26th Apr 2005 15:53
Rio Tinto PLC26 April 2005 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 The year 2004 saw a strong reversal in financial fortunes for Coal & Allied. The2004 result reflected the increased demand for seaborne traded coal, greaterefficiency in some key operational processes, and delivery of the early benefitsfrom the management agreement with Rio Tinto Coal Australia. While enjoying the financial rewards of the improvements in the global coalmarket that affected all coal companies in 2004, our focus was firmly on a "backto basics" approach within the mine gate - not doing different things, butrather doing things differently. Operations successfully concentrated onoptimisation of mine plans and efficient use of capital assets within theconstraints imposed by rail and port infrastructure. Overhead costs fell as aresult of the management agreement. We continued to work hard to improve safety performance. We want to embed thebelief that a business in which injuries do not occur is an achievableobjective. The frequency of injuries was almost halved from the previous year,but any degree of satisfaction was shattered by two dreadful incidents. In May, an experienced contract tyre fitter was fatally injured while using acrane mounted tyre handler during a routine tyre replacement task. This pieceof equipment is no longer used at Coal & Allied operations. The death affectedthe organisation deeply and our condolences extend to the man's family. Then inJuly, an experienced mechanic lost an eye when grease ejected under greatpressure from a dragline component on which he was working. These accidents of great severity remind us of the importance of our safetyimprovement work and we renew our determination to drive all injuries from ourworkplace. In 2004, the increasingly efficient use of mobile equipment and processingplants along with a review of mine designs helped optimise the company's benefitfrom the escalation in price for export coal sales. Net profit was alsopositively impacted by a number of accounting adjustments. These included therecognition of the value of inpit inventory, the depreciation of miningproperties over their estimated life, and by depreciating Hunter Valleyproperty, plant and equipment on a units-of-production basis. The key points of our financial results were: • A net profit after tax of $111.4 million compared with $0.1 million in 2003. • The implementation cost of the new management agreement with RTCA was less than anticipated, and the new structure delivered annual pre-tax savings of $15 million to Coal & Allied. This was above forecast. • Net debt in Australian dollar terms reduced by 45.9 per cent in 2004 to $246.1 million. • A $1.00 fully franked dividend on ordinary shares was paid. Turning now to the management agreement From 1st February 2004, management and support service functions for thebusiness were consolidated in Brisbane under Rio Tinto Coal Australia. RioTinto Coal Australia is responsible to the Coal & Allied Board for theday-to-day management of the Coal & Allied operations. The implementation costsof this move were $10 million - some $5 million less than forecast. The benefits to head office costs totalled $15 million while providing aplatform for further efficiency gains. Operations Coal & Allied production increased in 2004, as the operations rose to meetdemand. In some instances contractors were brought in to assist miningoperations in order to take advantage of the buoyant market conditions. The only operation where production did not increase was Bengalla. This waslargely due to mining taking place in a high strip ratio area. The operational integration of Mount Thorley Operations and Warkworth Mining wasfirmly embedded in 2004. We are continuing to identify opportunities for valuecreation in the integration of the two businesses. Operations at Mount Thorley Warkworth have moved to seven day rosters as a meansof enhancing production. Mount Pleasant development Although the market outlook is now more favourable, infrastructure constraintsneed to be resolved before we can develop Mount Pleasant. The developmentconsent has been ratified and community consultation is ongoing. Studies thatare necessary to allow commitment to commercialisation will proceed through2005. Employee involvement An important commitment in 2004 was engaging employees in what we have calledthe "business of the business". This has been extremely successful. Throughthe Business Improvement Process, employees have developed many improvementprojects including manpower utilisation, truck payload, Coal HandlingPreparation Plant throughput and train loading rates. Sustainable development The RTCA Sustainable Development Steering Committee was formed in 2004, chairedby our Managing Director Grant Thorne. The committee meets every three months,and has responsibility for translating high level sustainable developmentaspirations into practical processes across the operations. Both internal and external communication has played a role in advancingunderstanding of sustainable development principles. Indeed, a Community IssuesSurvey carried out in the second half identified our sustainable developmentperformance was of significant interest to external stakeholders and as suchshould be a major component in our communications efforts going forward. All sites maintained international accreditation of their EnvironmentalManagement Systems received in 2003 under ISO14001. This process that hasdelivered improved engagement on environmental performance both inside andoutside the business. Significant steps were taken in managing water at boththe Hunter Valley Operations and at Mount Thorley Warkworth, resulting inreduced water use.Coal & Allied's environmental credentials were further enhanced when Bengallawas the joint winner of the Hunter Catchment Management's EnvironmentalExcellence Award for the Upper Hunter River Rehabilitation Initiative. Projectssuch as the integration of sites' Environmental Management Systems and therelocation of a dragline across the Hunter River were also recognised. Within the community A "Near Neighbour" Strategy was developed and implemented in the Hunter Valley,designed to improve relationships between operational personnel and adjoininglandowners. The program has resulted in an improved understanding of landownerissues, which has led to a substantial reduction in complaints. The Community Trust had its most active year with projects approved totallingapproximately $1 million. Sponsorship and donation teams were established at each operation, involvingemployees in the decision making process for community relations' support. Theteams meet on a regular basis and make recommendations to each site generalmanager on funding grants for local groups. In the latter half of 2004, a Community Issues Survey was carried out withresults used in developing a new community engagement and development programfor the year ahead. Market conditions Global thermal coal spot prices continued to rise through the first half of2004. This was the result of a combination of factors. These included: • Strong demand in Asia and Europe; • A stabilising of export growth from China; • Heavy rains in Indonesia at the start of the year; and • Infrastructure constraints in Australia. By year end, average prices had drifted down by around 20 per cent. Howeverthese were still very high by historical standards. 2004 was a year of two distinct halves for Coal & Allied. Our selling price waslocked in for most of the first half of the year based on the settlement levelsof 2003. Consequently gains from the increasing market prices did not flowthrough until the third quarter when Coal & Allied returned to more profitabletrading. Vessel queues at Port Waratah reduced with the introduction of the PortAllocation System in April. This system was implemented with the authority ofthe Australian Competition and Consumer Commission and brought the queue undercontrol. We are hopeful that excessive demurrage will no longer be an issue.We estimate that had the allocation system not been in place, Coal & Alliedwould have sustained extra demurrage costs in the order of $30 million in 2004. Stakeholders in the Hunter Valley coal chain collaborated throughout the year ina logistics team, which aimed to maximise output from existing infrastructure.In time the infrastructure improvements to be delivered by Australian Rail TrackCorporation will allow further access to the export market. This will beginfeeding through later this year. However a full contribution to increasedcapacity is not likely to be in place much before the end of the second quarter2006. We expect that the market will remain strong with a positive outlook for price -the global coal market is the strongest it has been in a generation. Export coal supply chains across the globe are currently operating at capacity,ensuring that the production surge which usually overcorrects in circumstancessuch as we currently face will not occur with the same speed as has beenpossible in the past. China's domestic demand for coal has halted growth in that country's exports.Indeed China as well as India are emerging opportunities for coal sales. Whilethey are immature markets for seaborne traded coal, the sheer scale of demandfrom these countries may provide opportunities into the future. We see continued strong demand growth elsewhere in the Asia Pacific region,particularly from Taiwan, Korea and Japan. The nuclear power generating unitsshut down in Japan due to maintenance and safety concerns in 2003 were slow toreturn to duty, so more coal was required for that country's power requirementsthan the market had allowed for. In addition in both Taiwan and Korea there isunderlying economic growth as well as the rebuilding of stock levels. Looking ahead, maintaining high stock levels will be vital for Coal & Allied.We entered 2005 with more than one and a half million tonnes on our stockpiles.We will continue to maintain this approach to ensure that we can take advantageof any additional available capacity in the transport infrastructure above our2005 allocation of 24.9 million tonnes. In conclusion Given the relatively high cost of Hunter Valley coal mines in the global costcurve, it is imperative that our operations continue to increase efficiency andseek to secure financial security even at high points in the commodity pricecycle. The prices of 2003 were insufficient to support current operations, letalone underpin further investment, but so too the price peaks of 2004 willsubside as new capacity is eventually brought to market. The imperative for ongoing improvement at our operations is undiminished and ourcommitment to it remains strong. Chris RenwickChairman For further information, please contact: LONDON AUSTRALIA Media Relations Media RelationsLisa Cullimore Ian HeadOffice: +44 (0) 20 7753 2305 Office: +61 (0) 3 9283 3620Mobile: +44 (0) 7730 418 385 Mobile: +61 (0) 408 360 101 Investor Relations Investor RelationsNigel Jones Dave SkinnerOffice: +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628Mobile: +44 (0) 7917 227365 Mobile: +61 (0) 408 335 309Richard Brimelow Susie CreswellOffice: +44 (0) 20 7753 2326 Office: +61 (0) 3 9283 3639Mobile: +44 (0) 7753 783 825 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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