23rd Apr 2007 12:32
Rio Tinto PLC23 April 2007 Coal & Allied Industries (Rio Tinto 75.7 per cent) issued the following addressby the chairman, Chris Renwick, following the annual meeting of shareholders inAustralia on 20 April 2007. Dollar amounts are in Australian currency. Coal & Allied AGM - Chairman's address 2006 was a mixed year for Coal & Allied characterised by high coal prices andpositive demand for our export product but our performance was severely impactedby infrastructure constraints on the Hunter Valley coal chain. I'll return tothe pressures of infrastructure later. Coal & Allied's net profit after tax was $207 million compared with $291 millionin 2005. This reduction in profit was mainly due to significant shippingcongestion at the Port of Newcastle and consequently increased operatinginefficiencies. Based on this performance, ordinary shareholders received afinal fully franked dividend of 25 cents per ordinary share in March 2007. Thisfollowed the interim fully frank dividend of $1.10 paid during 2006, bringingtotal dividends for the year to $1.26 per ordinary share. I am pleased to report a significant improvement in the business's safetyperformance in 2006. Coal & Allied's operations achieved a 40 per centreduction in the frequency of injury with a lost time injury frequency rate of1.05 compared with 1.75 in 2005. While much of this can be attributed to a 'back to basics' approach at the operations, Mount Thorley Warkworth employeeswere again recognised for their innovation when named winners of the NSWMinerals Council Occupational Health and Safety Innovation Award for theireye-spy device. In addition, Coal & Allied's Mines Rescue teams from its threeoperations were placed first, second and third in the 2006 Hunter Valley OpencutMines Rescue competition. Production across all the Coal & Allied operations was aligned to infrastructurecapacity and was slightly lower than last year. All operations performed wellwith a strong focus on asset utilisation, business improvement and resourcemanagement. Prolonged drought conditions continue to present challenges for usand we have developed water management plans to reduce water usage at all mines. Coal & Allied employs over 1,500 people and recently a new three-year certifiedagreement was reached with Hunter Valley Operations and Mount Thorley Warkworthemployees. In other areas of company activity, 2006 was a year of progress for the companywith activity on the Mount Pleasant project and the Lower Hunter Land holdings. In November last year we commenced the feasibility study of the Mount Pleasantproject which is adjacent to Bengalla. The study will take about a year tocomplete and will investigate the economics of the development, assess marketdemand for the product and examine infrastructure capacity. The Mount Pleasantteam will be working closely with the local community through the feasibilitystudy to address any issues they may have. Mount Pleasant is a significantthermal coal deposit that has long been part of the Coal & Allied portfolio andwe look forward to reviewing the outcomes of the feasibility study. Also in late 2006, Coal & Allied signed a Memorandum of Understanding with theNSW Government to facilitate the provision of extensive land conservationcorridors in the Lower Hunter. Coal & Allied has been involved in the LowerHunter for more than 150 years and we are committed to continue building asustainable economic, social and environmental future for the region. More than3,000 hectares of land will be transferred to public ownership for thedevelopment of conservation corridors and Coal & Allied has the opportunity todevelop over 800 hectares of its surplus land. The proposed development willinvolve extensive community consultation and involvement to ensure local valuesand lifestyles are retained. During 2006 Coal & Allied continued to play a strong role in the community ofthe Hunter Valley. Through the successful Coal & Allied Community Trust weprovided over $700,000 of support to 13 local projects. We continued oursupport of the Newcastle Knights rugby league team and broadened a number of ourcorporate sponsorships, such as that of the Westpac Rescue Helicopter Service,to provide ongoing benefit to the community. Coal & Allied faces a number of challenges in 2007 - one of the most significantis the constrained Hunter Valley coal chain. Earlier this year, Hunter Valleycoal producers voted to introduce a modified capacity balancing system which wesee as a short term solution to address the queue of more than 70 ships offNewcastle. While Coal & Allied recognises the urgent need to address the queuea longer term solution is required. Although global demand continues to strengthen and the outlook is positive,Australia's coal producers are unable to meet this demand. Make no mistake about this. I am not talking just about a diminution in thewealth created by the coal industry but about our failure as a nation tocapitalise on the growth opportunities and the need to remove constraints whichare preventing us from maximising these opportunities generated by strongdemand. In the Hunter Valley alone, infrastructure constraints are preventing producersfrom fully capitalising on demand with at least an additional 15 per centproduction capacity not being realised. We can dig up the coal and put it intoour load out bins but we simply can't get enough rail wagons to the port andonto ships. This has the very real potential to put Australia's reputation as areliable energy supplier at risk. While the coal industry and Japanese customers own PWCS, it has been operatedlargely independently. As part of its lease conditions from the New South Wales(NSW) Government, the facility has carried out its role as an open access portand has tried to deliver everything to everybody. Operating in this way has meant that during the current resources boom, allproducers - large, small, new and established - have suffered. This year theHunter Valley coal chain is expected to deliver about 80 per cent of capacityrequested by producers, and there is no certainty of allocation at all in futureyears. To cut back existing producers to set up new producers on anunsustainable basis is in nobody's long term interest. Our industry does not have a short term focus, to the contrary, we have a longterm view of mine development and operation and long term contracts with ourcustomers, yet we have no long-term security of capacity of the necessaryinfrastructure. As a shareholder of PWCS we will be encouraging the establishment of long-termcontracts with port users to provide certainty for producers and support thefuture expansion of the PWCS facility. Coal & Allied believes that a result canbe achieved which will bring certainty and growth opportunities for the entireindustry. However it is likely to be a difficult transition. The support and commitment of State and Federal governments will be critical tothe success of this transition. Specifically, the lease conditions must beaddressed by the NSW Government, and PWCS should be allowed to develop an accessregime and operating rules which will deliver a better outcome than the currentsituation. We acknowledge the positive steps the NSW Government has taken in starting toaddress the infrastructure constraints by allowing the Newcastle CoalInfrastructure Group (NCIG) consortium to progress with development of a newcoal loading facility. But this is just the start of a process which needsurgency otherwise market position and valuable export income will be lost. Thisproject needs to be fast tracked to be of significant benefit to the coalindustry in the Hunter Valley. It is vital to the provision of a moresustainable demand management system and will complement the operations of PWCS. The reality is, however, that it will be at least two to three years beforeinvestment in rail and port capacity matches producers' requirements. But thisinvestment is only part of the issue. Many of you would have seen photographs of the ship queue on the front page ofThe Australian newspaper on Wednesday of last week. This is why we as anindustry need to challenge ourselves along with government and regulators tomake a concerted and coordinated effort to remove existing coal chainbottlenecks. Only then can we create appropriate shareholder return andappropriate business earnings, which then in turn support local communitiesthrough greater employment and Government royalty payments. We have to design and implement a system for the longer term that preventsqueues from forming in the first place. What is required is a transparent demandmanagement system that determines coal chain entitlements based on production,rail capacity and port allocation. Under such a system new producers and newoperations would be able to plan their developments effectively with thesecurity of knowing there is available port and rail capacity. Over a three to four year period we believe additional exports - 50 per centmore than exists today - could be achieved. Coal & Allied wants to see a systemthat rewards producers by allowing them to exploit strong demand. We want asystem that ensures we retain our reputation as a reliable supplier, thatrewards our local communities by ensuring ongoing sustainability of the industryand a system that financially rewards both our shareholders and Government'swillingness to support and foster long-term development of the coal industry inthis state. What this unfortunate situation means for Coal & Allied in 2007 is that based onour allocation of port capacity this year production and sales will beconstrained and are likely to be in line with production rates and salesachieved in the last two quarters. As a result our financial performance thisyear will be substantially adversely effected. Let me move on to other issues. One of the most prominent issues facing themining industry and communities around the world is climate change. Werecognise there is a lot of public interest in the way we are responding to thischallenge. Coal & Allied has developed a climate change action plan that isfocussed on three areas - support for clean coal technology; improving energyefficiency at our operations and designing our new projects to ensure they areenergy efficient and will help to deliver on climate change targets. The work on clean coal technologies to date is only one of many actions neededto be adopted to address climate change. To support the advancement of cleancoal technology, Coal & Allied voluntarily contributes funding to the COAL21fund. This fund will support demonstration projects that are applying forfunding under the Federal Government's Low Emissions Technology DevelopmentFund. This, however is just one activity. Through Rio Tinto, Coal & Allied is addressing the technological response toclean coal by supporting and funding a range of collaborative international anddomestic projects and programmes. These projects include: • FutureGen in the United States which aims to install a 250 megawatt gasification power station with integrated hydrogen production, • carbon capture and storage as a prototype demonstration of zero emission coal fired technologies, and • Australia's first carbon capture and storage demonstration project currently underway in Victoria's Otway Basin region. Within our business, all the sites have developed action plans to achieve energyefficiency improvements and studies like that on Mount Pleasant will considerthe risks arising from a changing climate and the opportunities for step changesin energy use as part of the project design. Looking forward, demand for coal remains strong and as 2007 progresses we willdo what we can to address the challenges we face - namely infrastructure and itsimpact on the business and the need to manage the costs of business inputs. Wewill work collaboratively with other Hunter Valley producers to capitalise onexisting infrastructure capacity while innovation and business improvement willhelp to manage costs. All our operations are working hard to embed energyefficiency into our business and to form partnerships with others in support forthe development of clean coal technology. This is essential to ensure thelong-term viability of coal as an energy source. Chris RenwickChairman For further information, please contact: LONDON AUSTRALIA Media Relations Media RelationsChristina Mills Ian HeadOffice: +44 (0) 20 8080 1306 Office: +61 (0) 3 9283 3620Mobile: +44 (0) 7825 275 605 Mobile: +61 (0) 408 360 101 Nick CobbanOffice: +44 (0) 20 8080 1305Mobile: +44 (0) 7920 041 003 Investor Relations Investor RelationsNigel Jones Dave SkinnerOffice: +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628Mobile: +44 (0) 7917 227 365 Mobile: +61 (0) 408 335 309 David Ovington Susie CreswellOffice: +44 (0) 20 7753 2326 Office: +61 (0) 3 9283 3639Mobile: +44 (0) 7920 010 978 Mobile: +61 (0) 418 933 792 Website: www.riotinto.comHigh resolution photographs available at: www.newscast.co.uk This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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