2nd May 2006 09:31
Rio Tinto PLC02 May 2006 Coal & Allied Industries (Rio Tinto 75.7 per cent) issued the following addressby the chairman, Chris Renwick, following the annual meeting of shareholders inAustralia today. Dollar amounts are in Australian currency. Coal & Allied AGM - Chairman's address 2005 was a good year for Coal & Alllied, characterised by very strong demand forcoal and a continuation of the improved financial performance we reported in thelast half of 2004. The high price achieved for export coal sales has dominated our business in2005. The gains were somewhat offset by the relatively high operating cost of Coal &Allied's mines, a burden shared by most Hunter Valley operators. Much of thiscost pressure is due to unprecedented competition for many of the necessarybusiness inputs. In 2005 our production was aligned to available port and rail capacity. Acapacity balancing system remains in place to manage vessel queues at PortWaratah. Safety Coal & Allied achieved new standards of safety performance during 2005. Allmines recorded improvements. Our overall Lost Time Injury Frequency Rate was1.75 per million hours compared with 3.81 in 2004. I am proud to note that we have reduced not only the number but also theseverity of injuries at our sites. Improvements in safety performance were assisted by the introduction of newinitiatives including the Taproot Incident Investigation methodology, a reviewof health and safety leadership competencies, new approaches to safetyinteractions and the introduction of a simple pre-task assessment tool. A significant safety incident in 2004 prompted some employees to develop adevice to safely check grease system pressure. This Mount Thorley Warkworthinitiative won the New South Wales Mineral Council's Occupational Health andSafety Innovation Award. More recently, this initiative has received theMinerals Council of Australia's National Award for Safety and Health Innovation. The Mount Thorley Warkworth team also won the 2005 Hunter Valley Mines RescueCompetition. While external recognition of our systems and improvements is encouraging, wealso know that we must be relentless in our efforts to improve safety. To besuccessful, we must continue building a belief in the workforce that a businessfree of injuries is a realistic and achievable goal. Financial performance We continued our strategy to optimise mobile equipment and processing plantefficiency during 2005. It is particularly important to continue to focus onthis fundamental issue, despite the recent high coal prices. Costs during 2005were higher due to the extremely strong demand for inputs such as tyres,explosives, maintenance materials and, importantly, skilled labour. Forexample, fuel costs increased by $19 million compared with 2004. The key points of our financial results were: - Net profit after tax of $290.1 million in 2005 was $173.5 million greater than the 2004 profit of $116.6 million; - Net debt in Australian dollar terms reduced by 73 per cent to $69.2 million; and - A $1.20 fully franked final dividend on ordinary shares was paid in March 2006. Production Looking now at the performance of the individual operations. Hunter Valley Operations produced 12.4 million tonnes of saleable production,which was just under a million tonnes fewer than the previous year. MountThorley Warkworth continued to function as an integrated operation with saleableproduction of four million tonnes from Mount Thorley and 6.3 million tonnes fromWarkworth. The mining sequence led to a 0.7 million tonne increase in production atBengalla, with saleable production of six million tonnes. The Port Waratah capacity balancing system continued to manage the vessel queueswith a total of 81 million tonnes loaded through the port, an increase of 4.1per cent on 2004. We again worked with stakeholders of the Hunter Valley coalchain to maximise output from existing infrastructure. This has translated intodecreased demurrage costs and an obvious reduction in queue length. We believe the commitment to expand annual port capacity to 102 million tonnescombined with continued de-bottlenecking of the rail system will provideopportunities to access additional capacity. Rio Tinto Coal Australia continued to provide first class management to Coal &Allied's operations. Future developments With the issues of New South Wales rail and port capacity being addressedthrough review and expansion, we resumed studies into the Mount Pleasantdeposit. We appointed a General Manager to specifically oversee this process,which will investigate the feasibility of either a stand alone operation orintegration with Bengalla. We have also recently reached agreement with theNative Title parties for the Mount Pleasant project. In addition, we continue towork to meet our objective of contributing to a sustainable Aboriginal communityin the region through our broader Aboriginal engagement program in the UpperHunter. Business improvement - IPT and employee engagement Achieving greater operational efficiency is always a challenge and is the key toour long-term financial success. We continue to harness great benefit from theengagement of our employees on a range of business improvement initiatives One of the best examples of employee-initiated improvement can be found at MountThorley Warkworth where the coal handling preparation plant team has designed,tested and implemented a stacker/reclaimer operation. This ensures that evenwhen stockpiles are low, raw coal can be consistently provided to the plant. At Bengalla employees have reviewed the crushing and overland conveyor systemsand improved truck management. The maintenance improvement team at Hunter ValleyOperations has reviewed work practices and improved the washing process at thefront end of the maintenance activity. This process has freed up 63 additionalequipment operational hours per month. In addition to locally initiated projects, Coal & Allied employees haveparticipated in Rio Tinto's global business improvement programme. Theprogramme, known as Improving Performance Together (IPT), identifies bestpractice and introduces common systems, standards and procedures across all RioTinto businesses. This means Coal & Allied can aspire to achieve best practicewithin the Rio Tinto Group and maximise its membership of one of the world'sleading mining companies. The programme targets value creation through a combination of capitalefficiency, higher volumes, enhanced revenues and lower costs. During 2005,Hunter Valley Operations employees participated in a programme aimed atincreasing the alignment of mining, processing, asset management and logisticsteams within the operation. Human resources The availability of skilled labour continued to present challenges for Coal &Allied during 2005. Management recognises that providing permanent employmenthelps to reduce the risk of labour and skill shortages, facilitates bettertraining and skill development and increases employee commitment to improvementwork. Consequently, we converted 150 contractor positions at Hunter ValleyOperations and Mount Thorley Warkworth to permanent roles during 2005.Contractors will continue to play an important role in providing operationalflexibility, but as a smaller percentage of the workforce. Within the community Consultation between neighbouring landholders and Coal & Allied continuedthroughout 2005 under the Near Neighbour strategy. This strategy alsofacilitated communication between the company and community members who maypotentially be impacted by the Mount Pleasant development. Coal and Allied's Community Trust was extended in 2005 with a new commitment of$3 million until 2008. The Trust has proven a successful vehicle to engage thecommunity and for the company to support a range of community-initiatedprojects. Coal and Allied has long been a significant enterprise in Newcastle and theHunter Valley region. During 2005 we signed an agreement to sponsor the iconicNewcastle Knights National Rugby League team. The team, which was facingeconomic uncertainty at the time, has leveraged our commitment to attractadditional financial support from other supporters and secure its future. Environment Employees continued to work to improve environmental management at all sitesand, as is expected, no penalty notices or infringements were issued to anyoperations during the year. All sites maintained accreditation of their Environmental Management Systemsunder ISO14001. We were particularly pleased with the recognition achieved byBengalla through the presentation of the prestigious Banksia EnvironmentalFoundation Award for Sustainable Development Leadership in the MineralsIndustry. Sustainability Coal & Allied continued to develop its approach to sustainable developmentthough both internal and external engagement programmes. For example, the MountPleasant study team trialled a sustainable development decision-makingmethodology for possible use across the business. We also support the research and development of new technologies throughtargeted spending directly and within the Australian Coal Association ResearchProgramme and the ACA's Coal21 programme. We are also participating in other technology initiatives including: - The Australian Government's Low Emission Technology Fund - The announcement of a capture and storage programme on the Otway Basin by the CRC for Greenhouse Gas Technologies; and - The formation of the Asia Pacific Partnership Outlook During 2005, strong supply growth for thermal coal in the Pacific region camefrom Indonesia; however, this was largely offset by China's export positiondiminishing. Semi-soft coking coal demand was strong in the first half of theyear but eased towards year-end. Looking forward, we expect demand for Australian coal to remain firm in 2006.For thermal coal, we anticipate the supply and demand balance will be largelydetermined by supply growth in Indonesia and China's evolving net exportposition. Recent trends in the spot and forward markets in the Pacific andAtlantic regions support this positive outlook for thermal coal. We expect to see continued demand growth from South East Asia, particularlyMalaysia and Thailand; Latin and Central America and from the more traditionalmarkets for Australian producers, Korea and Taiwan. These regions areexperiencing significantly increased economic growth and resultant increasedforecast energy demand. Coal & Allied will need to maintain sufficient stock levels to ensure we arepositioned to take advantage of any additional available capacity in the portand rail infrastructure. This will allow Coal & Allied to capitalise on pocketsof demand growth. Conclusion While coal prices are high and demand is strong, the operational challengespresented by shortages of key inputs remind us of the need to stay focused onthe basics of our business. In the face of increased costs and shortages inlabour and other inputs we know that we must continue to work hard and remaincommitted to continued improvement. As our mines are relatively high on the global cost curve, we must also workthat much harder to ensure we stay competitive. Harnessing the knowledge andingenuity of our employees to focus on business improvement initiatives will be,I believe, the key to our ongoing financial success. This focus will ensure wemaintain a strong competitive position for the time when coal supply and demandbalance and prices inevitably subside. Chris Renwick Chairman For further information, please contact: LONDON AUSTRALIA Media Relations Media Relations Nick Cobban Ian Head Office: +44 (0) 20 7753 2305 Office: +61 (0) 3 9283 3620 Mobile: +44 (0) 7920 041 003 Mobile: +61 (0) 408 360 101 Investor Relations Investor Relations Nigel Jones Dave Skinner Office: +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628 Mobile: +44 (0) 7917 227 365 Mobile: +61 (0) 408 335 309 David Ovington Susie Creswell Office: +44 (0) 20 7753 2326 Office: +61 (0) 3 9283 3639 Mobile: +44 (0) 7920 010 978 Mobile: +61 (0) 418 933 792 Website: www.riotinto.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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