13th Feb 2008 07:01
Rio Tinto PLC10 March 2008 Record production, underlying earnings, cash flow and investment 13 February 2008 • Record underlying EBITDA* of $13,920 million, 11 per cent above 2006. • Record underlying earnings* of $7,443 million, one per cent above 2006. • Net earnings* were $7,312 million, two per cent below 2006. • Cash flow from operations up 15 per cent to a record of $12,569 million. • Annual production records set for iron ore, bauxite, aluminium, refined gold and refined copper, on a like for like basis. • Record capital expenditure of $5.0 billion, a 25 per cent rise over 2006, reflected continuing investment in value adding growth projects. • Record new capital commitments exceeding $8 billion (100% basis) announced in 2007, including the Yarwun alumina expansion, two new iron ore mines in the Pilbara and the Cape Lambert port expansion. • Alcan acquisition successfully completed and Alcan's results included with effect from 24 October 2007. Rio Tinto established as a global leader in bauxite and aluminium, with a clear pathway to leadership in alumina. Integration progresses, with $940 million of post tax synergies targeted from the end of 2009. • New milestones in the expansion of the Group's iron ore business reached: the 24 million tonne per annum Dampier port expansion completed on time and on budget and first production from Hope Downs mined three months ahead of schedule. • Ordinary dividend for the 2007 year increased 31 per cent to 136 US cents, with a further commitment to increase the 2008 and 2009 dividends by at least 20 per cent in each year. • First major sale announced from $15 billion divestment target with Greens Creek sold for $750 million. Full year to 31 December(All dollars are US$ millions unless otherwise stated) 2007 2006 ChangeUnderlying EBITDA* 13,920 12,524 +11%Underlying earnings* 7,443 7,338 +1%Net earnings* 7,312 7,438 -2%Cash flow from operations (incl. dividends from equity accounted units) 12,569 10,923 +15%Underlying earnings per share - US cents 578.9 550.3 +5%Earnings per share - US cents 568.7 557.8 +2%Ordinary dividends per share - US cents 136.0 104.0 +31% *Net earnings and underlying earnings relate to profit attributable to equity shareholders ofRio Tinto. Underlying earnings is defined and reconciled to net earnings on page 4. EBITDA isdefined on page 30. Underlying EBITDA excludes the same items that are excluded fromunderlying earnings. Chairman's comments Rio Tinto's chairman Paul Skinner said, "2007 was another successful year ofsignificant achievement for Rio Tinto, with record sales generating our fourthconsecutive year of record underlying earnings and record cash flows. We alsoinvested at unprecedented levels in the future growth of the business, with the$38 billion Alcan acquisition and a series of high quality investment projectsfrom our current portfolio. "We continued to achieve high prices for our products, and our assessment of theeconomic and demand outlook remains very positive, despite recent unsettledconditions in the financial markets. The strong increases seen in globalminerals demand are driven by demographic and economic fundamentals infast-growing countries like China and India, whose large populations continue tourbanise. These long term trends are driven by domestic developments, and aretherefore largely insulated from any potential near term weakness in westerneconomies. "With supply side constraints across the mining industry unlikely to ease in thenear future, commodity prices are expected to stay high by historic standards in2008 and well beyond. "Rio Tinto's portfolio positions the Group exceptionally well to benefit fromthe growth in demand. In October 2007, the Group completed the acquisition ofAlcan Inc., establishing Rio Tinto as a global leader in the aluminium sector.Our superior position in the supply of iron ore to Asia was reinforced duringthe year with record production and shipments. We have established a pathway totreble future iron ore production. "In copper, our foothold in many of the world's best ore bodies was enhanced,with La Granja in Peru in particular turning out to be an even more valuableprospect than first envisaged. "We believe that the Group's pipeline of growth projects is second to none, andthe proven capability of Rio Tinto management in project execution and efficientoperational performance gives the Board great confidence in our ability todeliver substantial value to shareholders. The smooth transition in executiveleadership during a very busy year was a significant achievement. "Rio Tinto's confidence in the outlook for its business, growth prospects andmarkets, is reflected in the 31 per cent increase in the ordinary dividend forthe 2007 full year, and our forward commitment to increase the dividend by atleast 20 per cent in 2008 and again in 2009. "As you know, we recently received a pre-conditional offer from BHP Billiton toacquire all of the shares in Rio Tinto. After careful consideration, our Boardshave unanimously rejected the offer on the basis that it is not in the bestinterests of shareholders. BHP Billiton's offer, while improved, still fails torecognise fully the underlying value of Rio Tinto's quality assets andprospects. "Our Boards believe that these strong 2007 annual results illustrate that RioTinto is ideally placed to continue to create substantial future value forshareholders, which remains its first priority. With our combination of clearstrategy, world class assets and outstanding people we are well positioned todeliver on this objective." Chief executive's comments Tom Albanese, Rio Tinto's chief executive said, "Rio Tinto had a stellar year in2007, ahead of market expectations, and we're aiming for new heights in 2008. Inan era of rising demand and rising prices, the value of our assets stands out,with their long resource lives, competitive cost positions and options forvalue-adding expansions. This is especially clear in products such as iron oreand aluminium where prices are based on high marginal costs of production inChina. "Rio Tinto is a great business with excellent prospects. I am firmly committedto capturing and delivering more value for shareholders as we boost operationalperformance and expand our high quality asset base. "The Group set production records in iron ore, bauxite, aluminium, refined goldand refined copper on a comparable basis, as our increasing capital investmentprogramme continued to deliver benefits. I am especially pleased to report thatour excellent safety record improved again for a ninth consecutive year. "Our acquisition of Alcan in 2007 has enhanced our position in the aluminiumindustry from a competitive regional player to the global industry leader with aunique combination of large resources, sustainable hydro power, and industryleading technology. We are a leader in the production of aluminium and bauxiteglobally, with an established pathway to leadership in alumina through thedevelopment of our competitively positioned Yarwun and Gove projects. During2007, we approved an investment of $1.8 billion to expand the Yarwun aluminarefinery by two million tonnes per year by 2011. "Integration of the Alcan assets with Rio Tinto's is going well, and in Novemberwe announced we had increased our targeted synergy benefits up from $600 millionto $940 million after tax annually from the end of 2009. "In iron ore, we have an outstanding business with exceptional production growthand demand potential. In the near term, we are on target to reach productionof 220 million tonnes** in 2009. During 2007 we committed an additional $3.6billion in iron ore projects to expand Cape Lambert port capacity from 55 to 80million tonnes with associated infrastructure, to expand Hope Downs from 22 to30 million tonnes per annum, and to bring on the Mesa A and Brockman 4 minedevelopment projects totalling nearly 50 million tonnes per annum. "Our large capital projects in the Pilbara in Western Australia remain onschedule and on budget in a challenging environment. "Over the longer term, we have outlined our capability to produce 600 milliontonnes** of iron ore annually based on an unrivalled and unconstrained Pilbaraport and rail infrastructure and our extensive global resource andmineralisation position. In Guinea, our Simandou project represents a major newiron ore province of high quality ore, which is reminiscent of the Pilbara inits earliest phases of development. "Successful exploration activity at La Granja in Peru identified up to eightbillion tonnes of mineralisation, potentially capable of supporting a 500,000tonne per annum operation, enhancing our copper growth pipeline. We continue toadd resources to Kennecott Utah Copper in Utah, USA, extending the life of anoutstanding asset. "In our other product groups, our ilmenite project in Madagascar will becompleted on schedule around the end of the year, and we are already studying anexpansion to two million tonnes per annum. The underground block cavedevelopment at the Argyle diamond mine is making good progress, with the valuerecovery programme identifying a number of opportunities. "Cost escalation in the industry continued in 2007. To counter these effects, weare focused on overhead cost reduction, while also investing in cutting-edgetechnology. We recently announced an alliance with Komatsu to develop aworld-leading system to automate our Pilbara iron ore operations. "Following the Alcan acquisition, our balance sheet has carried more debt, andour goal is a single A credit rating. This will be achieved by using our strongorganic cash flows, which are running at the rate of over $1 billion per month,and the proceeds of divestments. We have targeted an overall level of divestmentof at least $15 billion of assets. These are all high quality businesses inthemselves, but lack the scale or fit to be part of the enlarged Rio Tintofollowing the Alcan acquisition. "Rio Tinto has a clear strategy, assets of the highest quality, outstandinggrowth options and a proven track record of value creation. Our goal is to makethe business work faster at meeting the world's growing demand, better atleading and shaping our industry, and smarter at creating value for ourshareholders." ** 100 per cent basis. Net earnings and underlying earnings In order to provide additional insight into the performance of its business, RioTinto presents underlying earnings. The differences between underlying earningsand net earnings are set out in the following table. Year ended 31 December 2007 2006 US$m US$m Underlying earnings 7,443 7,338 Items excluded from underlying earnings Impairment (charges) less reversals (113) 44 Exchange differences and derivatives 190 14 Other, including non-recurring consequences of Alcan acquisition (208) 42 Net earnings 7,312 7,438 Commentary on the Group financial results 2007 underlying earnings of $7,443 million and 2007 net earnings of $7,312million were $105 million above and $126 million below the comparable measuresfor 2006. The principal factors explaining the movements are set out in thetable below. Year ended 31 December Underlying Net earnings earnings US$m US$m 2006 7,338 7,438 Prices 1,364 Exchange rates (403) Volumes 516 General inflation (218) Mining inflation (140) Freight and demurrage (163) Energy (82) Other cash costs (57) Non-cash costs (201) Exploration, evaluation and technology costs (309) Tax/other (202) 105 105 Impairment (charges) less reversals (157) Exchange differences and derivatives 176 Other, including non-recurring consequences of Alcan acquisition (250) 2007 7,443 7,312 Prices and exchange rates The effect of price movements on all major commodities was to increase earningsby $1,364 million. Prices for the major products remained strong throughout theyear and were higher overall than those experienced in 2006: average copperprices were six per cent higher whilst average aluminium prices were three percent higher. The strength of the global iron ore market was reflected in the9.5 per cent increase in the benchmark price, mainly effective from 1 April2007. The seaborne thermal and coking coal markets were also strong andstrengthened further in the second half. Molybdenum prices averaged $30/lb throughout 2007, an increase of 20 per centcompared with the prior year. There was significant movement in the US dollar in 2007 relative to thecurrencies in which Rio Tinto incurs the majority of its costs. The Australiandollar was 11 per cent stronger, the Canadian dollar was six per cent strongerand the South African rand four per cent weaker. The effect of all currencymovements was to decrease underlying earnings relative to 2006 by $403 million. Volumes Higher sales volumes predominantly from growth projects increased underlyingearnings by $516 million compared with 2006. The ramp up of new projects iniron ore (including the Yandicoogina and brownfields expansions), higher volumesof copper in concentrate at Escondida from improved grades, higher refinedcopper sales from the Kennecott Utah Copper smelter operating at close tocapacity and higher diamond grades at Diavik were the main contributors. Costs The Group continued to invest further in the future development of the businesswith an increased charge to underlying earnings of $309 million fromexploration, evaluation and technology costs. Higher freight and demurrage costsand increased energy costs reduced underlying earnings by $163 million and $82million, respectively. Significant shipping congestion at the port of Newcastleaffected coal sales with a resulting impact on costs at Rio Tinto CoalAustralia, through higher demurrage and a higher unit cost of sale. Highercontractor, maintenance and input costs were experienced throughout the Group,notably in the iron ore and copper operations, as industry supply constraintspersisted. An increase in non cash costs reduced 2007 earnings by $201 million comparedwith 2006, following the completion of several large capital investmentprojects. Other The effective tax rate on underlying earnings, excluding equity accounted units,was 25.7 per cent compared with 24.2 per cent in 2006. The tax charge in 2007was reduced by $392 million as a result of the impact of the reduction in theCanadian tax rate enacted in December 2007 on deferred tax provisions. The 2006tax rate benefited from $335 million of US Alternative Minimum Tax credits,which were recognised on the balance sheet as a result of improved prospects forrecovery of these from future taxable earnings from our US operations, as wellas the utilisation of $140m of previously unrecognised tax assets. Alcan's contribution to underlying earnings for the nine weeks to 31 December2007 was $424 million, including a benefit relating to the change in theCanadian tax rate as described above. Exploration divestments increased 2007underlying earnings by $139 million relative to 2006. A higher interest chargefrom an increase in net debt following the Alcan acquisition reduced earnings by$248 million relative to 2006. Items excluded from underlying earnings In 2007 an impairment charge of $328 million after tax was recognised at Argylefollowing a decline in value from large increases in the estimated capital costsof the underground project. This was partly offset by the reversal of theresidual impairments of Tarong Coal and Palabora following changes incircumstances that create good prospects for recovery of the restored carryingvalues. Other exclusions from underlying earnings in 2007, a charge of $208 million,mainly comprised non-recurring consequences of the Alcan acquisition. Of thistotal, $146 million resulted from the sale of Alcan inventories that wererevalued based on selling prices at the date of acquisition. The balanceprimarily relates to other Alcan acquisition and integration costs. Net earnings in 2006 included net impairment reversals totalling $44 million.Impairments were reversed at Kennecott Utah Copper and the Iron Ore Company ofCanada which more than offset impairment charges at Argyle and Tarong Coal. Cash flow Cash flow from operations, including dividends from equity accounted units, wasa record $12,569 million, 15 per cent higher than in 2006. The Group invested at record levels, in particular in expansion projects. Netcapital expenditure on property, plant and equipment and intangible assets was$4,968 million in 2007, an increase of $980 million over 2006. This included thecompletion of the second phase of the Dampier port and Yandicoogina iron oremine expansions, as well as construction of the Hope Downs iron ore mine inWestern Australia, the expansion of the Yarwun alumina refinery, the A418 dikeconstruction at the Diavik diamond mine and the Madagascar ilmenite mine. Dividends paid in 2007 of $1,507 million were $1,066 million lower thandividends paid in 2006 which included a special dividend of $1.5 billion. Theshare buy back programme was discontinued after the announcement of the Alcanacquisition on 12 July 2007: returns to shareholders from the on-market buy backof Rio Tinto plc shares in 2007 totalled $1,611 million (net of $13 millionproceeds from the exercise of options), compared with $2,339 million in 2006. Balance sheet Rio Tinto commissioned expert valuation consultants to advise on the fair valuesof Alcan's assets. As required under International Financial ReportingStandards (IFRS), the tangible and intangible assets of the acquired businesshave been uplifted to fair value. The residue of the purchase price notallocated to specific assets and liabilities has been attributed to goodwill.The provisional values incorporated in the 2007 financial statements will besubject to revision within 12 months of the date of acquisition as permitted bythe relevant accounting standard, IFRS 3. The completion of the Alcan acquisition led to the drawdown of $38 billion ofdebt. This, together with the debt held by Alcan on acquisition, resulted in anincrease in net debt of $42.7 billion to $45.2 billion at 31 December 2007.Debt to total capital duly rose to 63 per cent and interest cover was 20 times. Profit for the year IFRS require that the profit for the period reported in the income statementshould also include earnings attributable to outside shareholders insubsidiaries. For 2007, the profit for the year was $7,746 million (2006 $7,867million) of which $434 million (2006 $429 million) was attributable to outsideshareholders, leaving $7,312 million (2006 $7,438 million) of net earningsattributable to Rio Tinto shareholders. Net earnings and underlying earnings,which are the focus of the commentary in this report, deal with amountsattributable to equity shareholders of Rio Tinto. Dividends The Group has a progressive dividend policy and a multi decade track record ofcontinual dividend growth over time. Dividends are determined in US dollars.Rio Tinto plc dividends are declared and paid in pounds sterling and Rio TintoLimited dividends are declared and paid in Australian dollars, converted atexchange rates applicable on 11 February 2008. The interim and final dividendsare summarised below. Ordinary dividend per share 2007 2006 Rio Tinto GroupInterim (US cents) 52.00 40.00Final (US cents) 84.00 64.00Total dividend (US cents) 136.00 104.00 Rio Tinto plcInterim (pence) 25.59 21.42Final (pence) 43.13 32.63Total dividends (pence) 68.72 54.05 Rio Tinto LimitedInterim (Australian cents) 60.69 52.48Final (Australian cents) 93.02 82.84Total dividends (Australian cents) 153.71 135.32 The 2007 full year dividend represents a 31 per cent increase on the previousyear. Increases of at least 20 per cent in each year have already been announcedfor 2008 and 2009. Rio Tinto Limited shareholders will be paid dividends which will be fullyfranked. The board expects Rio Tinto Limited to be in a position to pay fullyfranked dividends for the reasonably foreseeable future. The respective dividends will be paid on Friday 11 April 2008 to holders ofordinary shares, with ADR holders to be paid on Monday 14 April 2008. This willapply to Rio Tinto plc and ADR shareholders on the register at the close ofbusiness on Friday 22 February 2008 and to Rio Tinto Limited shareholders on theregister at the close of business on Tuesday 26 February 2008. The ex-dividenddate for Rio Tinto plc, Rio Tinto Limited and Rio Tinto ADR shareholders will beWednesday 20 February 2008. As usual, Rio Tinto will operate its Dividend Reinvestment Plan, details ofwhich can be obtained from the Company Secretaries' offices and from the RioTinto website (www.riotinto.com). The last date for receipt of the electionnotice for the Dividend Reinvestment Plans is Wednesday 19 March 2008. Rio Tinto financial information by business unit Year ended 31 December Rio Tinto Gross sales revenue (a) EBITDA (b) Net earnings (c)US$ millions interest % 2007 2006 2007 2006 2007 2006Iron OreHamersley (inc. HIsmelt) 100.0 6,155 4,416 3,427 2,611 2,151 1,673Robe River (d) 53.0 1,640 1,379 991 902 503 461Iron Ore Company of Canada 58.7 943 1,051 298 441 104 145Rio Tinto Brasil 100.0 61 92 (1) 27 (12) 13Product group operations 8,799 6,938 4,715 3,981 2,746 2,292Evaluation projects/other - - (98) (45) (95) (41) 8,799 6,938 4,617 3,936 2,651 2,251EnergyRio Tinto Energy America 100.0 1,560 1,428 331 302 132 177Rio Tinto Coal Australia (e) 2,272 2,344 510 920 246 490Rossing 68.6 486 229 235 71 95 27Energy Resources of Australia 68.4 303 239 135 79 38 17Product group operations 4,621 4,240 1,211 1,372 511 711Evaluation projects/other - - (29) (14) (27) (5) 4,621 4,240 1,182 1,358 484 706AluminiumRio Tinto Aluminium (f) 3,511 3,493 1,314 1,389 695 763Alcan 3,798 - 415 - 424 -Product group operations 7,309 3,493 1,729 1,389 1,119 763Evaluation projects/other - - (28) (24) (22) (17) 7,309 3,493 1,701 1,365 1,097 746CopperKennecott Utah Copper 100.0 3,539 2,829 2,614 2,111 1,649 1,810Escondida 30.0 3,103 2,575 2,510 2,105 1,525 1,250Grasberg joint venture (g) 461 373 296 258 159 122Palabora 57.7 689 588 202 203 58 52Kennecott Minerals 100.0 338 277 175 139 106 105Northparkes 80.0 371 437 212 346 137 229Product group operations 8,501 7,079 6,009 5,162 3,634 3,568Evaluation projects/other - - (200) (44) (155) (30) 8,501 7,079 5,809 5,118 3,479 3,538Diamonds & MineralsDiamonds (h) 1,020 838 539 491 280 211Iron and Titanium 1,673 1,449 471 428 164 152Rio Tinto Minerals (i) 1,228 1,174 227 196 84 91Product group operations 3,921 3,461 1,237 1,115 528 454Evaluation projects/other - - (46) (54) (40) (48) 3,921 3,461 1,191 1,061 488 406Other Operations 367 229 30 39 15 33 33,518 25,440 14,530 12,877 8,214 7,680Other items (635) (252) (526) (241)Exploration and evaluation 25 (101) 20 (84)Net interest (265) (17)Underlying earnings 13,920 12,524 7,443 7,338Items excluded from underlying earnings (309) 42 (131) 100Total 33,518 25,440 13,611 12,566 7,312 7,438 Depreciation & amortisation in subsidiaries (2,115) (1,509)Impairment reversal/(charge) (58) 396Depreciation & amortisation in equity accounted units (310) (275)Taxation and finance items in equity accounted units (973) (826)Profit on ordinary activities before finance items and tax 10,155 10,352References above are to notes on page 30 Rio Tinto financial information by business unit (continued)Year ended 31 December DepreciationUS$ millions Rio Capital & Operating Tinto Expenditure amortisation assets interest (j) (k) % 2007 2006 2007 2006 2007 2006 Iron OreHamersley (inc. HIsmelt) 100.0 1,597 1,700 352 231 6,133 4,317Robe River (d) 53.0 241 104 104 90 1,877 1,593Iron Ore Company of Canada 58.7 163 151 78 58 869 651Rio Tinto Brasil 100.0 30 18 9 8 135 97Other 34 8 3 - 24 4 2,065 1,981 546 387 9,038 6,662 EnergyRio Tinto Energy America 100.0 226 262 131 116 1,163 1,097Rio Tinto Coal Australia (e) 226 251 165 170 1,802 1,397Rossing 68.6 57 38 13 6 151 68Energy Resources of Australia 68.4 80 31 50 32 296 201Other - - 3 - 34 - 589 582 362 324 3,446 2,763 AluminiumRio Tinto Aluminium (f) 295 236 303 266 4,144 3,607Alcan 317 - 315 - 44,047 - 612 236 618 266 48,191 3,607 CopperKennecott Utah Copper 100.0 282 295 251 151 1,694 1,789Escondida 30.0 170 155 98 96 1,045 792Grasberg joint venture (g) 76 45 24 43 410 412Palabora 57.7 27 18 41 40 84 104Kennecott Minerals 100.0 84 78 24 26 236 198Northparkes 80.0 55 16 22 48 151 89Other 22 57 1 - 498 341 716 664 461 404 4,118 3,725 Diamonds & MineralsDiamonds (h) 525 257 181 182 1,241 1,058Iron and Titanium 494 252 119 112 2,202 1,522Rio Tinto Minerals (i) 71 108 82 77 1,165 1,160Other 17 - - - 24 4 1,107 617 382 371 4,632 3,744 Other Operations 37 23 2 2 139 208 5,126 4,103 2,371 1,754 69,564 20,709 Other items 144 174 54 30 360 (40)Less: equity accounted units (302) (289) (310) (275) - -Total 4,968 3,988 2,115 1,509 69,924 20,669Less: Net debt (45,152) (2,437)Total Rio Tinto shareholders' equity 24,772 18,232 References above are to notes on page 30 Review of operations Comparison of underlying earnings 2007 underlying earnings of $7,443 million were $105 million above 2006underlying earnings. The table below shows the difference by product group.All financial amounts in the tables below are US$ millions unless indicatedotherwise. US$m 2006 underlying earnings 7,338 Iron ore 454 Aluminium 356 Copper 66 Energy (200) Diamonds & Minerals 74 Product group evaluation projects/other (198) Other operations (18) Central exploration, evaluation and technology (61) Interest (248) Other (120) 2007 underlying earnings 7,443 All subsequent references to earnings within the business unit section refer tounderlying earnings. Production numbers represent the Rio Tinto share. Iron ore 2007 2006 Change Production (million tonnes - Rio Tinto share) 144.7 132.8 +9% Gross sales revenue ($ millions) 8,799 6,938 +27% Product group earnings ($ millions) 2,746 2,292 +20% Evaluation projects/other ($ millions net of tax) (95) (41) +132% EBITDA ($ millions) 4,617 3,936 +17% Capital expenditure ($ millions) 2,065 1,981 +4% Market conditions In an iron ore market as tight as ever experienced, the success of the PilbaraBlend product was evidenced by sales achieving the benchmark price throughoutthe year. The price outlook for the 2008 contract year remains very positive,with spot prices in China substantially above prevailing contract prices. Hamersley Earnings of $2,151 million were $478 million above 2006. In 2007, Hamersleyachieved record shipments of 109 million tonnes, up 12 per cent on the previousyear, reflecting strong customer demand. Hamersley also achieved recordproduction following the completion of the second phase mine, port and railexpansions. The $1 billion Hope Downs mine railed its first production inNovember 2007, three months ahead of schedule and the second phase of theDampier port and Yandicoogina mine expansions were completed on schedule and onbudget. Hamersley's 2007 earnings include a net loss of $50 million for the pilotHIsmelt plant (2006: $30 million net loss). The plant reached operation levelsapproaching nameplate capacity in December. This brought the total annualproduction of pig iron to 114,870 tonnes for 2007 from 88,733 tonnes in 2006, asthe plant ramps up to 800,000 tonnes per annum nameplate capacity. Robe River Earnings of $503 million were $42 million above 2006, with higher pricescompensating for a stronger Australian dollar and higher input costs. Iron Ore Company of Canada Earnings of $104 million were $41 million below 2006. 2007 production wasaffected by the previously reported seven week strike which occurred in thefirst and second quarters of the year and concluded with a five year wageagreement. These lower volumes together with the impact of the stronger Canadiandollar were only partly mitigated by higher prices. Rio Tinto Brasil Lower sales volumes attributable to low water levels on the Paraguay river andhigher input costs turned earnings of $13 million in 2006 into a loss of $12million in 2007. Iron ore projects Iron ore projects are now reported within the product group. Expenditure at theSimandou project in Guinea accelerated as the pre-feasibility study movedforward. Simandou is a world class opportunity to develop a large new highquality iron ore province facing the Atlantic basin. Energy 2007 2006 Change Production (Rio Tinto share) Coal (million tonnes) US 125.1 125.3 0% Hard coking coal 6.2 5.9 +5% Other Australian 24.4 31.2 -22% Uranium (000's pounds) 12,616 12,561 0% Gross sales revenue ($ millions) 4,621 4,240 +9% Product group earnings ($ millions) 511 711 -28% Evaluation projects/other ($ millions net of tax) (27) (5) +440% EBITDA ($ millions) 1,182 1,358 -13% Capital expenditure ($ millions) 589 582 +1% US Coal - Rio Tinto Energy America Earnings of $132 million were $45 million below 2006, with improved pricesoffset by higher costs and increased taxes. Production records set at the SpringCreek and Antelope mines, as expansion projects neared completion, offset lowerproduction at Jacobs Ranch and Colowyo. Asia Pacific seaborne coal markets Asian seaborne thermal coal prices continued to rise sharply throughout 2007mainly due to supply disruptions from key producing countries. Issues relatingto infrastructure controlled by external parties are likely to maintain markettightness for the foreseeable future. Rio Tinto Coal Australia Earnings of $246 million were $244 million below 2006, with higher demurrage andenergy costs, lower thermal coal sales and lower realised prices. In general, production at the Australian coal mines continued to be constrainedby rail and port constraints in Queensland and New South Wales and reducedtonnage of rail and port allotments in Queensland, which curtailed minedproduction, despite the generally favourable market conditions. Uranium markets Market sentiment continued to be positive during 2007. Supply from a number ofproducers fell short of expectations in 2007 while demand rose from newreactors, notably in China, and higher utilisation rates were experienced in thenuclear industry. These factors have contributed to tighter markets and animprovement in the longer term outlook for uranium demand. Rossing Earnings of $95 million, which were $68 million above 2006, benefited frompositive market conditions and improved pricing. There was an increase in stripping and exploratory drilling in preparation for mine expansion. Energy Resources of Australia Earnings of $38 million were $21 million above 2006. Prices continued to benefitfrom the gradual replacement of legacy contracts with newer contracts written inan environment of higher prices. The exploration and evaluation programmefocused on infill drilling to support the previously announced mine extension aswell as the pre-feasibility study into a further mine expansion. In 2008,attention will be focused on defining the Ranger 3 Deeps deposit. Energy projects Energy projects are now reported within the product group. The increased chargein 2007 relates mainly to Rio Tinto's share of expenditure for the HydrogenEnergy joint venture. Aluminium 2007 2006 Change Production (Rio Tinto share) Bauxite (000 tonnes) 21,022 16,319 +29% Alumina (000 tonnes) 3,877 3,247 +19% Aluminium (000 tonnes) 1,480 845 +75% Gross sales revenue ($ millions) 7,309 3,493 +109% Product group earnings ($ millions) 1,119 763 +47% Evaluation projects/other ($ millions net of tax) (22) (17) +29% EBITDA ($ millions) 1,701 1,365 +25% Capital expenditure ($ millions) 612 236 +159% The $38 billion acquisition of Alcan during 2007 established Rio Tinto Aluminiumas an aluminium sector leader. It is anticipated to be a value accretivetransaction for shareholders based on a very positive demand outlook and growingsupply constraints in China. Alcan's contribution to underlying earnings for thenine weeks to 31 December 2007 was $424 million. This included a benefitrelating to the change in the Canadian corporate tax rate. Prices The average aluminium price of 120 cents per pound was three per cent above the2006 average price. Global demand growth for 2007 is expected to exceed ten percent. Rising LME inventories towards the end of 2007 and strong growth in globaloutput pushed aluminium prices lower in the second half of the year. The neteffect of price movements increased earnings by $79 million. Bauxite Excluding the impact of the Alcan acquisition which accounted for 2,813,000tonnes, 2007 bauxite production at Weipa was at record levels, 11 per centhigher than the prior year, reflecting increased capacity from the commissioningof the second shiploader. Alumina The Alcan acquisition contributed 1,144,000 tonnes of alumina production in2007. At the time of the acquisition, a 1.8 million tonne per annum expansion ofAlcan's Gove refinery was nearing completion, bringing expected total capacityto 3.8 million tonnes per annum. The final months of the year saw continuedramping up of the expansion which is expected to reach full nameplate capacityby the end of 2008. Aluminium Excluding the Alcan acquisition, aluminium production was relatively stableversus the prior year with annual production records achieved at Bell Bay, BoyneIsland and Tiwai Point. The Alcan acquisition accounted for 618,000 tonnes in2007. Aluminium projects Aluminium projects are now reported within the product group. The increasedcharge primarily related to the Abu Dhabi and Sarawak projects as theyprogressed during the year. Copper 2007 2006 Change Production (Rio Tinto share) 737.9 803.5 -8% Mined copper (000 tonnes) 390.0 299.2 +30% Refined copper (000 tonnes) 14.9 16.8 -11% Mined molybdenum (000 tonnes) 1,233 1,003 +23% Mined gold (000 oz) Gross sales revenue ($ millions) 8,501 7,079 +20% Product group earnings ($ millions) 3,634 3,568 +2% Evaluation projects/other ($ millions net of tax) (155) (30) +417% EBITDA ($ millions) 5,809 5,118 +14% Capital expenditure ($ millions) 716 664 +8% Prices The average copper price of 324 cents per pound was six per cent above the 2006average price. The gold price averaged $691 per ounce, an increase of 15 percent on the prior year, whilst the average molybdenum price was $30 per pound,an increase of 20 per cent compared with 2006. The total impact of pricechanges, net of the effects of provisional pricing movements, increased earningsby $397 million. Kennecott Utah Copper Earnings of $1,649 million were $161 million lower than 2006. Higher volumes ofrefined copper and improved prices were outweighed by the absence of one-off taxcredits of $289 million, following recognition of deferred tax assets in 2006. Smelter and refinery copper production was 21 per cent higher in 2007 comparedwith the prior year when major scheduled maintenance was undertaken on thesmelter. Molybdenum production was 11 per cent lower than 2006 as a result of lower oregrade and high limestone levels in the orebody. Escondida Earnings of $1,525 million were $275 million above 2006, benefiting from higherprices and additional volumes from higher copper grades and a full year ofrefined copper production from sulphide leaching. Grasberg joint venture Earnings of $159 million were $37 million above 2006, mainly attributable tohigher gold volumes. Variances in the metal sharing rates for 2007 were a majorfactor in lowering Rio Tinto's share of copper production and increasing itsshare of gold production in 2007, compared with 2006. Kennecott Minerals Earnings of $106 million were $1 million above 2006. The effects of higherprices for gold, silver and lead and higher gold volumes compensated for theabsence of one-off tax credits. Palabora Earnings of $58 million, which were $6 million above the prior year, benefitedfrom higher prices and volumes, achieved largely due to a nine per cent increasein underground production. Northparkes Earnings of $137 million were $92 million below 2006 attributable to the absenceof a one-off credit and lower volumes leading to higher unit cash costs. Lowercopper production followed an anticipated decline in grades in the E26 blockcave and the processing of low grade stockpiles, as the mine transitionedtowards production at E48. Copper projects Copper projects are now reported within the product group. Higher costs wereincurred as the projects progressed through the various stages of evaluation. Exploration at the La Granja project in Peru discovered four new bodies ofporphyry copper mineralisation in addition to extensions to the original LaGranja deposit. Targeted mineralisation at the property is now up to eightbillion tonnes of up to half a per cent copper equivalent. Exploration and evaluation drilling continued at the 55 per cent ownedResolution copper project in the US. There is significant potential to expandthe deposit as it remains open in several directions. Recent high-gradeintersections suggest further upside on deposit grade. At the Oyu Tolgoi copper project in Mongolia, Rio Tinto holds a 9.9 per centequity interest in property owner Ivanhoe Mines and a 16 per cent interest inEntree Gold who share the adjacent Javhlant concession with Ivanhoe. Explorationby Ivanhoe on the Javhlant concession led to discovery of the Heruga porphyrycopper-gold deposit at a depth of over 850 metres. The deposit remains open inseveral directions and delineation drilling continues. Provisional pricing At the end of 2007 the Group had 270 million pounds of copper sales that wereprovisionally priced at 304 cents per pound. The final price of these sales willbe determined in 2008. The net effect of the provisional pricing movements in2007 resulted in a benefit to earnings of $34 million compared with an earningsbenefit of $224 million in 2006. Diamonds & Minerals 2007 2006 Change Production (Rio Tinto share) Diamonds (000 carats) 26,023 35,162 -26% Titanium dioxide (000 tonnes) 1,458 1,415 +3% Borates (000 tonnes) 560 553 +1% Gross sales revenue ($ millions) 3,921 3,461 +13% Product group earnings ($ millions) 528 454 +16% Evaluation projects/other ($ millions net of tax) (40) (48) -17% EBITDA ($ millions) 1,191 1,061 +12% Capital expenditure ($ millions) 1,107 617 +79% Diamond markets The Christmas holiday period in the U.S. was assessed as generally weak overall,with many jewellers reporting declines in sales compared with 2006. The tightsupply outlook for rough diamonds is expected to lead to healthy demand in 2008,especially for better quality rough diamonds. In the cutting centres,manufacturers' margins are likely to remain under pressure, due to a weak USdollar and rough price growth outpacing polished prices. Argyle Earnings of $87 million were $23 million above 2006, mainly attributable tohigher rough sales, higher polished pink tender prices and a one-off taxbenefit. Diavik Earnings of $193 million were $54 million above 2006. The effect of thestronger Canadian dollar was more than compensated by higher production asmining was almost exclusively from the higher grade A154S pipe in 2007 comparedwith a blend of A154S and A154N pipes in 2006. Murowa Earnings from Murowa of $3 million were $7 million below 2006, attributable tolower volumes arising from a strategy to increase stripping so as to improve pitstability. Rio Tinto Iron & Titanium Earnings of $164 million were $12 million above 2006. Demand for titaniumdioxide chloride feedstock and metallic and zircon co-products remained firm,leading to improved prices for the year. Higher volumes and the one-off benefitof a lower Canadian corporate tax rate offset the impact of a stronger Canadiandollar. Rio Tinto Minerals Earnings of $84 million were $7 million below 2006. Pricing momentum wasmaintained but was offset by the absence of one-off tax benefits from the prioryear. Diamonds and Minerals projects Diamonds and Minerals projects are now reported within the product group.Expenditure during the year mainly related to the potash project in Argentina. Other operations 2007 2006 Change Underlying earnings ($ millions) 15 33 -55% Closure activities relating to Kelian resulted in a $2 million loss in 2007.This compared with a $13 million profit in 2006 following the sale of the lastremaining gold inventories. A significant tightening of the US mortgage market impacted Kennecott Land'sProject Daybreak. During 2007, 550 residential lots were sold compared withsales of just over 900 lots during 2006. This project is one of the biggestprivately owned land developments in the US and is located in a fast growingregion with positive demographic trends. It is anticipated to add substantialvalue to shareholders over time. Exploration and Evaluation 2007 2006 Change Post-tax credit / (charge) ($ millions) 20 (84) +124% The post-tax centrally reported exploration charge is presented net of theprofit on disposal of exploration properties. There was a significant step up in exploration and evaluation expenditure(pre-disposals) with a post-tax charge in 2007 of $175 million, compared with$140 million in 2006. As part of Rio Tinto's continuing focus on optimising itsportfolio, $195 million (post-tax earnings) was realised from explorationdivestments in 2007 compared with $56 million in 2006. Two greenfield discoveries, the Chapudi thermal coal deposit in South Africa andthe Kintyre uranium deposit in Western Australia, were transferred to productgroup evaluation teams. Chapudi is an open-pittable resource in excess of onebillion tonnes. Kintyre is now being offered for sale. One brownfield discovery,the Caliwingina North channel iron deposit, was transferred to Pilbara Ironadding 875Mt to Rio Tinto's Pilbara resource base. Greenfield order of magnitude studies continued at the Bunder project (diamonds,India) and commenced at the Chilubane and Mutamba (ilmenite, Mozambique),Jarandol and Jadar (borates, Serbia) and Namekara (vermiculite, Uganda)deposits. All are scheduled for completion in early to mid 2008. Negotiationscontinued with the Government of Indonesia on the Contract of Work for theSulawesi nickel project. Significant progress at early stage greenfield projects in Australia (zircon),Brazil (bauxite), Canada (potash), Colombia (bauxite) and the US (nickel) isexpected to lead to commencement of new order of magnitude studies in the secondhalf of 2008. Several other projects are showing early encouragement and couldbe fast tracked to this stage. Capital projects Project Estimated Status/Milestones cost (100%)Completed in 2007 Iron ore - Expansion of Hamersley's (Rio Tinto $226m Project completed in March 2007.share 100%) Mount Tom Price mine to 28 milliontonnes per annum capacity.Iron ore - Brownfields mine expansion of $530m First ore was produced in May 2007, withHamersley's (Rio Tinto 100%) Yandicoogina mine the project completed at the end of thefrom 36 million tonnes per annum to 52 million third quarter of 2007 on time and ontonnes per annum. budget.Iron ore - Expansion of Hamersley's (Rio Tinto $803m This project was completed at the end of100%) Dampier port (Phase B) from 116 million 2007 on schedule and on budget.tonnes per annum to 140 million tonnes per annumcapacity and additional rolling stock andinfrastructure.Iron ore - Hope Downs development (Rio Tinto $980m First production occurred in Novembershare: 50% of mine and 100% of infrastructure). 2007, three months ahead of schedule. TheConstruction of 22 million tonnes per annum mine first train load took place in Decemberand related infrastructure. 2007. Ongoing Copper - Kennecott Utah Copper (Rio Tinto 100%) $170m The project was approved in February 2005East 1 pushback. The project extends the life of and work on the pushback continues. Thethe open pit to 2017 while retaining options for pebble crushing unit was commissioned infurther underground or open pit mining thereafter. the third quarter of 2006.Titanium dioxide - Construction by QMM (Rio Tinto $1.0bn Construction is underway. The budget was80%) of a greenfield ilmenite operation in revised in 2007. First production isMadagascar and associated upgrade of processing expected at the end of 2008.facilities at QIT.Alumina -Expansion of the Gove Alumina Refinery $2.3bn Approved in September 2004, the expansion(Rio Tinto 100%) from 2.0 to 3.8 million tonnes is expected to reach full nameplateper annum. capacity by the end of 2008.Aluminium - Development of the 370,000 tonne per $1.7bn Approved in February 2005, firstannum greenfield Sohar smelter in Oman (Rio Tinto production is expected in the third20%). quarter of 2008.Aluminium - Aluminium spent pot lining recycling $180m Approved in September 2006, the plant isplant in Quebec (Rio Tinto 100%). expected to begin pot lining treatment operations in the second quarter of 2008.Gold - Development of Cortez Hills (Rio Tinto $504m Approved in September 2005, the project40%). continues to focus on permitting requirements. The project is on time and on budget.Uranium - Rossing (Rio Tinto 68.6%) uranium mine $112m Approved in December 2005, works are onlife extension to 2016. schedule and on budget to prolong the life of the mine to 2016 and beyond. The mine life extension estimate remains at $82m with $30m of sustaining capital expenditure. Project Estimated Status/Milestones cost (100%)Ongoing (continued) Diamonds - Argyle (Rio Tinto 100%) development of < $1.5bn Approved in December 2005, the undergroundunderground mine and open pit cutback, extending development consisting of 34 km of tunnelsthe life of the mine to 2018. and excavations is currently 40% complete. Construction of the major underground infrastructure will commence in February 2008. Full production from the underground mine is on schedule to be achieved by December 2010.Copper - Northparkes (Rio Tinto 80%) E48 block $160m Approved in November 2006.cave project extending mine life to 2016. Underground development has commenced and is on schedule for May 2009 production start.Energy - Clermont (Rio Tinto 50.1%) will produce $750m Approved in January 2007, first12.2 million tonnes per annum, replacing Blair shipments are expected in theAthol. second quarter of 2010 with full capacity being reached in 2013.Iron ore - Cape Lambert port expansion (Rio Tinto $952m Approved in January 2007, the53%) from 55 to 80 million tonnes per annum and project is forecast to be completeadditional rolling stock and infrastructure. by the end of 2008, with progressive capacity ramp up in the first half of 2009. The estimated capital cost now includes $92m for additional rolling stock and infrastructure.Iron ore - Wharf upgrade and shiploader $65m The project is in progress and isreplacement at East Intercourse Island (Rio Tinto expected to be complete by May100%). 2009.Alumina - Expansion of Yarwun Alumina Refinery $1.8bn Approved in July 2007, thefrom 1.4 to 3.4 million tonnes per annum. expansion will more than double annual production at Yarwun and is expected to come onstream by 2011.Iron ore - Expansion of Hope Downs Stage 2 (Rio $350m Approved in August 2007, theTinto 50%) from 22 to 30 million tonnes per annum. expansion will be complete by early 2009. Recently approved Diamonds - Construction at Diavik (Rio Tinto 60%) $787m Capital investment of $563 millionof the underground mining. was approved in November 2007 in addition to $224 million invested in 2006-2007 for the feasibility studies and related capital projects. First production from the underground mine is expected to commence in 2009.Iron ore - Mesa A development (Rio Tinto 53%): $901m Approved in November 2007, the mineconstruction of a 25 million tonne per annum mine is forecast to be complete by 2010and related infrastructure. with a progressive ramp up to 25 million tonnes per annum by 2011.Iron ore - Brockman 4 development (Rio Tinto $1,521m Approved in November 2007, Phase A100%): construction of a 22 million tonne per of the project, to 22 millionannum mine (Phase A) and related infrastructure. tonnes is forecast to be complete by 2010, with scope to expand further to 36 million tonnes per annum by 2012. Project Estimated Status/Milestones cost (100%)Recently approved (continued) Coking coal - extension and expansion of Kestrel $991m Approved in December 2007, the investmentmine (Rio Tinto share 80%). will extend the life of the mine to 2031 and increase production to an average of 5.7mtpa.Nickel - Development of Eagle nickel mine in $300m Approved in December 2007, this high gradeMichigan, US. nickel and copper mine is expected to commence production in late 2009, delivering 16,000 tonnes of nickel per annum over a seven year period.Aluminium - Replacement of overhead cranes and $270m Approved in January 2008, the mobileupgrade of crane runways on Lines 1 and 2 at Boyne cranes and associated runways on reductionSmelters (Rio Tinto 59.4%). Lines 1 and 2 will be replaced. The project is estimated to be completed by late 2010.Aluminium - Replacement of Lines 1 and 2 carbon $347m Approved in January 2008, the carbonbake furnace at Boyne Smelters (Rio Tinto 59.4%). baking furnace that supplies anodes to Lines 1and 2 will be replaced. The project is estimated to be completed by mid 2011. Price & exchange rate sensitivities The following sensitivities give the estimated effect on underlying earningsassuming that each individual price, exchange rate or interest rate moved inisolation. The relationship between currencies and commodity prices is a complexone and movements in exchange rates can cause movements in commodity prices andvice versa. The exchange rate sensitivities quoted below include the effect onoperating costs of movements in exchange rates but exclude the effect of therevaluation of foreign currency working capital. They should therefore be usedwith care. Average price/exchange Change Effect on full year rate for 2007 underlying earnings US$m Copper 324c/lb +/- 32c/lb 360Aluminium1 120c/lb +/-12c/lb 678Gold $691/oz +/- $69/oz 64Molybdenum $30/lb +/- $3/lb 69 Australian dollar1 84USc +/-8.4USc 494Canadian dollar1 93USc +/-9.3USc 203South African rand 14USc +/-1.4USc 55 US$ 3 month LIBOR2 +/-0.5% 158 1 Includes the full year effect of Alcan 2 Net interest sensitivity is the full year impact based on net debt at 31 December 2007. About Rio Tinto Rio Tinto is a leading international mining group headquartered in the UK,combining Rio Tinto plc, a London and NYSE listed company, and Rio TintoLimited, which is listed on the Australian Securities Exchange. Rio Tinto's business is finding, mining, and processing mineral resources. Majorproducts are aluminium, copper, diamonds, energy (coal and uranium), gold,industrial minerals (borax, titanium dioxide, salt, talc) and iron ore.Activities span the world but are strongly represented in Australia and NorthAmerica with significant businesses in South America, Asia, Europe and southernAfrica. Forward-Looking Statements This announcement includes forward-looking statements. All statements other thanstatements of historical facts included in this announcement, including, withoutlimitation, those regarding Rio Tinto's financial position, business strategy,plans and objectives of management for future operations (including developmentplans and objectives relating to Rio Tinto's products, production forecasts andreserve and resource positions), are forward-looking statements. Suchforward-looking statements involve known and unknown risks, uncertainties andother factors which may cause the actual results, performance or achievements ofRio Tinto, or industry results, to be materially different from any futureresults, performance or achievements expressed or implied by suchforward-looking statements. Such forward-looking statements are based on numerous assumptions regarding RioTinto's present and future business strategies and the environment in which RioTinto will operate in the future. Among the important factors that could causeRio Tinto's actual results, performance or achievements to differ materiallyfrom those in the forward-looking statements include, among others, levels ofactual production during any period, levels of demand and market prices, theability to produce and transport products profitably, the impact of foreigncurrency exchange rates on market prices and operating costs, operationalproblems, political uncertainty and economic conditions in relevant areas of theworld, the actions of competitors, activities by governmental authorities suchas changes in taxation or regulation and such other risk factors identified inRio Tinto's most recent Annual Report on Form 20-F filed with the United StatesSecurities and Exchange Commission (the "SEC") or Form 6-Ks furnished to theSEC. Forward-looking statements should, therefore, be construed in light of suchrisk factors and undue reliance should not be placed on forward-lookingstatements. These forward-looking statements speak only as of the date of thisannouncement. Rio Tinto expressly disclaims any obligation or undertaking(except as required by applicable law, the City Code on Takeovers and Mergers(the "Takeover Code"), the UK Listing Rules, the Disclosure and TransparencyRules of the Financial Services Authority and the Listing Rules of theAustralian Securities Exchange) to release publicly any updates or revisions toany forward-looking statement contained herein to reflect any change in RioTinto's expectations with regard thereto or any change in events, conditions orcircumstances on which any such statement is based. Nothing in this announcement should be interpreted to mean that future earningsper share of Rio Tinto plc or Rio Tinto Limited will necessarily match or exceedits historical published earnings per share. Subject to the requirements of the Takeover Code, none of Rio Tinto, any of itsofficers or any person named in this announcement with their consent or anyperson involved in the preparation of this announcement makes any representationor warranty (either express or implied) or gives any assurance that the impliedvalues, anticipated results, performance or achievements expressed or implied inforward-looking statements contained in this announcement will be achieved. For further information, please contact: Media Relations, London Media Relations, AustraliaChristina Mills Amanda BuckleyOffice: +44 (0) 20 7781 1154 Office: +61 (0) 3 9283 3627Mobile: +44 (0) 7825 275 605 Mobile: +61 (0) 419 801 349 Nick Cobban Ian HeadOffice: +44 (0) 20 7781 1138 Office: +61 (0) 3 9283 3620Mobile: +44 (0) 7920 041 003 Mobile: +61 (0) 408 360 101 Media Relations, AmericasNancy IvesMobile: +1 619 540 3751 Investor Relations, London Investor Relations, AustraliaNigel Jones Dave SkinnerOffice: +44 (0) 20 7781 2049 Office: +61 (0) 3 9283 3628Mobile: +44 (0) 7917 227365 Mobile: +61 (0) 408 335 309 David Ovington Simon EllinorOffice: +44 (0) 20 7781 2051 Office: +61 (0) 7 3867 1068Mobile: +44 (0) 7920 010 978 Mobile: +61 (0) 439 102 811 Investor Relations, North AmericaJason CombesOffice: +1 (0) 801 685 4535Mobile: +1 (0) 801 558 2645 Email: [email protected] Website: www.riotinto.comHigh resolution photographs available at: www.newscast.co.uk Group income statement Years ended 31 December 2007 2006 US$m US$mGross sales revenue (including share of equity accounted units) (a) 33,518 25,440 Consolidated sales revenue 29,700 22,465 Net operating costs (excluding items shown separately) (20,750) (13,650)Impairment (charges)/reversals (58) 396Exploration and evaluation costs (b) (321) (237)Operating profit 8,571 8,974Share of profit after tax of equity accounted units 1,584 1,378Profit before finance items and taxation 10,155 10,352 Finance itemsNet exchange gains on external debt and intragroup balances 194 46Net gains on currency and interest rate derivatives not qualifying for hedge accounting 57 35Interest receivable and similar income 134 106Interest payable and similar charges (538) (160)Amortisation of discount related to provisions (166) (139) (319) (112)Profit before taxation 9,836 10,240Taxation (2,090) (2,373)Profit for the year 7,746 7,867- attributable to outside equity shareholders 434 429- attributable to equity shareholders of Rio Tinto (Net earnings) 7,312 7,438 Basic earnings per ordinary share (c) 568.7c 557.8cDiluted earnings per ordinary share 566.3c 555.6c Dividends paid during the year (US$m) 1,507 2,573Dividends per share: paid during the year - regular dividends 116.0c 81.5c - special dividend - 110.0cDividends per share: proposed in the announcement of the results for the year - final dividend 84.0c 64.0c (a) Gross sales revenue includes the sales revenue of equity accounted unitsof US$3,818 million (2006: US$2,975 million) in addition to Consolidated salesrevenue, which relates only to subsidiary companies. (b) Exploration and evaluation costs are stated net of gains on disposal ofundeveloped properties totalling US$253 million (2006: US$46 million). (c) For the purposes of calculating basic earnings per share, the weightedaverage number of Rio Tinto plc and Rio Tinto Limited shares outstanding duringthe year was 1,285.8 million (2006: 1,333.4 million), being the average numberof Rio Tinto plc shares outstanding of 1,000.1 million (2006: 1,047.7 million),plus the average number of Rio Tinto Limited shares outstanding not held by RioTinto plc of 285.7 million (2006: 285.7 million). Group cash flow statementYears ended 31 December 2007 2006 US$m US$m Cash flow from consolidated operations 10,805 9,196Dividends from equity accounted units 1,764 1,727Cash flows from operations 12,569 10,923 Net interest paid (489) (128)Dividends paid to outside shareholders of subsidiaries (168) (193)Tax paid (3,421) (2,799)Cash flow from operating activities 8,491 7,803 Cash used in investing activitiesNet acquisitions of subsidiaries, joint ventures & associates (37,526) (279)Purchase of property, plant & equipment and intangible assets (5,000) (3,992)Sales of financial assets 49 293Purchases of financial assets (273) (167)Other investing cash flows 8 56Cash used in investing activities (42,742) (4,089) Cash flow before financing activities (34,251) 3,714 Cash from/(used in) financing activitiesEquity dividends paid to Rio Tinto shareholders (1,507) (2,573)Own shares purchased from Rio Tinto shareholders (1,624) (2,370)Proceeds from issue of ordinary shares in Rio Tinto 13 31Proceeds from additional borrowings 39,195 483Repayment of borrowings (1,034) (1,102)Other financing cash flows 54 142Cash from/(used in) financing activities 35,097 (5,389)Effects of exchange rates on cash and cash equivalents (27) 30Net increase/(decrease) in cash and cash equivalents 819 (1,645)Opening cash and cash equivalents 722 2,367Closing cash and cash equivalents 1,541 722 Cash flow from consolidated operationsProfit for the year 7,746 7,867Adjustments for: Taxation 2,090 2,373 Finance items 319 112 Share of profit after tax of equity accounted units (1,584) (1,378) Impairment charges/(reversals) 58 (396) Depreciation and amortisation 2,115 1,509 Provisions 308 60Utilisation of provisions (162) (194)Utilisation of provision for post retirement benefits (121) (77)Change in inventories 130 (454)Change in trade and other receivables (385) (394)Change in trade and other payables 375 116Other items (84) 52 10,805 9,196 Group balance sheetAt 31 December 2007 2006 US$m US$m Non-current assetsGoodwill 15,497 841Intangible assets 7,910 384Property, plant and equipment 45,647 22,207Investments in equity accounted units 7,038 2,235Loans to equity accounted units 245 136Inventories 178 99Trade and other receivables 1,862 983Deferred tax assets 585 225Tax recoverable 6 135Other financial assets 580 374 79,548 27,619 Current assetsInventories 5,382 2,540Trade and other receivables 6,479 2,938Assets held for sale 7,024 -Loans to equity accounted units 117 15Tax recoverable 250 79Other financial assets 946 567Cash and cash equivalents 1,645 736 21,843 6,875 Current liabilitiesBank overdrafts repayable on demand (104) (14)Borrowings (8,109) (1,490)Trade and other payables (6,667) (2,693)Liabilities of disposal groups held for sale (2,632) -Other financial liabilities (878) (193)Tax payable (494) (1,024)Provisions (783) (366) (19,667) (5,780)Net current assets 2,176 1,095 Non-current liabilitiesBorrowings (38,614) (2,007)Trade and other payables (503) (362)Other financial liabilities (496) (233)Tax payable (66) (86)Deferred tax liabilities (6,486) (2,339)Provision for post retirement benefits (3,195) (770)Other provisions (6,040) (3,532) (55,400) (9,329)Net assets 26,324 19,385 Capital and reservesShare capital- Rio Tinto plc 172 172- Rio Tinto Limited (excluding Rio Tinto plc interest) 1,219 1,099Share premium account 1,932 1,919Other reserves 2,416 641Retained earnings 19,033 14,401Equity attributable to Rio Tinto shareholders 24,772 18,232Attributable to outside equity shareholders 1,552 1,153Total equity 26,324 19,385 At 31 December 2007, Rio Tinto plc had 997.2 million ordinary shares in issueand Rio Tinto Limited had 285.7 million shares in issue, excluding those held byRio Tinto plc. Net tangible assets per share was US$1.06 (2006: US$12.99). Group statement of recognised income and expenseYears ended 31 December Attributable to Outside 2007 2006 shareholders of interests Total Total Rio Tinto US$m US$m US$m US$m Currency translation adjustment 1,886 135 2,021 866Cash flow hedge fair value losses (201) (223) (424) (378)Gains on available for sale securities 49 2 51 19Cash flow hedge losses transferred to the income statement 89 76 165 137Gains on revaluation of available for sale securities transferred to the income statement (16) - (16) (4)Actuarial gains on post retirement benefit plans 135 6 141 373Tax recognised directly in equity 153 40 193 102 Net income recognised directly in equity 2,095 36 2,131 1,115 Profit after tax for the year 7,312 434 7,746 7,867 Total recognised income for the year 9,407 470 9,877 8,982 Group statement of changes in equityYears ended 31 December Attributable to Outside 2007 2006 shareholders of interests Total Total Rio Tinto US$m US$m US$m US$m Opening balance 18,232 1,153 19,385 15,739Total recognised income for the year 9,407 470 9,877 8,982Dividends (1,507) (164) (1,671) (2,766)Own shares purchased from Rio Tinto shareholders-Under capital management programme (1,348) - (1,348) (2,658)-To satisfy share options (64) - (64) (49)Ordinary shares issued 13 - 13 31Outside interests in acquired companies - 55 55 -Shares issued to outside interests - 38 38 69Employee share options charged to income statement 39 - 39 23Other movements - - - 14Closing balance 24,772 1,552 26,324 19,385 Reconciliation with Australian IFRS The Group's financial statements have been prepared in accordance with IFRS asadopted by the European Union ('EU IFRS'), which differs in certain respectsfrom the version of IFRS that is applicable in Australia ('Australian IFRS'). Prior to 1 January 2004, the Group's financial statements were prepared inaccordance with UK GAAP. Under EU IFRS goodwill on acquisitions prior to 1998,which was eliminated directly against equity in the Group's UK GAAP financialstatements, has not been reinstated. This was permitted under the rulesgoverning the transition to EU IFRS set out in IFRS 1. The equivalentAustralian Standard, AASB 1, does not provide for the netting of goodwillagainst equity. As a consequence, shareholders' funds under Australian IFRSinclude the residue of such goodwill, which amounted to US$736 million at 31December 2007 (2006: US$740 million). Save for the exception described above, the Group's financial statements drawnup in accordance with EU IFRS are consistent with the requirements of AustralianIFRS. Reconciliation of Net earnings to Underlying earnings Outside Pre-tax Taxation interests Net amount Net amount 2007 2007 2007 2007 2006 US$m US$m US$m US$m US$mExclusions from Underlying earningsProfits less losses on disposal of interests in businesses (a) 2 (1) - 1 3Impairment (charges)/reversals (b) (58) 18 (73) (113) 44Exchange differences and derivatives:- Exchange gains/(losses) on external debt and intragroup balances (c) 201 (37) (8) 156 (16)- Gains/(losses) on currency and interest rate derivatives not qualifying for hedge accounting (d), (e) 52 (19) 1 34 30Other exclusions (f) (308) 99 - (209) 39Total excluded from Underlying earnings (111) 60 (80) (131) 100 Net earnings 9,836 (2,090) (434) 7,312 7,438 Underlying earnings 9,947 (2,150) (354) 7,443 7,338 'Underlying earnings' is an alternative measure of earnings, which is reportedby Rio Tinto to provide greater understanding of the underlying businessperformance of its operations. Underlying earnings and Net earnings bothrepresent amounts attributable to Rio Tinto shareholders. Items (a) to (f) beloware excluded from Net earnings in arriving at Underlying earnings. (a) Gains and losses arising on the disposal of interests in businesses. (b) Charges and credits relating to impairment of non-current assets otherthan undeveloped properties. (c) Exchange gains and losses on US dollar debt and intragroup balances. (d) Valuation changes on currency and interest rate derivatives which areineligible for hedge accounting, other than those embedded in commercialcontracts. (e) The currency revaluation of embedded US dollar derivatives contained incontracts held by entities whose functional currency is not the US dollar. (f) Other credits and charges that, individually, or in aggregate if of asimilar type, are of a nature or size to require exclusion in order to provideadditional insight into underlying business performance. Other charges excluded from underlying earnings, in 2007, primarily resultedfrom the acquisition of Alcan. These include the non-recurring impact of US$213 million on pre-tax profit of revaluing inventories on acquisition based on selling price, together with integration costs. Consolidated net debt 2007 2006 US$m US$mAnalysis of changes in consolidated net debtOpening balance (2,437) (1,313)Adjustment on currency translation (223) (56)Exchange gains credited to the income statement 136 38Gains on derivatives related to net debt 11 44Debt of acquired companies (5,465) -Cash movement excluding exchange movements (37,332) (1,146)Other movements 158 (4)Closing balance (45,152) (2,437) Analysis of closing balanceBorrowings (46,723) (3,497)Bank overdrafts repayable on demand (104) (14)Cash and cash equivalents 1,645 736Other liquid resources 6 6Derivatives related to net debt 24 332Consolidated net debt (45,152) (2,437) Geographical analysis (by destination)Years ended 31 December 2007 2006 2007 2006 % % US$m US$m Gross sales revenue 22.6 21.9 North America 7,582 5,575 19.8 17.2 Europe 6,641 4,378 16.8 19.6 Japan 5,633 4,986 18.0 16.0 China 6,021 4,062 12.2 13.5 Other Asia 4,105 3,438 5.6 5.8 Australia and New Zealand 1,892 1,477 5.0 6.0 Other 1,644 1,524 100.0 100.0 Total 33,518 25,440 Prima facie tax reconciliation 2007 2006 US$m US$m Profit before taxation 9,836 10,240Deduct: share of profit after tax of equity accounted units (1,584) (1,378) Parent companies' and subsidiaries' profit before tax 8,252 8,862Prima facie tax payable at UK and Australian rate of 30% 2,476 2,659Impact of items excluded from Underlying earnings (28) 201 Other permanent differencesAdditional recognition of deferred tax assets (a) - (335)Utilisation of previously unrecognised deferred tax assets - (140)Adjustments to deferred tax liabilities following changes in tax rates (b) (392) (46)Other tax rates applicable outside the UK and Australia 271 242Resource depletion and other depreciation allowances (173) (187)Research, development and other investment allowances (81) (21)Other items 17 - (358) (487)Total taxation charge (c) (d) 2,090 2,373 (a) The 'Additional recognition of deferred tax assets' of US$335 million in2006 reflected improved prospects for future earnings from the Group's USoperations. (b) The 'Adjustments to deferred tax liabilities following changes in taxrates', totalling US$392 million (2006: US$46 million) result from a reductionin Canadian tax rates. (c) This tax reconciliation relates to the parent companies and subsidiariesand proportionally consolidated units. The Group's share of profit of equityaccounted units is net of tax charges of US$917 million (2006: US$770 million). (d) The total taxation charge includes UK - US$150 million (credit),Australia - US$1,378 million and Other - US$862 million (2006: UK - US$41million, Australia - US$1,420 million and Other - US$912 million). Acquisitions On 23 October 2007, the Rio Tinto Group acquired a controlling 79.42% interestin the issued share capital of Alcan Inc. The remaining 20.58% was acquired by14 November 2007. The total purchase price to acquire Alcan Inc amounted to US$38.7 billion, whichcomprised US$38.5 billion of cash and US$0.2bn of liabilities assumed. Alcan Inc. is the parent company of an international group of companies involvedin bauxite mining, alumina refining, aluminium smelting, engineered products,flexible and specialty packaging, as well as related research and development. The Group has decided to dispose of Alcan Packaging, which is presented in thebalance sheet in the lines: 'Assets held for sale' and 'Liabilities of disposalgroups held for sale'. Therefore, the income and cash flow statements for theyear exclude amounts relating to Alcan Packaging. The fair values of the identifiable assets and liabilities of Alcan Inc. as atthe date of acquisition were provisionally estimated as follows: Fair Provisional IFRS carrying value fair values adjustments values US$m US$m US$m Intangible assets 804 6,663 7,467Property, Plant & Equipment 11,579 6,703 18,282Equity method investments 1,415 2,770 4,185Inventories 2,643 213 2,856Assets held for sale 6,984 - 6,984Cash 991 - 991Deferred tax assets 223 5 228Other assets 4,353 231 4,584Loans and borrowings (5,580) 115 (5,465)Liabilities of disposal group held for sale (2,642) - (2,642)Deferred tax liabilities (461) (3,721) (4,182)Provisions for liabilities and charges (4,581) (57) (4,638)Other liabilities (4,265) (211) (4,476)Minority interest (55) - (55)Goodwill 2,055 12,478 14,533Net attributable assets including goodwill 13,463 25,189 38,652Total consideration:Cost of shares 37,996Acquisition costs 74Liabilities assumed 132Loan to acquired subsidiary 450Total Consideration - Alcan 38,652Other subsidiaries and EAUs acquired 54Total Consideration 38,706 Cash outflow on acquisitions:Total consideration 38,706Net cash of acquired companies (991)Liabilities assumed (132)Other (57)Net acquisitions per cash flow statement 37,526 The future economic benefits represented by the goodwill include thoseassociated with synergies, future development and expansion projects and theassembled workforce. As a result of the size of the acquisition and complexityof the valuation process, the above fair values are provisional. These will besubject to further review during the 12 months from the acquisition date. For the period since acquisition, sales revenue of US$3,544 million (excludingequity accounted units) and profit after tax of US$294 million attributable tocontinuing operations are included in the Group income statement. Accounting policies The financial information included in this report has been prepared on the basisof all IFRSs and Interpretations adopted by the European Union that aremandatory for periods ending 31 December 2007 and in accordance with: applicableUnited Kingdom law, applicable Australian law as amended by the AustralianSecurities and Investments Commission Order dated 27 January 2006 (as amended on22 December 2006); and Article 4 of the European Union IAS regulation. The EU IFRS financial information has been drawn up on the basis of accountingpolicies consistent with those applied in the financial statements for the yearto 31 December 2006, except as follows: - the Group has adopted weighted average cost as its method ofinventory valuation. This method of inventory valuation is more widely used bycompanies in the mining industry. Previously, the Group valued its inventorieson the basis of First In, First Out ("FIFO"). The effect of this adjustment isnot material to Group earnings or to shareholders' funds in the current or priorperiods. Therefore, prior period information has not been restated. - The Group has also applied other new accounting standards andinterpretations in the year. These affect disclosure only, and have no impact onthis financial information. Therefore, full details will be included in the 2007Annual Report and Financial Statements. Certain prior year information has been reclassified to conform with the currentyear presentation. Exploration and evaluation costs charged against income werepreviously included in 'Cash used in investing activities' but are now includedwithin 'Cash flow from operating activities'. As a result, exploration andevaluation costs expensed of US$273 million have been reclassified in thecomparative figures for the full year 2006, within the Cash flow statement. Status of financial information This preliminary announcement does not constitute the Group's full financialstatements for 2007, which will be approved by the Board and reported on by theauditors on 5 March 2008 and subsequently filed with the Registrar of Companiesand the Australian Securities and Investments Commission. Accordingly, thefinancial information for 2007 is unaudited and does not have the status ofstatutory accounts within the meaning of Section 240 of the Companies Act 1985. Financial information for the year to 31 December 2006 has been extracted fromthe full financial statements prepared under the historical cost convention, asmodified by the revaluation of certain derivative contracts and financialassets, as filed with the Registrar of Companies. The Auditors' report on thefull financial statements for the year to 31 December 2006 was unqualified anddid not contain statements under section 237(2) of the United Kingdom CompaniesAct 1985 (regarding adequacy of accounting records and returns), or under 237(3)(regarding provision of necessary information and explanations). Notes to financial information by business unit (Pages 8 and 9) The following changes have been made to the presentation of this information.Full year 2006 results have been reclassified accordingly. Product groups/business segments During 2007, Industrial Minerals and Diamonds were combined to form the Diamondsand Minerals product group. Other Project evaluation and other costs specifically attributable to product groupsare now reported as part of product group earnings. Previously, these werereported centrally in 'Exploration and evaluation' and 'Other items',respectively. Capitalised evaluation costs Capital expenditure by product group now includes capitalised evaluation costs. Business units have been classified according to the Group's managementstructure. Generally, this structure has regard to the primary product of eachbusiness unit but there are exceptions. For example, the Copper group includescertain gold operations. (a) Gross sales revenue includes 100 per cent of subsidiaries' sales revenueand the Group's share of the sales revenue of equity accounted units. (b) EBITDA of subsidiaries and the Group's share of EBITDA relating toequity accounted units represents profit before: tax, net finance items,depreciation and amortisation. (c) Net earnings represent profit after tax for the period attributable tothe Rio Tinto Group. Earnings of subsidiaries are stated before finance itemsbut after the amortisation of the discount related to provisions. Earningsattributable to equity accounted units include interest charges and amortisationof discount. Earnings attributed to business units do not include amounts thatare excluded in arriving at Underlying earnings. (d) The Group holds 65 per cent of Robe River Iron Associates, of which 30per cent is held through a 60 per cent owned subsidiary. The Group's netbeneficial interest is therefore 53 per cent, net of amounts attributable tooutside equity shareholders. (e) Includes Rio Tinto's 75.7 per cent interest in Coal and Allied, which ismanaged by Rio Tinto Coal Australia, a 100 per cent subsidiary of Rio Tinto. (f) Includes Rio Tinto's interests in Rio Tinto Aluminum (100 per cent)and Anglesey Aluminium (51 per cent). (g) Under the terms of a joint venture agreement, Rio Tinto is entitled to40 per cent of additional material mined as a consequence of expansions anddevelopments of the Grasberg facilities since 1998. (h) Diamonds includes Rio Tinto's interests in Argyle (100 per cent), Diavik(60 per cent) and Murowa (77.8 per cent). (i) Includes Rio Tinto's interests in Rio Tinto Borax (100 per cent),Dampier Salt (68.4 per cent) and Luzenac Talc (100 per cent). (j) Capital expenditure comprises the net cash outflow on purchases lessdisposals of property, plant and equipment, capitalised evaluation costs andpurchases less disposals of other intangible assets. The details providedinclude 100 per cent of subsidiaries' capital expenditure and Rio Tinto's shareof the capital expenditure of equity accounted units. Amounts relating to equityaccounted units not specifically funded by Rio Tinto are deducted beforearriving at total capital expenditure for the Group. (k) Operating assets of subsidiaries comprise net assets before deductingnet debt, less outside shareholders' interests which are calculated by referenceto the net assets of the relevant companies (i.e. net of such companies' debt).For equity accounted units, Rio Tinto's net investment is shown. Summary financial data in Australian dollars, Sterling and US dollars 2007 2006 2007 2006 2007 2006 A$m A$m £m £m US$m US$m 39,957 33,810 16,741 13,818 Gross sales revenue 33,518 25,440 35,405 29,856 14,834 12,203 Consolidated sales revenue 29,700 22,465 11,725 13,609 4,913 5,562 Profit before taxation 9,836 10,240 9,234 10,455 3,869 4,273 Profit for the year 7,746 7,867 Net earnings attributable to Rio 8,717 9,885 3,652 4,040 Tinto shareholders 7,312 7,438 8,873 9,752 3,718 3,986 Underlying earnings (a) 7,443 7,338 677.9c 741.3c 284.0p 303.0p Basic earnings per ordinary share 568.7c 557.8c 690.1c 731.3c 289.1p 298.9p Basic Underlying earnings per 578.9c 550.3c ordinary share (a) Dividends per share to Rio Tinto shareholders 143.5c 107.3c 58.2p 44.8p - paid (regular) 116.0c 81.5c - 145.4c - 61.9p - paid (special) - 110.0c 93.0c 82.8c 43.1p 32.6p - proposed final dividend 84.0c 64.0c (40,830) 4,936 (17,107) 2,017 Cash flow before financing (34,251) 3,714 activities (51,426) (3,084) (22,683) (1,241) Net debt (45,152) (2,437) 28,214 23,069 12,444 9,283 Equity attributable to 24,772 18,232 Rio Tinto shareholders (a) Underlying earnings exclude net expenses of US$131 million (2006: US$100million net income), which are analysed on page 26. (b) The financial data above has been extracted from the financialinformation set out on pages 22 to 27. The Australian dollar and Sterling amounts are based on the US dollar amounts,retranslated at average or closing rates as appropriate, except for the dividends which are the actual amounts payable. Metal prices and exchange rates Increase/ 2007 2006 (Decrease) Metal prices - average for the period Copper - US cents/lb 324c 306c 6%Aluminium - US cents/lb 120c 116c 3%Gold - US$/troy oz US$691 US$602 15%Molybdenum - US$/lb US$30 US$25 20% Average exchange rates in US$ Sterling 2.00 1.84 9%Australian dollar 0.84 0.75 11%Canadian dollar 0.93 0.88 6%South African rand 0.14 0.15 (4%) Period end exchange rates in US$ Sterling 1.99 1.96 1%Australian dollar 0.88 0.79 11%Canadian dollar 1.01 0.86 18%South African rand 0.15 0.14 2% Availability of this report This report is available on the Rio Tinto website. 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