in the sector. Many of these will require high skills. The skills in most demand will be tradespeople, labourers, intermediate production and transport workers. Recent research has indicated the trades and labouring sectors have rapidly ageing workforce profiles. Demand for additional workers in the coal, bauxite, copper, lead, zinc and gold sectors in Queensland alone will exceed 23,000 by Rio Tinto has a high degree of exposure to these areas, and compete for workers in those we don’t. Total labour force growth for Australia is projected to be just 18,000 per annum by Managing strategic workforce planning and demographic risks is a critical skill requirement of Rio Tinto leaders. Operational targets will only be met with the appropriately skilled workforce, in the right numbers in the right locations.