3rd Aug 2006 07:01
Rio Tinto PLC03 August 2006 Continued strong operational performance delivers record Half Year earnings • First half underlying earnings* of $3,751 million were a record, and 80 per cent above the corresponding period in 2005.• First half net earnings* were $3,796 million, up 75 per cent on the 2005 level of $2,165 million.• Cashflow from operations was a record at $5,202 million, 52 per cent higher than that of the first half of 2005.• Increased volumes from investment in additional capacity, particularly in copper and iron ore, contributed $129 million to earnings. Many operations achieved record production in the period. Rising prices and strong demand for most products increased underlying earnings by $1,804 million.• Recognition of additional tax assets contributed $211 million to the increase in underlying earnings compared with the first half of 2005.• Industry wide cost pressures impacted the business in the first half, reducing underlying earnings by $513 million, adjusted for inflation. Adverse weather conditions reduced volumes and increased costs in Australian businesses early in the year.• Continuing investment in the growth of the business was reflected in record capital expenditure of $1,758 million in the first half. The major infrastructure and mine expansions of the Group's iron ore operations in Western Australia are on track, and construction commenced on the development of the Hope Downs deposit.• Other significant development projects were progressed, including the titanium dioxide project in Madagascar, the Cortez Hills gold deposit in the US and the Argyle underground diamond mine in Australia.• HIsmelt made its first shipment to customers in the US.• As part of the Group's 2006/07 capital management programme, a special dividend of $1,500 million was paid to shareholders in April, and $1,023 million of shares were bought back on the London market since February. Six months to 30 June 2006 2005 Change (All dollars are US$ millions unless otherwise stated)Underlying earnings* 3,751 2,087 +80%Net earnings* 3,796 2,165 +75%Cash flow from operations (incl. dividends from JCE's and associates) 5,202 3,421 +52%Underlying earnings per share - US cents 278.7 152.0 +83%Earnings per share - US cents 282.0 157.6 +79% * Net earnings and underlying earnings relate to profit attributable to equity shareholders of Rio Tinto. Underlying earnings is defined and reconciled to net earnings on page 24. Chairman's comments Rio Tinto chairman Paul Skinner said, "Rio Tinto's underlying earnings in thefirst half of 2006 were a record at $3,751 million, reflecting strong demand forour products, very good operational performance and additional capacity at manyof our operations. "The quality of our portfolio of high margin assets was demonstrated once againas cashflows increased to a record of $5,202 million for the period, includingdividends from jointly controlled entities and associates. "Our priority is to invest these cashflows in value adding expansion of thebusiness. Capital expenditure on existing assets and new projects reached arecord of $1,758 million and higher exploration and evaluation expenditurereflected the number of quality prospects available to the Group. "Our financial position remains very strong, notwithstanding the current levelof capital expenditure and the return of over $2.5 billion to shareholdersthrough the special dividend and share buybacks during the period. "In February, we announced our intention to return $4 billion to shareholders bythe end of 2007, and we have been able to return approximately two thirds ofthat amount within six months of the announcement of the programme. We continueto review possible future capital management initiatives. "Our financial strength allows us to pursue this substantial capital return toshareholders while undertaking a record organic investment programme, andretaining the flexibility to take advantage of opportunities as they arise. "Although we have seen increased volatility in financial markets, underlyingdemand for our products remains strong, and we remain positive about the outlookfor the global economy and our markets." Chief Executive's comments Leigh Clifford, Rio Tinto's chief executive, said, "Rio Tinto performed well inthe first half of 2006. In spite of weather related challenges early in theyear, including several cyclones which hit northern Australia and impacted manyof our operations in that region, we set a number of first half productionrecords. These included bauxite, alumina, iron ore, talc and US coal. "We made good progress on the significant investment programme to expand ouriron ore mine and infrastructure capacity in Western Australia. The first phaseof the expansion of the port at Dampier was completed on time and on budget, andthe next phase of development is underway. When complete, total infrastructurecapacity will be approximately 200 million tonnes per annum and studies are inprogress to raise that capacity further. "The markets for most of our products remained strong over the course of thehalf year, and our focus remains on operational performance to take advantage ofthese favourable conditions. "Our programme to deliver best practice and common systems throughout ouroperations has strong momentum. The group is very focussed on operationalimprovement, which will help us to manage the continuing challenge of costpressures and supply shortages that the mining industry faces today. "Construction also started on the first phase of the $1 billion Hope Downsproject, within ten months of the announcement of that joint venture. This willhave an initial annual capacity of 22 million tonnes. "Progress continued on the construction of the Madagascar titanium dioxideproject and the Argyle underground diamond mine development. The Comalco AluminaRefinery ramped up towards full capacity, at times exceeding a 90 per centproduction rate during the second quarter. "Our exploration and evaluation activities increased substantially in the firsthalf, as we expanded our greenfield programme, continued evaluation of a numberof new projects and focussed on the newly established RioNor Joint Venture inRussia." Net earnings and underlying earnings To provide insight into the underlying performance of its business, Rio Tintopresents underlying earnings. The differences between underlying earnings andnet earnings are set out in the following table. Six months ended 30 June 2006 2005 US$m US$m Underlying earnings 3,751 2,087 Items excluded from underlying earnings Profits on disposals of interests in businesses 10 89 Adjustment to Kennecott Utah Copper environmental remediation provision 37 - Effect of exchange on external net debt and intragroup balances 11 9 Mark to market of derivatives not qualifying as hedges (13) (20) Net earnings 3,796 2,165 Commentary on the Group financial results Underlying earnings of $3,751 million and net earnings of $3,796 million were$1,664 million and $1,631 million above the comparable measures for the firsthalf of 2005. The principal factors explaining the increases are set out in thetable below. Six months ended 30 June Underlying Net earnings earnings US$m US$m First half 2005 2,087 2,165 Prices 1,804 Exchange rates 7 Inflation (79) Volumes 129 Costs (513) Tax / Other 316 1,664 1,664 Profits on disposals of interests in businesses (79) Adjustment to Kennecott Utah Copper environmental remediation provision 37 Effect of exchange on external net debt and intragroup balances 2 Mark to market of derivatives not qualifying as hedges 7 First half 2006 3,751 3,796 Prices and exchange rates Prices for major products were significantly above those experienced in 2005.Compared with the first half of 2005 average copper prices were 79 per centhigher and average aluminium prices 37 per cent higher. The strength of theglobal iron ore market was reflected in the 19 per cent increase in thebenchmark price, which was mainly effective from 1 April 2006. The seabornethermal and coking coal markets were also strong. Higher copper prices contributed $1,006 million to underlying earnings,including $294 million from the impact of the rise in the copper price on theamount realised from provisionally priced sales, mostly at Escondida andNorthparkes. Molybdenum prices averaged over $23 per pound in the first half of 2006. Thiswas a decline of 26 per cent compared with the same period of 2005. There was movement in the US dollar in the first half of 2006 relative to thecurrencies in which Rio Tinto incurs the majority of its costs. The Australiandollar was four per cent weaker, the Canadian dollar was nine per cent strongerand the South African rand one per cent weaker. The effect of these currencymovements was to increase underlying earnings relative to the first half of 2005by $7 million. Volumes Higher sales volumes increased earnings by $129 million compared with the firsthalf of 2005. Higher copper in concentrate volumes, from improved grades atKennecott Utah Copper (KUC) and the commissioning of the Norte pit at Escondida,along with higher production of molybdenum in concentrates at KUC, were the maincontributors. The ramp-up of new projects in iron ore (including theYandicoogina expansion), titanium dioxide feedstocks (QIT) and alumina (ComalcoAlumina Refinery), contributed to higher volumes. These gains helped to offsetsignificantly reduced volumes from lower grades at Grasberg which impactedearnings by $195 million. Lower volumes were also experienced at KennecottMinerals from lower grades at Cortez and also at Hail Creek where reduced cokingcoal volumes were in line with lower demand from customers. Costs Excluding the effects of inflation, higher costs reduced earnings by $513million. Of this, $56 million was due to higher energy costs. The prevailingstrong markets create cyclical cost pressures in the resources industry and ouroperations continued to experience higher prices for skilled labour,contractors, steel, tyres, explosives and other mining related supplies. Tax The effective tax rate on underlying earnings, excluding jointly controlledentities and associates, was 22.0 per cent compared with 29.7 per cent in thefirst half of 2005. The tax rate for the first half year was reduced by 6.4percentage points following recognition of $211 million of additional deferredtax assets, reflecting improved projections of long term taxable earnings fromour US operations; and following a $46 million reduction in deferred taxprovisions as a result of a reduction in Canadian tax rates. Other The net after tax interest expense was $17 million lower than in the first halfof 2005 due to lower levels of net debt during the period. Items excluded from underlying earnings In the first half of 2006 a $10 million gain was realised from disposals ofinterests in smaller businesses. Disposals in the first half of 2005 resulted ingains of $89 million, principally from the sale of Rio Tinto's interest in theLabrador Iron Ore Royalty Income Fund. Net earnings for the first half of 2006 included a reduction of $37 million inan environmental provision at Kennecott Utah Copper, reversing part of anexceptional charge taken in 2002. There was no such item in the first half of2005. Exchange gains and losses on external net debt and intragroup balances that arerecorded in the US dollar income statement and gains and losses on currency andinterest rate derivative contracts that do not qualify as hedges under IFRS areexcluded from underlying earnings. Neither of these items were significant ineither the first half of 2005 or the first half of 2006. Cash flow Cash flow from operations, including dividends from jointly controlled entitiesand associates, was a record $5,202 million, 52 per cent higher than the firsthalf of 2005. Working capital levels increased in absolute terms as a result ofincreased prices and volumes. The Group continued to invest at high levels to grow the business. Expenditureon property, plant and equipment and intangible assets was a record $1,758million during the first half of 2006. This included the major port, railinfrastructure and iron ore mine expansions in Western Australia, the SpringCreek and Antelope mine expansions at Rio Tinto Energy America and the HailCreek coking coal mine expansion in Queensland. Dividends paid in the first half of 2006 of $2,024 million were $1,402 millionhigher than dividends paid in the first half of 2005. These included the specialdividend totalling $1.5 billion which was paid to shareholders in April 2006.Capital management activity also included the on-market buy back of Rio Tintoplc shares in the first half of 2006, comprising $1,023 million from the 2006/07programme and $95 million in January from the 2005/06 programme (net of $20million proceeds from the exercise of options). In the first half of 2005 anoff-market buy back of Rio Tinto Limited shares returned $774 million toshareholders. Balance sheet The balance sheet remained strong during the period, although record capitalexpenditure and the increased capital management activity resulted in anincrease in net debt from $1,313 million at 31 December 2005 to $2,623 millionat 30 June 2006. Debt to total capital rose to 14 per cent and interest coverstrengthened to 95 times. In the first half of 2006, net assets increased by $600 million. The profit forthe period was $1,808 million greater than dividends paid. The Rio Tinto plcshare buyback reduced shareholder equity by $1,118 million. International Financial Reporting Standards (IFRS) IFRS require that the profit for the period reported in the income statementshould also include earnings attributable to outside shareholders insubsidiaries. For the first half of 2006, the profit for the period was $3,968million (2005 first half $2,263 million) of which $172 million (2005 first half$98 million) was attributable to outside shareholders, leaving $3,796 million(2005 first half $2,165 million) of net earnings attributable to Rio Tintoshareholders. Both net earnings and underlying earnings, which are the focus ofthe commentary in this report, deal with amounts attributable to equityshareholders of Rio Tinto. Dividends Dividends are determined in US dollars. The interim dividend is set at one halfof the total dividends declared for the previous year excluding any specialdividends. Therefore, interim dividends equivalent to 40.0 US cents per share(2005: 38.5 US cents per share) have been declared by Rio Tinto plc and RioTinto Limited. 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 Tuesday 1 August 2006. Rio Tinto plc shareholders will be paid an interim dividend of 21.42 pence perordinary share (2005: 21.75 pence per share). Rio Tinto Limited shareholderswill be paid an interim dividend of 52.48 Australian cents per ordinary share(2005: 50.56 Australian cents per share), which will be fully franked. TheBoard expects Rio Tinto Limited to be in a position to pay fully frankeddividends for the reasonably foreseeable future. The respective dividends will be paid on Thursday 7 September 2006 to Rio Tintoplc shareholders on the register at the close of business on Friday 11 August2006 and to Rio Tinto Limited shareholders on the register at the close ofbusiness on Tuesday 15 August 2006. The ex-dividend date for both Rio Tinto plcand Rio Tinto Limited will be Wednesday 9 August 2006. Dividends will be paid toRio Tinto ADR holders on Friday 8 September 2006. 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 16 August 2006. Rio Tinto financial information by business unit Six months ended 30 June Rio Tinto Gross turnover (a) EBITDA (b) Net earnings (c)US$ millions interest % 2006 2005 2006 2005 2006 2005 Iron OreHamersley (inc. HIsmelt) 100.0 1,889 1,425 1,088 766 698 474Robe River 53.0 608 477 393 302 197 145Iron Ore Company of Canada 58.7 435 422 168 207 54 67Rio Tinto Brasil 100.0 43 19 14 - 6 (5) 2,975 2,343 1,663 1,275 955 681 EnergyRio Tinto Energy America 100.0 714 578 150 135 90 68Rio Tinto Coal Australia (d) 1,149 1,065 500 441 272 228Rossing 68.6 74 60 20 11 7 1Energy Resources of Australia 68.4 114 98 38 41 8 10 2,051 1,801 708 628 377 307 Industrial Minerals 1,252 1,208 313 313 137 124 Aluminium (e) 1,658 1,383 673 416 369 203 CopperKennecott Utah Copper 100.0 1,562 966 1,136 663 1,033 465Escondida 30.0 1,311 538 1,144 378 700 219Grasberg joint venture (f) 149 254 140 167 65 85Palabora 46.4 276 168 105 28 38 6Kennecott Minerals 100.0 101 139 56 72 45 42Northparkes 80.0 245 65 208 35 124 17 3,644 2,130 2,789 1,343 2,005 834 DiamondsArgyle 100.0 201 246 90 107 41 40Diavik 60.0 197 186 135 136 70 50Murowa 77.8 13 22 5 14 2 9 411 454 230 257 113 99 Other operations 120 120 17 47 16 25 12,111 9,439 6,393 4,279 3,972 2,273Other items (132) (152) (127) (96)Exploration and evaluation (87) (64) (80) (59)Net interest (14) (31)Underlying earnings 6,174 4,063 3,751 2,087Items excluded from underlying earnings 45 98 45 78 Total 12,111 9,439 6,219 4,161 3,796 2,165 Depreciation and amortisation in subsidiaries (706) (660)Depreciation and amortisation in jointly controlled entities and associates (122) (112)Taxation and finance items in jointly controlled entities and associates (427) (168)Profit on ordinary activities before finance items and tax 4,964 3,221 References above are to notes on page 30 Rio Tinto financial information by business unit (continued) Six months ended 30 June Rio Tinto Capital Depreciation Operating assets interest expenditure & (j)US$ millions (h) amortisation (i) % 2006 2005 2006 2005 2006 2005 Iron OreHamersley (inc. HIsmelt) 100.0 788 431 98 81 3,531 2,388Robe River 53.0 36 87 44 44 1,587 1,601Iron Ore Company of Canada 58.7 37 25 26 22 594 466Rio Tinto Brasil 100.0 11 21 4 2 88 68 872 564 172 149 5,800 4,523 EnergyRio Tinto Energy America 100.0 177 123 56 40 1,097 894Rio Tinto Coal Australia (d) 104 46 80 76 1,366 1,264Rossing 68.6 16 - 4 8 64 45Energy Resources of Australia 68.4 19 9 16 19 160 161 316 178 156 143 2,687 2,364 Industrial Minerals 149 107 92 84 2,471 2,212 Aluminium (e) 114 102 125 120 3,291 3,463 CopperKennecott Utah Copper 100.0 119 64 75 65 1,421 1,108Escondida 30.0 103 118 37 32 916 661Grasberg joint venture (f) 22 26 26 21 346 348Palabora * 46.4 12 7 22 15 (245) 322Kennecott Minerals 100.0 35 19 11 19 162 132Northparkes 80.0 6 8 30 15 137 168 297 242 201 167 2,737 2,739 DiamondsArgyle 100.0 49 27 28 46 560 610Diavik 60.0 42 53 50 39 664 575Murowa 77.8 1 2 1 3 14 16 92 82 79 88 1,238 1,201 Other operations 19 9 - 15 209 202 1,859 1,284 825 766 18,433 16,704Other items 74 9 3 5 (339) (729)Exploration and evaluation 1 - - 1 (5) 18Less: jointly controlled entities and associates (171) (191) (122) (112)Total 1,763 1,102 706 660 18,089 15,993Less: net debt (2,623) (3,451)Total shareholders' equity 15,466 12,542 References above are to notes on page 30 * The Operating assets of Palabora at 30 June 2006 are net of the liability of$550 million (30 June 2005: zero) arising from the mark to market of its forwardcopper contracts, which were entered into as a condition of its loan agreement.These contracts hedge future copper sales but are valued in the balance sheetunder IAS39. Review of operations Comparison of underlying earnings First half underlying earnings of $3,751 million were $1,664 million above thefirst half underlying earnings of 2005. The table below shows the difference byproduct group. All financial amounts in the tables below are US$ millionsunless indicated otherwise. US$m First half 2005 underlying earnings 2,087 Iron ore 274 Energy 70 Industrial Minerals 13 Aluminium 166 Copper 1,171 Diamonds 14 Other operations (9) Exploration and evaluation (21) Interest 17 Other (31) First half 2006 underlying earnings 3,751 All subsequent references to earnings within the business unit section refer tounderlying earnings. Production numbers represent the Rio Tinto share. Iron Ore First half First half Change Full year 2006 2005 2005 Production (million tonnes) 62.0 59.8 +4% 124.5Gross turnover ($ millions) 2,975 2,343 +27% 5,497Underlying earnings ($ millions) 955 681 +40% 1,722EBITDA ($ millions) 1,663 1,275 +30% 3,102Capital expenditure ($ millions) 872 564 +55% 1,229 Market conditions Global iron ore demand remained strong in all markets during the first half of2006. During May and June 2006, Hamersley and Robe agreed a 19 per cent increasein the benchmark price for their products for the 2006 contract year. In June2006, the Iron Ore Company of Canada agreed a 17.3 per cent increase in theprice of its iron ore concentrate and a 3.5 per cent decrease in the price ofpellets. Construction of the $1 billion Hope Downs iron ore project in Western Australia(Rio Tinto share $685 million) began in April 2006, following Western AustralianGovernment approval and the ratification of the Hope Downs Joint Venture. Hamersley First half 2006 earnings of $698 million were $224 million above the first halfof 2005. Commissioning of the major port expansion commenced and will continueprogressively through the second half of the year. Hamersley's first half earnings include a net loss of $13 million for HIsmelt(first half 2005 $4 million net loss) due to scheduled pre-production andmarketing costs. HIsmelt made its first shipment of almost 40,000 tonnes of pigiron to the US in June 2006. Robe River First half earnings of $197 million were $52 million above the first half of2005. Higher prices and volumes more than compensated for higher costsassociated with the severe cyclone season. Iron Ore Company of Canada Earnings of $54 million were $13 million below the first half of 2005. Pelletand concentrate production increased marginally but the stronger Canadian dollarand higher costs associated with extreme winter conditions in 2006 impactedmargins. The reduction in Canadian tax rates has led to a $4 million release ofdeferred tax provisions. Rio Tinto Brasil Price increases and volume growth lifted Rio Tinto Brasil's earnings to $6million in the first half of 2006 compared with a loss of $5 million in thefirst half of 2005. Energy First half First half Change Full year 2006 2005 2005Production Coal (million tonnes) US 61.2 58.2 +5% 115.6 Hard coking coal 2.7 3.9 -31% 7.2 Other Australian 15.7 15.3 +3% 30.9 Uranium (tonnes) 2,506 3,050 -18% 6,582Gross turnover ($ millions) 2,051 1,801 +14% 3,867Underlying earnings ($ millions) 377 307 +23% 733EBITDA ($ millions) 708 628 +13% 1,442Capital expenditure ($ millions) 316 178 +78% 412 US Coal - Rio Tinto Energy America (RTEA) RTEA's first half 2006 earnings of $90 million were $22 million above the firsthalf of 2005, with higher prices, improved volumes and a $14 million tax creditfollowing the recognition of a deferred tax asset. These offset the impact fromincreased costs, notably higher labour, fuel and explosive costs. US Coal production increased by five per cent in the first half of 2006 comparedwith the same period of 2005, following the recovery of rail capacity from the2005 maintenance campaign. The Antelope and Spring Creek mines set new half yearrecords with additional contributions from their current expansions. Asia Pacific seaborne coal markets Demand for seaborne coking coal has softened as high prices have seen Chinesedomestic coking coal and metallurgical coke producers respond accordingly. Withexport thermal coal volumes from Australia and Indonesia constrained byinfrastructure in the short term, and Chinese supply currently being partiallydiverted to meet domestic demand, the Asia Pacific export thermal coal markethas remained tight and prices have been buoyant. Rio Tinto Coal Australia Earnings of $272 million were $44 million above the first half of 2005, withhigher prices more than compensating for lower coking coal volumes. Production of hard coking coal at Hail Creek reflected lower demand fromcustomers. Production from the Hunter Valley operations was in line with theallocation set under the Port Waratah Coal Services capacity balancing system,contributing to a three per cent increase in thermal coal production half yearon half year. Uranium markets The virtual elimination of stockpiles has pushed spot uranium prices close to$50 per pound. Lead times for significant new capacity from mines of at leastfive years are expected to keep short to medium term prices firm, whilst afinite life for the supply of reprocessed ex-military material and thecommitment by China to a nuclear generation investment programme combine toimprove the longer term outlook for uranium demand. Rossing Earnings of $7 million were $6 million above the first half of 2005, reflectingthe benefit of higher realised prices. Energy Resources Australia Earnings of $8 million were $2 million below the first half of 2005 withproduction declining by just under one third, mainly due to wet weatherassociated with cyclone Monica and unusually high rainfall throughout the summerwet season that prevented access to high grade ore at the Ranger mine.Production was further impacted by a reduction in the volume of ore treated dueto difficulties experienced in bringing the acid plant back to full productionafter a planned maintenance shutdown. The full impact of rising uranium priceswill only flow through to sales contract prices as new contracts come intoeffect. Industrial Minerals First half First half Change Full year 2006 2005 2005 Production Titanium dioxide (000 tonnes) 699 649 +8% 1,312 Borates (000 tonnes) 272 268 +1% 560 Salt (000 tonnes) 2,650 2,776 -5% 5,507 Talc (000 tonnes) 727 690 +5% 1,364Gross turnover ($ millions) 1,252 1,208 +4% 2,487Underlying earnings ($ millions) Rio Tinto Iron & Titanium 83 72 +15% 128 Rio Tinto Minerals 54 52 +4% 59 137 124 +10% 187EBITDA ($ millions) 313 313 0% 563Capital expenditure ($ millions) 149 107 +39% 235 Rio Tinto Iron & Titanium Earnings of $83 million were $11 million above the first half of 2005. Thetitanium dioxide feedstock market remained in reasonable balance during theperiod with prices still firm for co-products, notably zircon, Sorelmetal andsteel billet. These factors, together with higher volumes, in line with thecurrent expansion of the Upgraded Slag (UGS) plant in Quebec from 325,000 tonnesto 375,000 tonnes, more than offset the impact of a stronger Canadian dollar. Inaddition, a reduction in Canadian tax rates has resulted in an $18 millionrelease of deferred tax provisions. Rio Tinto Minerals Earnings of $54 million were $2 million above the first half of 2005. Rio TintoMinerals benefited from the new organisational structure implemented in 2005,although an additional $4 million of restructuring costs were incurred in thefirst half of 2006. The recognition of a $5 million deferred tax asset andhigher prices offset the impact of higher energy and raw material costs. Aluminium First half First half Change Full year 2006 2005 2005 Production Bauxite (000 tonnes) 7,658 7,117 +8% 15,474 Alumina (000 tonnes) 1,632 1,490 +10% 2,963 Aluminium (000 tonnes) 413.7 421.6 -2% 853.7Gross turnover ($ millions) 1,658 1,383 +20% 2,744Underlying earnings ($ millions) 369 203 +82% 392EBITDA ($ millions) 673 416 +62% 855Capital expenditure ($ millions) 114 102 +12% 242 Prices The average aluminium price of 115 cents per pound was 37 per cent above thefirst half 2005 average price. The alumina market remained tight and spotprices continued to trade at over $450 per tonne, albeit representing a 20 percent decline from recent highs. Chinese demand for alumina has been increasinglymet by domestic supply. These effects, together with the impacts of other pricemovements, increased earnings by $242 million. Bauxite Half year bauxite production was eight per cent higher than the comparativeperiod in 2005 due to the successful commissioning of the Andoom mine andprocessing plant which form part of the NeWeipa project. Alumina Half year production from the Comalco Alumina Refinery, at 578,000 tonnes, was36 per cent above the corresponding period of 2005, with increased digestionpump availability resulting in good production rates. There are two phased majorshutdowns planned for the Comalco Alumina Refinery for the third quarter,reducing production by approximately one month's total output. Production atQueensland Alumina and Eurallumina was in line with the same period as lastyear. Overall first half alumina production was up ten per cent compared with thefirst half of 2005. Production costs were adversely affected by higher inputprices. Aluminium Production at the aluminium smelters was lower than the first half of 2005,primarily due to cells being taken out of circuit at Tiwai Point, because of lowrainfall in the hydropower catchment area. Copper First half First half Change Full year 2006 2005 2005 Production Mined copper (000 tonnes) 410.8 378.3 +9% 784.4 Refined copper (000 tonnes) 169.5 139.8 +21% 314.5 Mined molybdenum (000 tonnes) 7.9 7.1 +11% 15.6 Mined gold (000 oz) 460 809 -43% 1,626Gross turnover ($ millions) 3,644 2,130 +71% 4,839Underlying earnings ($ millions) 2,005 834 +140% 2,020EBITDA ($ millions) 2,789 1,343 +108% 3,191Capital expenditure ($ millions) 297 242 +23% 505 Prices The average copper price of 271 cents per pound was 79 per cent above the firsthalf 2005 average price. This, together with the effects of provisional pricingmovements, increased earnings by $1,006 million. Kennecott Utah Copper Earnings of $1,033 million were $568 million higher than the first half of 2005with the operation benefiting from improved volumes and a tax credit of $215million, following recognition of deferred tax assets. The optimisation of mineproduction in favour of molybdenum continued, although mined copper and goldvolumes also increased as a result of higher grades. Refined copper production was significantly higher in the first half comparedwith the same period of 2005 due to strong operational performance at thesmelter and a 17 day planned maintenance shutdown in May 2005. The smelter willundergo a 45 day planned maintenance shutdown in September and October 2006. Escondida Earnings of $700 million were $481 million above the first half of 2005. Minedcopper production was 19 per cent higher than the same period of 2005 as aresult of the commissioning of the Norte pit in September 2005 and thecommencement of sulphide leaching in 2006. Grasberg joint venture Earnings of $65 million were $20 million below the first half of 2005. Lowergrades for copper, gold and silver as a result of mine sequencing led tosignificantly lower production for all three metals compared with the sameperiod of 2005. In addition, a relatively small section of ore in the 6 Northpushback was encountered in the second quarter of 2006 with abnormally high claycontent, which adversely affected ore flow, mill recoveries and concentrategrades. Kennecott Minerals Earnings of $45 million were $3 million above the first half of 2005. Theeffects of higher gold prices and the recognition of a $10 million deferred taxasset were offset by higher costs and lower sales volumes from Cortez due tolower grades. Palabora Earnings of $38 million were $32 million above the first half of 2005,benefiting from the sale of some smelter stocks and low grade concentrate, andthe revaluation of the remaining smelter stocks. This was partly offset by aplanned smelter shutdown in the first quarter of 2006. Northparkes Earnings of $124 million were $107 million above the first half of 2005. Minedcopper production increased by 77 per cent reflecting the continued mining ofhigher grade ore from the Lift 2 area. Operational performance exceeded designcapacity and mill recoveries averaged over 90 per cent. Diamonds First half First half Change Full year 2006 2005 2005Production Diamonds (000 carats) Argyle 12,722 18,026 -29% 30,476 Diavik 2,705 2,558 +6% 4,963 Murowa 103 104 0% 195Gross turnover ($ millions) 411 454 -9% 1,076Underlying earnings ($ millions) 113 99 +14% 281EBITDA ($ millions) 230 257 -11% 617Capital expenditure ($ millions) 92 82 +12% 203 Diamond markets Conditions in the rough diamond market have softened somewhat, in contrast tothe polished market, which has remained robust, particularly for the largersized stones. Argyle Earnings of $41 million were $1 million above the first half of 2005. Caratproduction declined following adverse weather conditions earlier in the year.This was compensated by higher prices and the impact of a weaker Australiandollar. Diavik Earnings of $70 million were $20 million above the first half of 2005. Diamondoutput recovered from the first half of 2005, in line with higher grades and arelatively constant mix from higher grade A154S ore and lower grade A154N ore.This offset the impact of higher costs from the early closure of the ice road.In addition, a reduction in Canadian tax rates has led to a $21 million releaseof deferred tax provisions. Murowa Earnings of $2 million were $7 million below the corresponding period of 2005,attributable to an adverse sales mix, with the extraction of smaller stones asmining moves below the enriched surface layer. Other operations First half First half Change Full year 2006 2005 2005Underlying earnings ($ millions) 16 25 -36% 2 The sale of the last remaining gold inventories at Kelian generated earnings of$15 million, compared with $9 million in the first half of 2005. At Kennecott Land's Project Daybreak, land sales increased steadily. During thefirst half of 2006, over 300 residential lots were sold. This compared withsales of just over 450 lots for the full year 2005. Exploration and evaluation First half First half Change Full year 2006 2005 2005Post-tax charge ($ millions) 80 59 +36% 174 Central exploration and evaluation costs of $80 million, on a post-tax basis,were 36 per cent higher than the first half of 2005. The greenfield programmewas extended into new territories whilst projects under evaluation progressed. Exploration drilling was sustained on copper targets in Chile, Argentina, Mexicoand the US. Exploration in Russia ramped up as part of the RioNor Joint Venture.Diamond exploration remained focussed on targets in Canada, Botswana,Mauritania, India and Brazil. Iron ore exploration continued in WesternAustralia and west Africa. Exploration for thermal and coking coalopportunities continued in southern Africa, North America, South America andMongolia. Evaluation work continued on a number of projects including Eagle (nickel/copper, US), Resolution (copper/gold, US), Potasio Rio Colorado (potash,Argentina), La Granja (copper, Peru) and Simandou (iron ore, Guinea). Rio Tintohas taken a 9.9 per cent equity position in Northern Dynasty Minerals, whichcontrols the Pebble copper-gold-molybdenum deposit in Alaska. Contract of Worknegotiations continue at La Sampala nickel in Indonesia. Brownfield exploration is underway at a number of Rio Tinto businesses,including the Pilbara, Kennecott Utah Copper, the Freeport and Cortez JointVentures, the Ranger mine, Greens Creek and Northparkes. This expenditure ischarged directly against business unit earnings and totalled $18 million(post-tax) in the first half of 2006. Capital projects Project Estimated Status/Milestones cost (100%)Completed in 2006 Iron ore - Expansion of Hamersley's (Rio Tinto $685m Project completed on budget and ahead100%) port capacity (Phase A) to 116 million tonnes of schedule.per annum.Iron ore - Expansion of Hamersley's (Rio Tinto $290m The Marandoo and Nammuldi components100%) Tom Price and Marandoo mines and construction are complete and Tom Price isof new mine capacity at Nammuldi. scheduled for completion by the end of 2006.Iron ore - Expansion by Robe River (Rio Tinto 53%) $200m Project completed on budget and aheadof rail capacity including completion of dual of schedule.tracking of 100 km mainline section.Copper - Escondida sulphide leach (Rio Tinto 30%). $925m The first cathode production from theThe project will produce 180,000 tonnes per annum sulphide leach plant occurred in Juneof copper cathode for more than 25 years. 2006. Ongoing Copper - Kennecott Utah Copper (Rio Tinto 100%) $170m The project was approved in FebruaryEast 1 pushback. The project extends the life of 2005 and work on the pushbackthe open pit to 2017 while retaining options for continues. Commissioning of thefurther underground or open pit mining thereafter. pebble crusher is expected in the third quarter of 2006.Coking coal - Hail Creek (Rio Tinto 82%) Expansion $223m Project is on budget with the newof annual capacity from 6 million tonnes to dragline due to be commissioned earlynameplate 8 million tonnes per annum. in the third quarter of 2006.Diamonds - Construction at Diavik (Rio Tinto 60%) $265m The project was approved in 2004. Theof the A418 dike, and funding for further study of A418 dike was closed off in latethe viability of underground mining, including the 2005. It will be completed in 2007construction of an exploratory decline. with production from the A418 pipe commencing in 2008. Construction of the exploratory decline is progressing well.Iron ore - Brownfields mine expansion of $530m Both projects were approved inHamersley's (Rio Tinto 100%) Yandicoogina mine from October 2005 and completion is36 million tonnes per annum to 52 million tonnes expected by the end of 2007.per annumIron ore - Expansion of Hamersley's (Rio Tinto $803m100%) Dampier port (Phase B) from 116 milliontonnes per annum to 140 million tonnes per annumcapacity and additional rolling stock andinfrastructure.Titanium dioxide - Construction by QMM (Rio Tinto $585m Basic infrastructure is being put in80%) of a greenfield ilmenite operation in place. The main port constructionMadagascar and associated upgrade of processing + contract is expected to be awarded infacilities at QIT. the second half of 2006. First $190m production is forecast in late 2008.Titanium dioxide - further expansion of annual $79m The expansion is proceeding oncapacity at the UGS plant from 325,000 tonnes to schedule and is due to come onstream375,000 tonnes by the end of 2006.Diamonds - Argyle (Rio Tinto 100%) development of $910m Approved in December 2005, theunderground mine and open pit cutback, extending underground mine is due to startthe life of the mine to 2018. ramping up from 2007. Project Estimated Status/Milestones cost (100%)Ongoing (continued) Gold - Development of Cortez Hills (Rio Tinto 40%) $455m Approved in September 2005, the project continues to focus on permitting requirements.Energy - Rossing (Rio Tinto 68.6%) uranium mine $82m Approved in December 2005, works havelife extension to 2016 now commenced. Recently approved Iron ore - Hope Downs development (Rio Tinto share: $980m Construction is underway. First50% of mine and 100% of infrastructure). production expected in early 2008.Construction of 22 million tonnes per annum mineand related infrastructure. Price & exchange rate sensitivities The following sensitivities give the estimated effect on underlying earningsassuming that each individual price or exchange rate moved in isolation. Therelationship between currencies and commodity prices is a complex one andmovements in exchange rates can cause movements in commodity prices and viceversa. The exchange rate sensitivities quoted below include the effect onoperating costs of movements in exchange rates but exclude the effect due to therevaluation of foreign currency working capital. They should therefore be usedwith care. Average price/exchange rate for Change Effect on full year first half 2006 underlying earnings US$m Copper 271c/lb +/- 10c/lb 138Aluminium 115c/lb +/-10c/lb 144Gold $588/oz +/- $50/oz 38Molybdenum $23/lb +/- $5/lb 67 Australian dollar 74USc +/-5USc 175Canadian dollar 88USc +/-5USc 33South African rand 16USc +/-2USc 32 For further information, please contact: LONDON AUSTRALIA Media Relations Media RelationsNick Cobban Ian HeadOffice: +44 (0) 20 7753 2305 Office: +61 (0) 3 9283 3620Mobile: +44 (0) 7920 041 003 Mobile: +61 (0) 408 360 101 Investor Relations Investor RelationsNigel Jones Dave SkinnerOffice: +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628Mobile: +44 (0) 7917 227 365 Mobile: +61 (0) 408 335 309David Ovington Susie CreswellOffice: +44 (0) 20 7753 2326 Office: +61 (0) 3 9283 3639Mobile: +44 (0) 7920 010 978 Mobile: +61 (0) 418 933 792 Website: www.riotinto.comHigh resolution photographs available at: www.newscast.co.uk Group income statement Six months Six months Year to 31 to 30 June to 30 June December 2006 2005 2005 US$m US$m US$m Gross turnover (including share of jointly controlled entities and 12,111 9,439 20,742associates) (a) Consolidated turnover 10,621 8,671 19,033Operating costs (excluding impairment charges) (6,465) (5,823) (12,436)Net impairment reversals/(charges) - - 3Profit on disposal of interests in businesses (including investments) (b) 8 98 322 Operating profit 4,164 2,946 6,922Share of profit after tax of jointly controlled entities and associates 800 275 776Profit before finance items and taxation 4,964 3,221 7,698 Finance itemsExchange gains/(losses) on external net debt and intragroup balances 29 (14) (128)Losses on currency and interest rate derivatives not qualifyingfor hedge accounting (18) (27) (51)Interest receivable and similar income 64 23 82Interest payable and similar charges (104) (84) (173)Amortisation of discount (56) (55) (116) (85) (157) (386) Profit before taxation 4,879 3,064 7,312 Taxation (b) (911) (801) (1,814) Profit for the period 3,968 2,263 5,498 - attributable to outside equity shareholders 172 98 283- attributable to equity shareholders of Rio Tinto (Net earnings) 3,796 2,165 5,215 Basic earnings per ordinary share (c) 282.0c 157.6c 382.3cDiluted earnings per ordinary share 280.9c 157.3c 381.1c Dividends per share: paid during the period- Regular dividend 41.5c 45.0c 83.5c- Special dividend 110.0c - -Dividends per share: declared in the announcement of the results for theperiod- Regular dividend 40.0c 38.5c 41.5c- Special dividend - - 110.0c (a) Gross turnover includes the turnover of jointly controlled entities andassociates of US$1,490 million (half year 2005: US$768 million; full year 2005:US$1,709 million) in addition to Consolidated turnover, which relates only tosubsidiary companies. (b) The net tax charge resulting from profit on disposal of interests inbusinesses (including investments) for the six months ended 30 June 2006 was nil(half year 2005: US$9 million; year ended 31 December 2005: US$11 million). (c) For the purpose of calculating basic earnings per ordinary share, theweighted average number of Rio Tinto plc and Rio Tinto Limited sharesoutstanding during the period was 1,345.9 million, being the weighted averagenumber of Rio Tinto plc shares outstanding (1,060.2 million) plus the weightedaverage number of Rio Tinto Limited shares outstanding not held by Rio Tinto plc(285.7 million). Group cash flow statement Six months Six months Year to 31 to 30 June to 30 June December 2006 2005 2005 US$m US$m US$m Cash flow from consolidated operations 4,414 3,167 7,657 Dividends from jointly controlled entities and associates 788 254 600Cash flow from operations 5,202 3,421 8,257 Interest received 67 23 51Interest paid (116) (90) (179)Dividends paid to outside shareholders (122) (73) (169)Tax paid (1,615) (424) (1,017)Cash flow from operating activities 3,416 2,857 6,943 Cash used in investing activitiesDisposals of subsidiaries, joint ventures and associates (less acquisitions) 3 (2) 321Purchase of property, plant and equipment and intangible assets (1,758) (1,110) (2,552)(Funding to)/repayments from jointly controlled entities and associates (13) 5 17Exploration and evaluation expenditure (137) (102) (264)Proceeds from sale of property, plant and equipment and intangible assets 2 8 36Sales of other investments 286 130 133Purchases of other financial assets (30) (36) (231)Government grants received 8 - 26Cash flows from non-hedge derivatives not related to net debt 9 15 31Cash used in investing activities (1,630) (1,092) (2,483) Cash flow before financing activities 1,786 1,765 4,460 Cash used in financing activitiesEquity dividends paid to Rio Tinto shareholders (2,024) (622) (1,141)Own shares purchased from Rio Tinto shareholders (1,098) (774) (877)Proceeds from issue of ordinary shares in Rio Tinto 30 52 100Proceeds from issue of ordinary shares in subsidiariesto outside shareholders 6 - 4Finance lease principal payments (9) (73) (86)Proceeds from issue of new borrowings 38 179 388Repayment of borrowings (133) (364) (807)Cash flows from non-hedge derivatives related to net debt (1) 5 2Cash flows relating to liquid resources not classified ascash and cash equivalents - 13 6Cash used in financing activities (3,191) (1,584) (2,411)Effects of exchange rates on cash and cash equivalents (3) (6) (8) Net (reduction)/increase in cash and cash equivalents (1,408) 175 2,041Opening cash and cash equivalents 2,367 326 326Closing cash and cash equivalents 959 501 2,367 Cash flow from consolidated operationsProfit for the period 3,968 2,263 5,498Adjustments for: Taxation 911 801 1,814 Finance items 85 157 386 Share of profit after tax of jointly controlled entities and associates (800) (275) (776) Profit on disposal of interests in businesses (including investments) (8) (98) (322) Net impairment (reversals)/charges - - (3) Depreciation and amortisation 706 660 1,334 Exploration and evaluation charged against profit 113 93 250 Provisions (11) 107 202Utilisation of provisions (148) (111) (261)Change in inventories (269) (228) (249)Change in trade and other receivables (232) (180) (530)Change in trade and other payables 42 (31) 279Other items 57 9 35 4,414 3,167 7,657 Group balance sheet 30 June 30 June 31 December 2006 2005 2005 US$m US$m US$m Non current assetsGoodwill 1,022 1,062 1,020Intangible assets 247 193 220Property, plant and equipment 19,178 17,121 17,620Investments in jointly controlled entities and associates 2,014 2,069 1,829Loans to jointly controlled entities 139 122 159Inventories 82 44 141Trade and other receivables 770 709 703Deferred tax assets 281 12 55Tax recoverable 127 135 122Derivatives related to net debt - 308 254Other financial assets 238 241 199 24,098 22,016 22,322 Current assetsLoans to jointly controlled entities 15 48 -Inventories 2,300 2,121 2,048Trade and other receivables 2,727 2,064 2,488Tax recoverable 31 22 30Derivatives related to net debt 396 93 62Other financial assets 143 252 469Other liquid resources 6 - 5Cash and cash equivalents 989 563 2,379 6,607 5,163 7,481 Current liabilitiesBank overdrafts repayable on demand (30) (62) (12)Borrowings (2,275) (824) (1,190)Trade and other payables (2,169) (1,703) (2,190)Derivatives related to net debt (1) (8) (8)Other financial liabilities (226) (43) (78)Tax payable (642) (392) (987)Provisions (301) (269) (321) (5,644) (3,301) (4,786) Net current assets 963 1,862 2,695 Non current liabilitiesBorrowings (1,686) (3,506) (2,783)Trade and other payables (240) (793) (269)Derivatives related to net debt (22) (15) (20)Other financial liabilities (426) - (93)Tax payable (91) (101) (51)Deferred tax liabilities (2,214) (2,264) (2,197)Provisions (4,043) (3,919) (3,865) (8,722) (10,598) (9,278) Net assets 16,339 13,280 15,739 Capital and reservesShare capital- Rio Tinto plc 172 172 172- Rio Tinto Limited (excl. Rio Tinto plc interest) 1,029 1,052 1,019Share premium account 1,918 1,851 1,888Other reserves (435) 258 (24)Retained earnings 12,782 9,209 11,893Equity attributable to Rio Tinto shareholders 15,466 12,542 14,948Attributable to outside equity shareholders 873 738 791 Total equity 16,339 13,280 15,739 (a) At 30 June 2006, Rio Tinto plc had 1,048.6 million ordinary shares inissue and Rio Tinto Limited had 285.7 million shares in issue, excluding thoseheld by Rio Tinto plc. Group statement of recognised income and expense Attributable to Outside Six months Six months Year to 31 shareholders interests to 30 June to 30 June December of Rio Tinto 2006 2005 2005 Total Total Total US$m US$m US$m US$m US$m Currency translation adjustment 168 2 170 (286) (445)Cash flow hedge fair value (losses)/gains (a) (550) (47) (597) 14 (142)Gains on available for sale securities 12 2 14 19 37Cash flow hedge losses transferred to the incomestatement 18 24 42 2 1Gains on available for sale securities transferredto the income statement (4) - (4) (83) (88)Actuarial gains on post retirement benefit plans 230 14 244 55 178Tax recognised directly in equity (7) 29 22 (2) 57Net (expense)/income recognised directly in equity (133) 24 (109) (281) (402)Profit after tax for the period 3,796 172 3,968 2,263 5,498Total recognised income for the period 3,663 196 3,859 1,982 5,096 (a) The cash flow hedge fair value loss, for the six months to 30 June 2006,relates almost entirely to forward copper sales contracts entered into byPalabora as a condition of its loan agreement. Group statement of changes in equity Attributable Outside Six months Six months Year to 31 to shareholders interests to 30 June to 30 June December of Rio Tinto 2006 2005 2005 Total Total Total US$m US$m US$m US$m US$mOpening balance 14,948 791 15,739 12,591 12,591 Adjustment for adoption of IAS 39 (net of tax)to:- retained earnings - - - (11) (11)- other reserves - - - 120 120Opening balance as restated 14,948 791 15,739 12,700 12,700 Total recognised income for the year 3,663 196 3,859 1,982 5,096Employee share options chargedto income statement 11 - 11 14 24Dividends (2,038) (122) (2,160) (694) (1,312)Subsidiaries disposed of - 2 2 - 4Own shares purchased from Rio Tinto shareholders- Under capital management programme (1,098) - (1,098) (774) (877)- To satisfy share options (45) - (45) - -Ordinary shares issued 30 6 36 52 104Other movements (5) - (5) - -Closing balance 15,466 873 16,339 13,280 15,739 Reconciliation with Australian IFRS Six months Six months Year to 31 to 30 June to 30 June December 2006 2005 2005 US$m US$m US$m Profit for the period under EU IFRS 3,968 2,263 5,498Differences - - -Profit for the period under Australian IFRS 3,968 2,263 5,498 Six months Six months Year to 31 to 30 June to 30 June December 2006 2005 2005 US$m US$m US$m Total recognised income for the period under EU IFRS 3,859 1,982 5,096Exchange differences relating to:Goodwill 1 - - Total recognised income for the period under Australian IFRS 3,860 1,982 5,096 Six months Six months Year to 31 to 30 June to 30 June December 2006 2005 2005 US$m US$m US$m Total equity under EU IFRS 16,339 13,280 15,739Increase in respect of:Goodwill 744 741 743 Total equity under Australian IFRS 17,083 14,021 16,482 The profit, income and equity figures set out above include amounts attributableto outside shareholders in subsidiaries. The Group's financial statements have been prepared in accordance with IFRS asadopted for use in the European Union ('EU IFRS'), which differs in certainrespects from the version of IFRS that is applicable in Australia ('AustralianIFRS'). The transition to EU IFRS was based on the UK GAAP financial statements as at 1January 2004. Under UK GAAP, goodwill on acquisitions prior to 1998 waseliminated directly against equity. Under IFRS 1, goodwill previously recognisedas a reduction in equity is not reinstated on transition to IFRS. TheAustralian equivalent, AASB 1, does not include this relief provision. As aconsequence, shareholders' funds under Australian IFRS include the residue ofsuch goodwill. Reconciliation of Net earnings to Underlying earnings Pre-tax Taxation Outside Six months Six months Year to 31 interests to 30 June to 30 June December 2006 2005 2005 Net Net Net amount amount amount US$m US$m US$mExclusions from Underlying earningsGains relating to disposal of interests in businesses (including investments) (a) 8 - 2 10 89 311Net impairment reversals/(charges) (b) - - - - - 4Exchange differences and derivatives- Exchange gains/(losses) on external net debt and intragroup balances (c) 29 (29) 12 12 13 (87)- (Losses)/gains on currency and interest rate derivatives not qualifying for hedge accounting (d),(e) (18) 4 1 (13) (20) (40)- Losses on external net debt and derivatives not qualifying as hedges in jointly controlled entities and associates (net of tax) (c),(d),(e) (1) - - (1) (4) (12)Adjustment to environmental remediation provision (f) 37 - - 37 - 84Total excluded from Underlying earnings 55 (25) 15 45 78 260Net earnings 4,879 (911) (172) 3,796 2,165 5,215Underlying earnings 4,824 (886) (187) 3,751 2,087 4,955 '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)below are excluded from Net earnings in arriving at Underlying earnings. (a) Gains and losses arising on the disposal of interests in businesses (including investments) and undeveloped properties. (b) Charges and credits relating to impairment of non-current assets. (c) Exchange gains and losses on US dollar debt and intragroup balances. (d) Valuation changes on currency and interest rate derivatives which are ineligible for hedge accounting, other than those embedded in commercial contracts. (e) The currency revaluation of embedded US dollar derivatives contained in contracts held by entities whose functional currency is not the US dollar. (f) Other credits and charges that, individually, or in aggregate if of a similar type, are of a nature or size to require exclusion in order to provide additional insight into underlying business performance. The 'Adjustment to environmental remediation provision' of US$37 million (2005 full year: US$84 million) relates to the obligations of Kennecott Utah Copper. It reverses part of an exceptional charge taken up in 2002, which was excluded from Adjusted earnings at that time. This reversal is therefore excluded in arriving at Underlying earnings. Consolidated net debt Cash and Other liquid Borrowings 30 June 30 June 31 December cash resources 2006 2005 2005 equivalents Net debt Net debt US$m US$m US$m Analysis of changes in consolidatednet debtAt 1 January 2,367 5 (3,685) (1,313) (3,809) (3,809)Adjustment for adoption of IAS 39 - - - - (10) (10)Opening balance as restated 2,367 5 (3,685) (1,313) (3,819) (3,819)Adjustment on currency translation (1) 1 (24) (24) 56 96Exchange gains/(losses) charged to the incomestatement (2) - 9 7 (1) 13Gains/(losses) on derivatives related to net debt 25 25 (44) (85)Subsidiaries disposed of - - 2 2 - -Finance leases raised less repaid - - 9 9 9 22Cash flow excluding exchange movements (1,405) - 96 (1,309) 348 2,460Other movements - - (20) (20) - -Closing balance 959 6 (3,588) (2,623) (3,451) (1,313) Reconciliation to balance sheet categoriesNon-current - - (1,686) (1,686) (3,506) (2,783)Current 989 6 (2,275) (1,280) (261) 1,194Bank overdrafts repayable on demand (30) - - (30) (62) (12)Derivatives related to net debt - - 373 373 378 288Consolidated net debt 959 6 (3,588) (2,623) (3,451) (1,313) Primary segmental analysis (by product group) Six months Six months Year to 31 to 30 June to 30 June December 2006 2005 2005 US$m US$m US$m TurnoverIron ore 2,975 2,343 5,497Energy 1,974 1,719 3,693Industrial minerals 1,192 1,157 2,374Aluminium 1,658 1,383 2,744Copper 2,291 1,505 3,433Diamonds 411 454 1,076Other 120 110 216Consolidated turnover 10,621 8,671 19,033Share of jointly controlled entities and associates 1,490 768 1,709Gross turnover 12,111 9,439 20,742 Consolidated profit before finance items and taxationIron ore (c) 1,491 1,210 2,872Energy (c) 526 461 1,067Industrial minerals (c) 198 206 362Aluminium (c) 500 295 502Copper (c) 1,509 791 1,954Diamonds 151 169 459Exploration and evaluation (c) (87) (62) (193)Other (c) (124) (124) (101)Operating profit (segment result) 4,164 2,946 6,922 Share of profit after tax of jointly controlled entities and associatesCopper 710 250 660Other product groups 90 25 116 800 275 776Profit before finance items and taxation 4,964 3,221 7,698 (a) The product groups shown above reflect the Group's management structure and are the Group's primary segments in accordance with IAS 14 'Segment reporting'. The analysis deals with the turnover and profit before finance items and taxation for subsidiary companies and proportionally consolidated joint ventures. The amounts presented for each product group exclude equity accounted units, and include the amounts attributable to outside equity shareholders. The classification is consistent with the financial information by business unit data included on pages 7 and 8 of this news release. However, that information includes the results of equity accounted units and presents different financial measures. Generally this product group structure has regard to the primary product of each business unit, but there are exceptions. For example, the Copper group includes certain gold operations. The classification differs, therefore, from the Commodity analysis which is included on page 26, in which the contributions of individual business units are attributed to several products as appropriate. (b) The analysis of profit before finance items and taxation includes the profit on disposal of interests in businesses (including investments), and net impairment reversals/(charges), which are excluded from Underlying earnings. (c) Disposals of businesses (including investments) included gains/(losses), as follows: Six months Six months Year to 31 to 30 June to 30 June December 2006 2005 2005 US$m US$m US$m Iron ore - 84 85Energy (1) - -Industrial minerals 4 - -Aluminium - 11 11Copper 5 - 30Exploration and evaluation - 3 3Other - - 193 8 98 322 Commodity analysis Six months Six months Year to 31 First half First half Year to 30 June to 30 June December 2006 2005 2005 2006 2005 2005 % % % US$m US$m US$m Gross turnover 23.1 13.0 14.3 Copper 2,794 1,227 2,968 2.3 3.9 3.6 Gold (all sources) 277 370 754 24.6 24.8 26.5 Iron ore 2,975 2,343 5,497 15.4 17.4 16.9 Coal 1,863 1,643 3,499 13.7 14.7 13.2 Aluminium 1,660 1,383 2,744 10.6 13.1 12.2 Industrial minerals (b) 1,279 1,233 2,535 3.4 4.8 5.2 Diamonds 411 454 1,076 6.9 8.3 8.1 Other products 852 786 1,669 100.0 100.0 100.0 12,111 9,439 20,742 Net earnings 50.6 36.6 37.2 Copper, gold and by-products 2,011 831 1,998 24.0 30.0 32.0 Iron ore 955 681 1,722 9.1 13.0 13.2 Coal 362 296 707 9.3 8.9 7.3 Aluminium 371 203 393 3.5 5.7 3.7 Industrial minerals (b) 139 129 200 2.8 4.4 5.2 Diamonds 113 99 281 0.7 1.4 1.4 Other products 21 34 74 100.0 100.0 100.0 3,972 2,273 5,375 Exploration and evaluation (80) (59) (174) Net interest (14) (31) (44) Other items (127) (96) (202) Underlying earnings 3,751 2,087 4,955 Items excluded from Underlying 45 78 260 earnings Net earnings 3,796 2,165 5,215 (a) This analysis is strictly by commodity. In this regard it differs from the primary segmental analysis on page 25, and the financial information by business unit on pages 7 and 8, both of which are based on the Group's management structure. The notes to the primary segmental analysis by product group provide further detailed explanation of differences in presentation between the commodity analysis above and the primary segmental analysis. (b) This category includes by-products arising from the production of titanium dioxide. Geographical analysis (by country of origin) Six months Six months Year to 31First half First half Year to 30 June to 30 June December 2006 2005 2005 2006 2005 2005 % % % US$m US$m US$m Gross turnover 30.6 31.5 30.8 North America 3,705 2,969 6,397 48.7 50.9 51.2 Australia and New Zealand 5,898 4,808 10,613 11.2 6.0 6.3 South America 1,362 566 1,302 5.4 5.3 5.5 Africa 654 501 1,149 1.4 3.2 3.4 Indonesia 172 299 702 2.7 3.1 2.8 Europe and other countries 320 296 579 100.0 100.0 100.0 12,111 9,439 20,742 Net earnings 33.7 34.2 31.7 North America 1,269 724 1,584 45.3 51.9 53.2 Australia and New Zealand 1,706 1,099 2,659 18.1 9.2 10.5 South America 680 195 526 2.4 2.0 2.1 Africa 92 42 103 2.1 4.4 4.6 Indonesia 80 93 230 (1.6) (1.7) (2.1) Europe and other countries (62) (35) (103) 100.0 100.0 100.0 3,765 2,118 4,999 Net interest (14) (31) (44) Underlying earnings 3,751 2,087 4,955 Items excluded from Underlying 45 78 260 earnings Net earnings 3,796 2,165 5,215 (a) The above analyses include Rio Tinto's share of the results of jointly controlled entities and associates including interest. (b) The amortisation of discount is included in the applicable product category and geographical area. All other financing costs of subsidiaries are included in 'Net interest'. Tax reconciliation Six months Six months Year to 31 to 30 June to 30 June December 2006 2005 2005 US$m US$m US$m Profit before taxation 4,879 3,064 7,312Deduct: share of net profit of jointly controlled entities and associates (800) (275) (776)Parent companies' and subsidiaries' profit before tax 4,079 2,789 6,536 Prima facie tax payable at UK and Australian rate of 30% 1,224 837 1,961 Impact of items excluded from Underlying earnings 8 (27) (102) Other differencesAdditional recognition of deferred tax assets (a) (211) - -Adjustments to deferred tax liabilities following changes in tax rates (46) - -(a)Other tax rates applicable outside the UK and Australia (b) (46) (23) (23)Resource depletion and other depreciation allowances (13) (5) (22)Research, development and other investment allowances (9) (3) (21)Other 4 22 21 (321) (9) (45) Total taxation charge 911 801 1,814 (a) The tax rate for the six months to 30 June 2006 was reduced by two credits. - The 'Additional recognition of deferred tax assets' of US$211 million reflects improved prospects for future earnings from the Group's US operations. - The 'Adjustments to deferred tax liabilities following changes in tax rates', totalling US$46 million, results from a reduction in Canadian tax rates. (b) The benefit of 'other tax rates applicable outside UK and Australia' includes the effect of the US Alternative Minimum Tax rate of 20 per cent. (c) This tax reconciliation relates to the parent companies and subsidiaries. (d) The total taxation charge includes UK - US$33 million, Australia - US$675 million and Other - US$203 million (2005 full year: UK - US$(10) million, Australia - US$1,056 million and Other - US$768 million). (e) The Group's share of profit of jointly controlled entities and associates is net of tax charges of US$403 million (2005 half year: US$136 million, 2005 full year: US$361 million). Other disclosures Capital commitments Future capital commitments, including those relating to joint ventures andassociates, were US$1,846 million at 30 June 2006 (at 31 December 2005: US$1,322million). Contingent liabilities There were no material changes in contingent liabilities or contingent assetsduring the period. Share buyback Between 1 January 2006 and 30 June 2006, Rio Tinto plc bought back 21,965,000 ofits own shares from public shareholders at an average buy back price of £28.02.During 2005, Rio Tinto plc bought back 2,600,000 of its own shares from publicshareholders at an average buy back price of £22.47. These shares are being heldin treasury except for those applied on exercise of share options. In May 2005, Rio Tinto Limited bought back 27,294,139 of its own shares frompublic shareholders at a buy back price of A$36.70 per share. Under a matchingbuy back agreement, Rio Tinto Limited also bought back 16,367,000 of its sharesheld by a subsidiary of Rio Tinto plc. Related party matters Transactions and balances with jointly controlled entities and associates areincluded in the lines of the financial statements set out below. Purchasesrelate largely to amounts charged by jointly controlled entities for tollprocessing of bauxite and alumina. Sales relate largely to charges for supply ofcoal to jointly controlled marketing entities for on sale to third partycustomers. Six months Six months Year to 31 to 30 June to 30 June December 2006 2005 2005Income statement items US$m US$m US$m Purchases from jointly controlled entities and associates (645) (606) (1,259)Sales to jointly controlled entities and associates 573 477 1,296 Balance sheet items US$m US$m US$m Investments in jointly controlled entities and associates 2,014 2,069 1,829Loans to jointly controlled entities 154 170 159Loans from jointly controlled entities (32) (51) (14)Trade and other receivables: amounts due from jointly controlledentities and associates 521 659 530Trade and other payables: amounts due to jointly controlled entitiesand associates (112) (581) (199) Cash flow statement items US$m US$m US$m (Loans to) / loans repaid by jointly controlled entities and (13) 5 17associates Accounting policies The financial information included in this report is unaudited and has beenprepared in accordance with International Financial Reporting Standards adoptedby the European Union ('EU IFRS') including IAS 34 'Interim financialreporting', and an Order under section 340 of the Australian Corporations Act2001 issued by the Australian Securities and Investments Commission on 27January 2006. The EU IFRS financial information has been drawn up on the basisof accounting policies consistent with those applied in the financial statementsfor the year to 31 December 2005, except for the following: - the adoption of IFRIC 4 'Determining whether an arrangement contains a lease'. - a change to the Group's policy on accounting for exploration and evaluation expenditure. Previously, the Group capitalised exploration expenditure on acquisition of a beneficial interest or option in mineral rights. Full provision was made for impairment unless there was a high degree of confidence in the project's viability and hence it was considered probable that future economic benefits would flow to the Group. If, as a result of developments in subsequent periods, the expenditure was considered to be recoverable, such provisions were reversed. Under the Group's revised policy, exploration expenditure is not capitalised until the point is reached at which there is a high degree of confidence in the project's viability and it is considered probable that future economic benefits will flow to the Group. - in addition, a clarification to IAS 21 relating to the treatment of exchange gains and losses on balances between fellow subsidiary companies was issued in December 2005. The clarification means that, in certain circumstances, such loans can now be included as part of the reporting entity's net investment in foreign operations. The clarification was implemented in the accounts for the full year to 31 December 2005. The effect of the above adjustments is not material to Group earnings or toshareholders' funds in the current or prior periods; therefore, prior periodinformation has not been restated. Prior year financial information Financial information for the year to 31 December 2005 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 2005 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). Directors' declaration In the directors' opinion: The financial statements and notes have been prepared in accordance with theListing Rules of the Financial Services Authority in the United Kingdom,applicable accounting standards and the Australian Corporations Act 2001 (asmodified by an order of the Australian Securities and Investments Commissiondated 27 January 2006) using the most appropriate accounting policies for RioTinto's business and supported by reasonable and prudent judgements. The financial statements and notes give a true and fair view of the Rio TintoGroup's financial position as at 30 June 2006 and of its performance, asrepresented by the results of its operations, recognised income and expense andits cash flows for the half year then ended. There are reasonable grounds to believe that each of the Rio Tinto Group, RioTinto Limited and Rio Tinto plc, has adequate financial resources to continue inoperational existence for the foreseeable future and to pay its debts as andwhen they become due and payable. By order of the boardG R ElliottFinance Director3 August 2006 Auditors' Independence Declaration As lead auditor for the review of Rio Tinto Limited for the half year ended 30June 2006, I declare that to the best of my knowledge and belief, there havebeen: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and (b) no contraventions of any applicable code of professional conduct in relation to the review. This declaration is in respect of Rio Tinto Limited and the entities itcontrolled during the period. John O'Connor PerthPartner 3 August 2006PricewaterhouseCoopers Independent review report to Rio Tinto plc and Rio Tinto Limited ("the Companies") Introduction We have been instructed by the Companies to review the financial information ofthe Rio Tinto Group (comprising the Companies and their subsidiaries) for thesix months ended 30 June 2006 which comprises the Group interim balance sheet asat 30 June 2006, the Group interim statements of income, cash flows andrecognised income and expense for the six months then ended and the relatednotes (including the financial information by Business Unit). We have read theother information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors of the Companies.The directors are responsible for preparing the interim report in accordancewith the Listing Rules of the Financial Services Authority in the United Kingdomand the Australian Corporations Act 2001 as amended by the Australian Securitiesand Investments Commission Order dated 27 January 2006. The Listing Rules of the London Stock Exchange require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. This interim report has been prepared in accordance with InternationalAccounting Standard 34, 'Interim financial reporting'. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for RioTinto plc for the purpose of the Listing Rules of the Financial ServicesAuthority in the United Kingdom and for Rio Tinto Limited for the purpose of theAustralian Corporations Act 2001 as amended by the Australian Securities andInvestments Commission Order dated 27 January 2006 and for no other purpose. Wedo not, in producing this report, accept or assume responsibility for any otherpurpose or to any other person to whom this report is shown or into whose handsit may come save where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. PricewaterhouseCoopers LLP PricewaterhouseCoopersChartered Accountants Chartered AccountantsLondon Perth3 August 2006 3 August 2006in respect of Rio Tinto plc in respect of Rio Tinto Limited Notes to financial information by business unit (Pages 7 and 8) (a) Gross turnover includes 100 per cent of subsidiaries' turnover and the Group's share of the turnover of jointly controlled entities and associates. (b) EBITDA of subsidiaries and the Group's share of jointly controlled entities and associates represents profit before: tax, net finance items, depreciation and amortisation. (c) Net earnings represent profit after tax for the period attributable to the Rio Tinto Group. Earnings of subsidiaries are stated before finance items but after the amortisation of the discount related to provisions. Earnings attributable to jointly controlled entities and associates include interest charges and amortisation of discount. Earnings attributed to business units exclude amounts that are excluded in arriving at Underlying earnings. (d) Includes Rio Tinto's interests in Rio Tinto Coal Australia (100 per cent) and Coal & Allied (75.7 per cent). (e) Includes Rio Tinto's interests in Comalco (100 per cent) and Anglesey Aluminium (51 per cent). (f) Under the terms of a joint venture agreement, Rio Tinto is entitled to 40 per cent of additional material mined as a consequence of expansions and developments of the Grasberg facilities since 1998. (g) Business units have been classified according to the Group's management structure. Generally, this structure has regard to the primary product of each business unit but there are exceptions. For example, the Copper group includes certain gold operations. This summary differs, therefore, from the Commodity analysis in which the contributions of individual business units are attributed to several products as appropriate. (h) Capital expenditure comprises the net cash outflow on purchases less disposals of property, plant and equipment and intangible assets other than exploration. The details provided include 100 per cent of subsidiaries' capital expenditure and Rio Tinto's share of the capital expenditure of jointly controlled entities and associates. Amounts relating to jointly controlled entities and associates not specifically funded by Rio Tinto are deducted before arriving at total capital expenditure for the Group. (i) Depreciation figures include 100 per cent of subsidiaries' depreciation and amortisation and include Rio Tinto's share of the depreciation and amortisation of jointly controlled entities and associates. Amounts relating to jointly controlled entities and associates are deducted before arriving at the total depreciation and amortisation charge. (j) Operating assets of subsidiaries comprise net assets before deducting net debt, less outside shareholders' interests which are calculated by reference to the net assets of the relevant companies (i.e. net of such companies' debt). For jointly controlled entities and associates, Rio Tinto's net investment is shown. Summary financial data in Australian dollars, Sterling and US dollars Six Six Six Six Six Six Year to 31 months months months months months months December to 30 to 30 to 30 to 30 to 30 to 30 2005 June June June June June June 2006 2005 2006 2005 2006 2005 A$m A$m £m £m US$m US$m US$m 16,366 12,258 6,766 5,048 Gross turnover 12,111 9,439 20,742 14,353 11,261 5,934 4,637 Consolidated turnover 10,621 8,671 19,033 6,593 3,979 2,726 1,639 Profit before taxation 4,879 3,064 7,312 5,362 2,939 2,217 1,210 Profit for the period 3,968 2,263 5,498 5,130 2,812 2,121 1,158 Net earnings attributable to Rio Tinto 3,796 2,165 5,215 shareholders 5,069 2,710 2,096 1,116 Underlying earnings * 3,751 2,087 4,955 381.1c 204.7c 157.6p 84.3p Basic earnings per ordinary share 282.0c 157.6c 382.3c Basic underlying earnings per ordinary share * 376.6c 197.4c 155.7p 81.3p 278.7c 152.0c 363.2c Dividends per share to Rio Tinto shareholders 200.28c 58.29c 85.24p 23.94p - paid (including special dividend) 151.5c 45.0c 83.5c - proposed (including special dividend) 52.48c 50.56c 21.42p 21.75p 40.0c 38.5c 151.5c 2,414 2,292 998 944 Cash flow before financing activities 1,786 1,765 4,460 (3,545) (4,541) (1,426) (1,907) Net debt (2,623) (3,451) (1,313) Equity attributable to Rio Tinto shareholders 20,900 16,503 8,405 6,929 15,466 12,542 14,948 * Underlying earnings for the six months to 30 June 2006 are stated afterexcluding items totalling US$45 million (Full year 2005: US$260 million, halfyear 2005: US$78 million), which are analysed on page 24. The financial data above have been extracted from the primary financialstatements set out on pages 19 to 22. The Australian dollar and Sterlingamounts are based on the US dollar amounts, retranslated at average or closingrates as appropriate, except for the dividends which are the actual amountspayable. Metal prices and exchange rates Six months Six months Change Year to 31 to 30 June to 30 June 1H06 v December 2006 2005 1H05 2005 Metal prices - average for the period Copper - US cents/lb 271c 151c 79% 166cAluminium - US cents/lb 115c 84c 37% 86cGold - US$/troy oz US$588 US$427 38% US$444Molybdenum - US$/lb US$23 US$31 (26%) US$31 Average exchange rates in US$ Sterling 1.79 1.87 (4%) 1.82Australian dollar 0.74 0.77 (4%) 0.76Canadian dollar 0.88 0.81 9% 0.83South African rand 0.159 0.160 (1%) 0.157 Period end exchange rates in US$ Sterling 1.84 1.81 2% 1.73Australian dollar 0.74 0.76 (3%) 0.73Canadian dollar 0.90 0.81 11% 0.86South African rand 0.140 0.150 (7%) 0.158 The Australian dollar exchange rates, given above, are based on the HedgeSettlement Rate set by the Australian Financial Markets Association. Availability of this report This report is available on the Rio Tinto website. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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