3rd Aug 2005 07:01
Rio Tinto PLC03 August 2005 Record earnings from strong operational performance and markets • First half underlying earnings of $2,087 million were more than double those of the first half of 2004 ($993 million). • First half net earnings were $2,165 million (first half 2004 $1,611 million). • Cashflow from operations was a record $3,421 million, 69 per cent higher than that of the first half of 2004. • Consistent operational performance enabled record volumes of most products to be delivered into strong markets. Higher prices increased underlying earnings by $1,004 million and higher volumes by $460 million. • Construction of the major rail and port infrastructure expansion for the Western Australian iron ore operations remains on track. Commissioning of the port expansion has commenced and will progress through the second half of the year. • An agreement to form a joint venture to develop the Hope Downs iron ore deposits further strengthens Rio Tinto's position as the prime supplier of iron ore from Australia. • Approval for the construction of a new ilmenite operation in Madagascar and the associated upgrade of existing processing facilities in Canada is announced today. • In addition to the increased 2004 final dividend, shareholders benefited from the return of $774 million through the successful completion of Rio Tinto Limited's off-market buyback. As a result, over half of the $1.5 billion capital management programme was completed within three months of its announcement, on favourable terms. Six months to 30 June (All dollars are US$ unless otherwise stated) 2005 2004 ChangeUnderlying earnings 2,087 993 +110%Net earnings 2,165 1,611 +34%Cash flow from operations (incl. associate and JV dividends) 3,421 2,020 +69%Underlying earnings per share - US cents 152.0 72.0 +111%Earnings per share - US cents 157.6 116.8 +35% Chairman's comments Rio Tinto's chairman Paul Skinner said, " Very good operational performanceacross all our businesses enabled us to capitalise on the strong markets weexperienced for our products. As a result, cash flows and earnings were atrecord levels. Cash flow from operations, including dividends from associatesand joint ventures, was $3,421 million. "Our top priority for the application of this strong cash flow remains theinvestment in value creating opportunities like Hope Downs and the ilmeniteproject in Madagascar. Reflecting our ability to develop investment optionsfrom our existing portfolio, capital expenditure in the first half of the yearwas over $1 billion and is likely to be higher in the second half. "We are committed to efficient capital management in the interests ofshareholders. The strength of our cash flow enables us to continue to returnexcess capital to shareholders while maintaining the flexibility to takeadvantage of opportunities as they arise. In February, we announced ourintention to return $1.5 billion of capital to shareholders before the end of2006 and, with the completion of the off-market buy back in May 2005, we havealready returned over half this amount. "Although the rate of growth in the major economies slowed somewhat in the firsthalf of this year, we are still seeing strong markets for our products. Inparticular, demand from China remains strong. Low inventories and the time lagin the supply side response to increasing demand is likely to keep markets tightin the short to medium term. In the meantime, we continue to work on drivingworld class performance in all of our businesses to strengthen our long termcompetitive position." Chief Executive's comments Leigh Clifford, Rio Tinto's chief executive said, "Our operations have continuedto respond well to the opportunities and challenges that strong markets bringand maximisation of production has been the priority across most of thebusiness. Many of our operations produced record volumes. The ramp-up of thenew Comalco Alumina Refinery which began late last year continued through thefirst half of 2005 and we completed the expansion of our upgraded slag (UGS)plant in Quebec. "This is a challenging time to be undertaking major construction projects as themarket for mining related materials, equipment and skills is particularlycompetitive. Notwithstanding this, we will be progressively commissioning themajor expansion of our Dampier port in the Pilbara, Western Australia asscheduled during the second half of the year and the project remains on budget. "In the first half of this year we committed a further $290 million to theexpansion of existing Hamersley Iron mines in Western Australia. We alsorevised the scope of the Hail Creek expansion to facilitate further expansionsbeyond eight million tonnes in line with market demand and availableinfrastructure capacity. "As well as developing opportunities from within our existing portfolio, we alsosearch for opportunities to create value for our shareholders throughacquisitions and alliances. The agreement to form a joint venture to developthe Hope Downs iron ore deposits, which we announced at the beginning of July,brings an excellent resource to the Group. The development of the project willstrengthen Rio Tinto's position as Australia's prime supplier of iron ore. "We have a number of projects in the advanced study phase. The development ofone such project, the QMM ilmenite project in Madagascar and Canada, isannounced today. This project, which will enhance our leadership position inthis industry, will provide the catalyst for the broader economic development ofone of the poorest regions of Madagascar. In addition to creating value for ourshareholders, it gives us the opportunity to demonstrate the contribution thatmining can make to sustainable development through the successful integration offinancial, environmental and community objectives." Net earnings and underlying earnings In order to provide insight into the underlying performance of its business, RioTinto presents underlying earnings. The differences between underlying earningsand net earnings are set out in the following table. Six months ended 30 June 2005 2004 US$m US$m Underlying earnings 2,087 993 Items excluded from underlying earnings Profits on disposals of interests in businesses 89 875 Impairment charge - (160) Effect of exchange on US dollar debt and intragroup balances 9 (89) Mark to market of derivatives not qualifying as hedges (20 ) (8) Net earnings 2,165 1,611 Commentary on the Group financial results Underlying earnings of $2,087 million and net earnings of $2,165 million were$1,094 million and $554 million above the comparable measures for the first halfof 2004. The principal factors explaining the increases are set out in thetable below. Six months ended 30 June Underlying Net earnings earnings US$m US$m First half 2004 993 1,611 Prices 1,004 Exchange rates (85) Inflation (73) Volumes 460 Costs (185) Other (27) 1,094 1,094 Profits on disposals of interests in businesses (786) Impairment charge 160 Effect of exchange on US dollar debt and intragroup balances 98 Mark to market of derivatives not qualifying as hedges (12) First half 2005 2,087 2,165 Prices and exchange rates Prices for the major products were significantly above those experienced in2004. Compared with the first half of 2004 average copper prices were 21 percent higher and average aluminium prices 12 per cent higher. The strength ofthe global iron ore market was reflected in the 71.5 per cent increase in thebenchmark price, which was mainly effective from 1 April 2005. The seabornethermal and coking coal markets were also strong. Molybdenum prices, which have generally been below $5/lb over the last decade,averaged over $30/lb in the first half of 2005. The US dollar was generally weaker than in the first half of 2004 relative tothe currencies in which the Group incurs the majority of its costs. TheAustralian dollar was five per cent stronger, the Canadian dollar was eight percent stronger and the South African rand seven per cent stronger. The effect ofthis was to reduce underlying earnings relative to the first half of 2004 by $85million. Volumes Higher sales volumes increased earnings by $460 million compared with the firsthalf of 2004. The ramp-up of new projects in iron ore (Eastern Range mine andYandicoogina expansion), coking coal (Hail Creek) and alumina (CAR) allcontributed higher volumes. To take advantage of the strong market formolybdenum, the mine sequencing at Kennecott Utah Copper was optimised tomaximise molybdenum production. This, together with modifications to themolybdenum circuit at the concentrator, almost tripled production volume.Production of copper and gold from the Grasberg mine was also significantlyabove that of the first half of 2004. Costs Excluding the effects of inflation, higher costs reduced earnings by $185million. Of this, $60 million was due to higher energy costs. Strong marketscreate cyclical cost pressures in the industry and operations continued toexperience higher prices for skilled labour, steel, rubber, explosives, freightand other mining related supplies. Costs at Kennecott Utah Copper were alsoaffected by a scheduled 17 day smelter maintenance shutdown. Port congestion atDalrymple Bay resulted in higher demurrage charges. Tax The effective tax rate on underlying earnings, including associates and jointlycontrolled entities, was 30.1 per cent compared to 30.5 per cent in the firsthalf of 2004. Other The net after tax interest expense was $12 million lower than in the first halfof 2004 due to lower levels of net debt. First half 2004 underlying earningsincluded $52 million from businesses that have since been sold. Items excluded from underlying earnings In the first half of 2005 the net profit on the disposal of interests inbusinesses was $89 million relating mainly to the sale of Rio Tinto's interestin the Labrador Iron Ore Royalty Income Fund. Disposals in the first half of2004, principally the holding in Freeport-McMoRan Copper & Gold, resulted ingains of $875 million. Net earnings for the first half of 2004 included an impairment of $160 millionrelating to the Colowyo coal operation. There were no such items in the firsthalf of 2005. Exchange gains and losses on US dollar debt that are recorded in the US dollarincome statement and gains and losses on derivative contracts that do notqualify as hedges under IFRS are excluded from underlying earnings. Neither ofthese items were significant in either the first half of 2004 or the first halfof 2005. Cash flow Cash flow from operations, including dividends from equity accounted jointventures and associated companies, was a record $3,421 million, 69 per centhigher than the first half of 2004. Net working capital levels improved withdays inventories and receivables both continuing to fall. The Group's investment in the business continued. Purchase of property, plantand equipment of $1,110 million included the major port and rail infrastructureexpansion in Western Australia, initial expenditure on the construction of a newdike at Diavik and payments in respect of North Jacobs Ranch coal reserves byKennecott Energy. Dividends paid in the first half of 2005 of $622 million were $158 millionhigher than dividends paid in the first half of 2004. To reflect the increasedcapital base of the Group following a period of investment, dividends wereincreased by 20 per cent in 2004. Shareholders also benefited from theoff-market buy back of Rio Tinto Limited shares ($774 million). This representsover half of the $1.5 billion capital management programme announced on 3February 2005. Balance sheet The balance sheet strengthened during the period. Net debt reduced by $368million to $3,451 million. Debt to total capital fell to 21 per cent andinterest cover strengthened to 39 times. In the first half of 2005, net assets increased by $689 million. The profit forthe period was $1,569 million greater than dividends paid. The Rio TintoLimited share buyback reduced shareholders' equity by $774 million. The adoption of IAS 39 ("Financial Instruments: Recognition and Measurement")resulted in an increase of $109 million in net assets, less than one per cent ofthe total. This represents the net gain on marking to market of qualifyinghedges, embedded derivatives, available for sale investments and certainderivatives that do not qualify as hedges, which were not previously recognisedunder IFRS. IFRS These financial results have been prepared in accordance with accountingpolicies which are consistent with International Financial Reporting Standards(IFRS). Presentation materials explaining in detail the effects of thetransition to IFRS on the financial reporting of Rio Tinto were released on 5May 2005 and are available on the Rio Tinto website (www.riotinto.com). IFRS iscontinuing to evolve through the issue and/or endorsement of new Standards andInterpretations and developments in the application of recently issuedstandards. For that reason, the basis of preparation and the accountingpolicies applied in preparing the information in this release may requireadjustment before the Group issues its first complete set of IFRS financialstatements. IFRS defines Profit for the period reported in the income statement inclusive ofearnings attributable to outside shareholders in subsidiaries. For the firsthalf of 2005, the Profit for the period was $2,263 million (2004 first half$1,623 million) of which $98 million (2004 first half $12 million) wasattributable to outside shareholders, leaving $2,165 million (2004 first half$1,611 million) of net earnings attributable to Rio Tinto shareholders. Bothnet earnings and underlying earnings, which are the focus of the commentary inthis report, deal with amounts attributable to equity shareholders of Rio Tinto. Dividends Dividends are determined in US dollars. The interim dividend is set at one halfof the total dividends for the previous year. Therefore, interim dividendsequivalent to 38.5 US cents per share (2004: 32.0 US cents per share) have beendeclared by Rio Tinto plc and Rio Tinto 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 Monday 1 August 2005. Rio Tinto plc shareholders will be paid an interim dividend of 21.75 pence perordinary share (2004: 17.54 pence per share). Rio Tinto Limited shareholderswill be paid an interim dividend of 50.56 Australian cents per ordinary share(2004: 45.53 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 8 September 2005 to Rio Tintoplc shareholders on the register at the close of business on Friday 12 August2005 and to Rio Tinto Limited shareholders on the register at the close ofbusiness on Tuesday 16 August 2005. The ex-dividend date for both Rio Tinto plcand Rio Tinto Limited will be Wednesday 10 August 2005. Dividends will be paidto Rio Tinto ADR holders on Friday 9 September 2005. 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 17 August 2005. Rio Tinto financial information by business unit (1) Six months ended 30 June Rio Tinto Gross turnover (a) EBITDA (b) Net earnings (c)US $ millions interest % 2005 2004 2005 2004 2005 2004 Iron OreHamersley (inc. HIsmelt(R)) 100.0 1,425 840 766 348 474 179Robe River 53.0 477 270 302 146 145 59Iron Ore Company of Canada 58.7 422 238 207 49 67 14Rio Tinto Brasil (d) 19 53 - 20 (5) 5 2,343 1,401 1,275 563 681 257EnergyKennecott Energy 100.0 578 540 135 141 68 80Rio Tinto Coal Australia 100.0 1,065 691 441 191 228 72Rossing 68.6 60 48 11 11 1 -Energy Resources of Australia 68.4 98 72 41 28 10 5 1,801 1,351 628 371 307 157 Industrial Minerals 1,208 943 313 251 124 88 Aluminium (e) 1,383 1,119 416 323 203 162 CopperKennecott Utah Copper 100.0 966 520 663 247 465 151Escondida 30.0 538 461 378 315 219 182Freeport (f) - 43 - 7 - (4)Grasberg joint venture (g) 254 47 167 6 85 (8)Palabora 49.2 168 152 28 (6) 6 (9)Kennecott Minerals 100.0 139 130 72 68 42 43Other copper (h) 65 124 35 63 17 39 2,130 1,477 1,343 700 834 394DiamondsArgyle 100.0 246 195 107 69 40 36Diavik 60.0 186 170 136 129 50 54Murowa 78.0 22 - 14 - 9 - 454 365 257 198 99 90 Other operations 65 94 29 38 7 11 9,384 6,750 4,261 2,444 2,255 1,159Other items 55 55 (134) (105) (78) (74)Exploration and evaluation (64) (55) (59) (49)Net interest (31) (43)Underlying earnings 4,063 2,284 2,087 993Items excluded from underlying earnings 98 865 78 618Total 9,439 6,805 4,161 3,149 2,165 1,611 Depreciation and amortisation in subsidiaries (660) (566)Impairment charges - (150)Depreciation and amortisation in jointly controlled entities and (112) (109)associatesTaxation and finance items in jointly controlled entities and associates (168) (161)Profit before finance costs and tax 3,221 2,163 References above are to notes on page 40 Rio Tinto financial information by business unit (2) Six months ended 30 June Rio Tinto Capital expenditure Depreciation Operating assetsUS$ millions interest (k) & (m) amortisation (l) % 2005 2004 2005 2004 2005 2004Iron OreHamersley (inc. HIsmelt(R)) 100.0 431 329 81 83 2,388 1,680Robe River 53.0 87 37 44 41 1,601 1,448Iron Ore Company of Canada 58.7 25 12 22 17 466 470Rio Tinto Brasil (d) 21 6 2 3 68 86 564 384 149 144 4,523 3,684 EnergyKennecott Energy 100.0 123 96 40 51 894 810Rio Tinto Coal Australia 100.0 46 25 76 80 1,264 1,244Rossing 68.6 - 1 8 8 45 52Energy Resources of Australia 68.4 9 2 19 14 161 166 178 124 143 153 2,364 2,272 Industrial Minerals 107 73 84 85 2,212 2,051 Aluminium (e) 102 258 120 79 3,463 2,958 CopperKennecott Utah Copper 100.0 64 26 65 46 1,108 1,149Escondida 30.0 118 36 32 25 661 477Freeport (f) - - - 3 - -Grasberg joint venture (g) 26 16 21 19 348 378Palabora 49.2 7 19 15 22 322 472Kennecott Minerals 100.0 19 13 19 17 132 114Other copper (h) 9 38 15 15 182 159 243 148 167 147 2,753 2,749 DiamondsArgyle 100.0 27 47 46 16 610 531Diavik 60.0 53 25 39 31 575 591Murowa 78.0 2 8 3 - 16 10 82 80 88 47 1,201 1,132 Other operations 7 7 15 14 230 211 1,283 1,074 766 669 16,746 15,057Other items 10 4 5 155 (771) (613)Exploration and evaluation - - 1 1 18 23Less: jointly controlled entitiesand associates (191) (55) (112) (109)Total 1,102 1,023 660 716 15,993 14,467Less: net debt (3,451) (4,553)Total shareholders' equity 12,542 9,914 References above are to notes on page 40 Review of operations Comparison of underlying earnings First half underlying earnings of $2,087 million were $1,094 million above thefirst half underlying earnings of 2004. The table below shows the difference byproduct group. All financial amounts in the tables below are US$ millionsunless indicated otherwise. US$m First half 2004 underlying earnings 993 Iron ore 424 Energy 150 Industrial Minerals 36 Aluminium 41 Copper 440 Diamonds 9 Other operations (4) Exploration and evaluation (10) Interest 12 Other (4) First half 2005 underlying earnings 2,087 Iron Ore First half First half Change Full year 2005 2004 2004 Production (million tonnes) 59.8 51.5 +16% 107.8Gross turnover ($ millions) 2,343 1,401 +67% 3,009Underlying earnings ($ millions) 681 257 +165% 565EBITDA ($ millions) 1,275 563 +126% 1,176Capital expenditure ($ millions) 564 384 935 The above figures include Rio Tinto Brasil which was previously reported as partof the Copper product group. Comparative data has been adjusted accordingly. Market conditions Global demand for iron ore remained strong throughout the first half of 2005.The strength of the market was reflected in the increase in the benchmark priceof 71.5 per cent for the 2005 contract year. Brownfield mine expansions at Tom Price, Marandoo and Nammuldi were announced inApril 2005 to add to the extensive mine, rail and port expansion, constructionof which is now well advanced. In July 2005 an agreement to form a jointventure with Hancock Prospecting for the development of the Hope Downs projectwas announced. This will further strengthen Rio Tinto's position as the primesupplier of iron ore from Australia. Hamersley First half 2005 underlying earnings of $474 million were $295 million above thefirst half of 2004. Hamersley achieved record shipments in the first half of2005. Commissioning of the major port expansion commenced and will continueprogressively through the second half of the year. Hamersley's first half underlying earnings include a net loss of $4 million forHIsmelt (R) (First half 2004 $5 million net loss) due to scheduledpre-production and marketing costs. Construction has been completed and theoperations phase began in April 2005. First hot metal was produced in June2005. Reflecting the innovative nature of the technology, full production isexpected to be reached over a three year ramp-up period. Robe River First half underlying earnings of $145 million were $86 million above the firsthalf of 2005. First half production was four per cent above the first half of2004 although May shipments were affected by heavy rain at Cape Lambert, andWest Angelas production was affected by a planned two week shutdown as part ofthe expansion of capacity to 25 million tonnes per annum. The rail duplicationis proceeding on schedule. Iron Ore Company of Canada Underlying earnings of $67 million were $53 million above the first half of2004. Improved employee productivity under the new collective agreement andimproved plant availability resulted in record first half pellet production,nine per cent above the first half of 2004. Rio Tinto Brasil Rio Tinto Brasil made an underlying loss of $5 million in the first half of 2005compared with a net profit of $5 million in the first half of 2004, principallydue to the sale of Rio Tinto's interest in the Morro do Ouro gold mine inDecember 2004 and some one-off tax provisions in the first half of 2005. Energy First half First half Change Full year 2005 2004 2004Production Coal (million tonnes) Hard coking coal 3.9 3.3 +18% 6.8 Other Australian 15.3 15.9 -4% 32.9 US 58.2 56.3 +3% 117.7 Uranium (tonnes) 2,945 2,788 +6% 5,974Gross turnover ($ millions) 1,801 1,351 +33% 3,008Underlying earnings ($ millions) 307 157 +96% 431EBITDA ($ millions) 628 371 +69% 912Capital expenditure ($ millions) 178 124 244 US Coal - Kennecott Energy US coal production increased by approximately one per cent in the first half of2005 in line with the increase in US power generation. However, western coalincluding that from the Powder River Basin gained market share over easternproduction. Kennecott Energy's first half 2005 underlying earnings of $68 million were $12million below the first half of 2004. Second quarter production was marginallybelow the first quarter of the year as shipments were disrupted by two trainderailments on the main line in May in addition to ongoing railroad maintenance.Increased railroad maintenance, which is expected to continue through thesummer and possibly later into the year, will adversely affect Powder RiverBasin coal shipments. Earnings were adversely affected by higher fuel costs. Approval was given for the expansion of Antelope mine and development of theWest Antelope reserves. At a capital cost of US$87 million, this will optimisethe usage of the current facilities and enable production to increase in linewith market demand. Asia Pacific seaborne coal markets The global coking coal market has been strong, driven largely by increasedChinese steel production. With export thermal coal volumes from Australia andSouth Africa constrained by infrastructure, the partial withdrawal of Chinesesupply from the export thermal coal market has been balanced by increasedIndonesian and Colombian supply with the result that prices have remainedrelatively stable during the half. Rio Tinto Coal Australia Underlying earnings of $228 million were $156 million above the first half of2004, reflecting both higher prices and volumes. Available port and rail capacity constrained export shipments from theAustralian coal operations. In March 2005, the ship queue at Dalrymple Bay CoalTerminal peaked at over 54 vessels with a consequent impact on demurrage. Aqueue management system was successfully implemented from late April, althoughit was only in the latter part of the period that the vessel queue reducedsignificantly. At the port of Newcastle, the capacity balancing system that has been in placefor over a year remained effective at reducing demurrage charges although thequeue reached over 30 vessels in June as producers scheduled shipments to meetquarterly allocations. Production volumes reflected both the effects of shipping constraints and thenormal variation in line with the mining sequence. The Rio Tinto Board approved an enhanced Hail Creek expansion project in thefirst quarter. The expanded capacity of the project will remain at eight milliontonnes per annum, but the enhancement will allow further expansions in line withmarket demand and port and rail capacity. The revised capital expenditure forthe increase in annual capacity from six million tonnes to eight million tonnes,reflecting both the scope change and an increase due to cyclical material andlabour cost pressures, is $223 million. Uranium markets The further reduction of excess inventory has continued to push spot prices upto the $30/lb level. The lead time for significant new capacity from mines willbe at least five years which is expected to keep prices firm in the short tomedium term. As sentiment towards nuclear generation of power begins to changeand China commits to a nuclear generation investment programme, the longer termoutlook for uranium demand looks better than it has done for several years. Rossing Underlying earnings of $1 million were $1 million above the first half of 2004.Work continues on extending operations beyond the life of the existing open pit. Energy Resources Australia Underlying earnings of $10 million were $5 million above the first half of 2004due to both higher volumes and prices. Industrial Minerals First half First half Change Full year 2005 2004 2004 Production Borates (000 tonnes) 268 275 -2% 565 Titanium dioxide (000 tonnes) 649 577 +12% 1,192 Salt (000 tonnes) 2,776 2,390 +16% 4,792 Talc (000 tonnes) 720 717 +0% 1,443Gross turnover ($ millions) 1,208 943 +28% 2,126Underlying earnings ($ millions) Rio Tinto Borax 32 43 -26% 93 Rio Tinto Iron & Titanium 72 28 +157% 116 Dampier Salt 9 5 +80% 13 Luzenac 11 12 -8% 21 124 88 +41% 243EBITDA ($ millions) 313 251 +25% 554Capital expenditure ($ millions) 107 73 248 Rio Tinto Borax Underlying earnings of $32 million were $11 million below the first half of2004. First quarter borates production was affected by unusually wet weather atthe Boron mine which also adversely affected mining costs for a prolongedperiod. Costs were also adversely affected by higher diesel, natural gas andraw materials prices. Sales into Asia were particularly strong. Rio Tinto Iron & Titanium Underlying earnings of $72 million were $44 million above the first half of2004. Improvement in pigment markets flowed through into strong demand forchloride feedstocks and QIT's upgraded slag (UGS) product. The expansion of theUGS was completed on time and is being ramped-up to full capacity. Demand wasalso generally strong for Rio Tinto Iron & Titanium's co-products although theiron and steel markets softened somewhat towards the end of the half. The Board has recently approved the construction of a new ilmenite project inMadagascar. The project will involve the construction of a dredging operationand port in Madagascar at a cost of $585 million and the enhancement of existingsmelting facilities in Sorel, Canada at a cost of $190 million. Firstproduction is expected towards the end of 2008 and the initial capacity, all ofwhich will be smelted in Sorel, will be 750,000 tonnes per year of ilmenite.The final product will be a new, high quality chloride slag with 91 per centtitanium dioxide content. Dampier Salt Underlying earnings of $9 million were $4 million above the first half of 2004.The North Shore project, which will optimise production across the three sites,was completed in the first half of the year. Luzenac Underlying earnings of $11 million were $1 million below the first half of 2004.Increased sales to the polymer market were counteracted by higher freight andenergy costs and the adverse effects of exchange rate movements. Aluminium First half First half Change Full year 2005 2004 2004 Production Bauxite (000 tonnes) 7,117 6,339 +12% 12,828 Alumina (000 tonnes) 1,490 1,030 +45% 2,231 Aluminium (000 tonnes) 421.6 417.1 +1% 836.5Gross turnover ($ millions) 1,383 1,119 +24% 2,356Underlying earnings ($ millions) 203 162 +25% 331EBITDA ($ millions) 416 323 +29% 688Capital expenditure ($ millions) 102 258 505 Prices The average aluminium price of 84c/lb was 12 per cent above the first half 2004average price. The alumina market remained tight and spot prices continued totrade at over $400 per tonne. These, together with the effects of other pricemovements, increased earnings by $89 million. Bauxite Bauxite production was 12 per cent above the first half of 2004 in order tosupply the new Comalco Alumina Refinery (CAR). The higher production was aidedby the NeWeipa mine expansion which was completed in the second half of 2004. Alumina The ramp up of CAR is progressing well with 425,000 tonnes produced in the firsthalf of 2005. The production processes at both Eurallumina and QAL were stable.First half production from QAL was a half year record and production fromEurallumina was only marginally below the record level achieved in the secondhalf of 2004. Overall first half alumina production was up 45 per cent comparedto the first half of 2004. Production costs were adversely affected by highercaustic soda prices, higher internal freight costs and higher fuel costs. Aluminium All of the aluminium smelters operated consistently at, or near, capacity.Earnings were adversely affected by higher average power and other input costs,partly offset by the benefits from stable operations and the Six Sigmaimprovement programme. Copper First half First half Change Full year 2005 2004 2004 Production Mined copper (000 tonnes) 378.3 373.4 +1% 753.1 Refined copper (000 tonnes) 139.8 169.0 -17% 332.6 Mined molybdenum (000 tonnes) 7.1 2.5 +184% 6.8 Mined gold (000 oz) 809 570 +42% 1,164Gross turnover ($ millions) 2,130 1,477 +44% 3,033Underlying earnings ($ millions) 834 394 +112% 860EBITDA ($ millions) 1,343 700 +92% 1,503Capital expenditure ($ millions) 243 148 326 Kennecott Utah Copper Underlying earnings of $465 million were $314 million higher than the first halfof 2004. In order to take advantage of the strong market for molybdenum, minesequencing was optimised to maximise molybdenum production and hence copperconcentrate production was lower than in the first half of 2004. Both gold andmolybdenum grades were significantly above the first half of 2004. An expansionof the molybdenum plant, which is designed to increase recoveries, was completedin June 2005. The smelter was shut down for 17 days in the second quarter for scheduledmaintenance, which adversely affected production of both refined copper andgold. By the end of June, the smelter had returned to full production. Escondida Underlying earnings of $219 million were $37 million above the first half of2004. Mined copper production was marginally below the first half reflectingvariations in grade due to mine sequencing. Mill throughput continued toincrease, resulting in improved daily production rates. Grasberg joint venture Underlying earnings of $85 million were $93 million above the first half of2004, excluding the earnings attributable to Rio Tinto's holding inFreeport-McMoRan Copper & Gold prior to its disposal in March 2004. Both copperand gold production at the Grasberg mine were significantly above the first halfof 2004 when efforts were focused on the recovery from the 2003 materialslippage. Kennecott Minerals Underlying earnings of $42 million were $1 million below the first half of 2004.The effects of higher gold prices were offset by higher costs and lower salesvolumes from Cortez due to lower grades. Palabora Underlying earnings of $6 million compare with an underlying loss of $9 millionin the first half of 2004. The underground mine production exceeded itsnameplate capacity of 30,000 tonnes per day in May and June. Earnings alsobenefited from lower operating costs following the business review in the secondhalf of 2004. Northparkes Underlying earnings of $17 million were $6 million above the first half of 2004.Copper production was 71 per cent higher as the new Lift 2 block caveramped-up to full capacity. Nameplate capacity was reached in June 2005. Other Rio Tinto's interests in Somincor, Morro do Ouro and Zinkgruvan which werereported in the Copper product group, were sold during 2004. Rio Tinto Brasiland Kennecott Land, which previously reported in the Copper product group nowreport in the Iron Ore product group and Other Operations respectively.Comparative data has been adjusted accordingly. Diamonds First half First half Change Full year 2005 2004 2004Production Diamonds (000 carats) Argyle 18,057 6,282 +187% 20,620 Diavik 2,558 2,286 +12% 4,545Gross turnover ($ millions) 454 365 +24% 744Underlying earnings ($ millions) 99 90 +10% 188EBITDA ($ millions) 257 198 +30% 419Capital expenditure ($ millions) 82 80 152 Diamond markets Due to a strong US jewellery market, demand for rough diamonds, particularlysmaller and larger stones, continued to increase through the first half of 2005.This resulted in price rises for Argyle and Diavik production. Polishedprices continued to increase at the wholesale level. Diavik Underlying earnings of $50 million were $4 million below the first half of 2004.The effect of the weaker US dollar offset the benefit from higher prices. Argyle Underlying earnings of $40 million were $4 million above the first half of 2004.Production at Argyle returned to more normal levels in the second half of 2004following the tight mining conditions experienced in the first half. The Argyle underground feasibility decision on mine closure or further minedevelopment is expected around the end of the year. Murowa Underlying earnings from Murowa, which commenced production in the second halfof 2004, were $9 million. Other operations First half First half Change Full year 2005 2004 2004Underlying earnings ($ millions) 7 11 -36% 25 Kelian ceased processing ore in February 2005 and the final gold pour was in May2005. At Kennecott Land's Project Daybreak, land sales started in mid-2004 and willramp-up over a period of 5-6 years. To date builders have closed on over 400lots. Exploration and evaluation First half First half Change Full year 2005 2004 2004Post-tax charge ($ millions) 59 49 +20% 128 Exploration drilling continued on copper targets in Chile, Turkey, Mexico and inthe US. Diamond exploration continued in Canada, Botswana, Mauritania, Indiaand Brazil. Iron ore exploration continued in the Hamersley Basin (WesternAustralia) and in west Africa. Exploration for thermal and coking coalopportunities continued in southern Africa, Australia and Canada. At La Sampala(nickel, Indonesia), scoping studies are underway Brownfield exploration is under way at a number of Rio Tinto businesses, withnotable efforts to expand resources being made in the Pilbara, at KUC, on theFreeport and Cortez joint ventures, at Greens Creek, and at Northparkes. Evaluation work continued at Eagle (nickel/copper, US), Sari Gunay (gold, Iran),Resolution (copper/gold, US), Potasio Rio Colorado (potash, Argentina) andSimandou (iron ore, Guinea). Reflecting the positive progress so far in itsevaluation and pilot work at Potasio Rio Colorado, Rio Tinto exercised itsoption over the Potasio Rio Colorado project in July 2005 to take full ownershipof the project. Capital projects Project Estimated Status/Milestones cost (100%)Completed in 2005Iron ore - HIsmelt (R) (Rio Tinto 60%) direct iron $200m Construction was completed and thesmelting technology. Construction of an 800,000 operations phase began in April 2005.tonne capacity plant in Kwinana, Western Australia. Full commissioning will take three years. First hot metal was produced in June 2005.Iron ore - Expansion of Yandicoogina mine (Rio $200m Commissioning ramp-up is progressingTinto 100 %) from 24 million tonnes per annum to 36 well and the plant has been operatingmillion tonnes per annum. at design capacity.Titanium dioxide - Expansion of Rio Tinto Iron & $76m Commissioning started in March 2005Titanium's (Rio Tinto 100%) upgraded slag plant and the plant is ramping up to full(UGS) from 250,000 tonnes per annum to 325,000 capacity.tonnes per annum.OngoingIron ore - Expansion of Hamersley's (Rio Tinto $685m The project is 76 % complete and100%) port capacity to 116 million tonnes per remains on track for completion byannum. the end of 2005.Iron ore - Expansion by Robe River (Rio Tinto 53%) $200m The project is 63 % complete andof rail capacity including completion of dual track laying is on schedule.tracking of 100 km mainline section.Iron ore - Expansion of West Angelas mine (Rio $105m At 30 June 2005 construction was 84 %Tinto 53%) from 20 million tonnes per annum to 25 complete and project completion ismillion tonnes per annum. expected in the third quarter of 2005.Coking coal - Hail Creek (Rio Tinto 82%) Expansion $223m A revised project scope, which willof annual capacity from 6 million tonnes to 8 facilitate expansions beyond 8million tonnes per annum. million tonnes in line with market demand and port capacity, was approved in the first quarter of 2005.Copper - Escondida Norte (Rio Tinto 30%). $400m First production is expected in theSatellite deposit will provide mill feed to keep fourth quarter of 2005.Escondida capacity above 1.2 million tonnes perannum to the end of 2008.Copper - Escondida sulphide leach (Rio Tinto 30%). $870m First production is expected in theThe project will produce 180,000 tonnes per annum second half of 2006.of copper cathode for more than 25 years.Diamonds - Construction at Diavik (Rio Tinto 60%) $265m The project was approved in Decemberof the A418 dike, and funding for further study of 2004. Preparatory work has commencedthe viability of underground mining, including the for the construction of the A418construction of an exploratory decline. dike. Construction of the exploratory decline has commenced. First production from the A418 pit will be in 2008. Project Estimated Status/Milestones cost (100%)Recently approvedCopper - Kennecott Utah Copper (Rio Tinto 100%) $170m The project was approved inEast 1 pushback. The project extends the life of February 2005 and work on thethe open pit to 2017 while retaining options for pushback has commenced.further underground or open pit mining thereafter.Titanium dioxide - Construction by QMM (Rio Tinto $775m The project was approved in August80%) of a greenfield ilmenite operation in 2005 and first production isMadagascar and associated upgrade of processing expected in late 2008.facilities at QIT.Iron ore - Expansion of Hamersley's (Rio Tinto $290m Approved in April 2005,100%) Tom Price and Marandoo mines and construction commissioning is expected toof new mine capacity at Nammuldi. commence from early 2006. Divestments The sale of Rio Tinto's holding in the Labrador Iron Ore Royalty Income Fund(LIORIF) for cash consideration of $130 million was completed in the firstquarter of 2005. LIORIF has an equity interest of 15.1 per cent in, andreceives royalties from, the Iron Ore Company of Canada (IOC). The transactionhas no effect on Rio Tinto's 59 per cent interest in IOC. Price & exchange rate sensitivities The following sensitivities give the estimated effect on underlying earningsassuming that each individual price or exchange rate moved in isolation. Therelationship between currencies and commodity prices is a complex one andmovements in exchange rates can cause movements in commodity prices and viceversa. The exchange rate sensitivities quoted below include the effect onoperating costs of movements in exchange rates but exclude the effect due to therevaluation of foreign currency working capital. They should therefore be usedwith care. Average price/exchange rate 10 per cent change Effect on full year for first half 2005 underlying earnings US$m Copper 151c/lb +/- 15.1c/lb 195Aluminium 84c/lb +/-8.4c/lb 125Gold $427/oz +/- $42.7/oz 55Molybdenum $31/lb +/- $3.1/lb 40 Australian dollar 77USc +/-7.7USc 245Canadian dollar 81USc +/-8.1 60South African rand 16USc +/-1.6 20 For further information, please contact: LONDON AUSTRALIAMedia Relations Media RelationsLisa Cullimore Ian HeadOffice: +44 (0) 20 7753 2305 Office: +61 (0) 3 9283 3620Mobile: +44 (0) 7730 418 385 Mobile: +61 (0) 408 360 101 Investor Relations Investor RelationsNigel Jones Dave SkinnerOffice +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628Mobile +44 (0) 7917 227 365 Mobile: +61 (0) 408 335 309Richard Brimelow Susie CreswellOffice: +44 (0) 20 7753 2326 Office: +61 (0) 3 9283 3639Mobile: +44 (0) 7753 783 825 Mobile: +61 (0) 418 933 792 Website: www.riotinto.com Group income statement Six months Six months Year to 31 to 30 June to 30 June December 2005 2004 2004 US$m US$m US$m Gross turnover (including share of jointly controlled entities and associates) 9,439 6,805 14,530 Share of jointly controlled entities' and associates' turnover (768) (787) (1,576) Consolidated turnover 8,671 6,018 12,954Operating costs (excluding impairment charges) (5,823) (4,846) (10,249)Impairment charges (a) - (160) (558)Profit on disposal of interests in businesses and investments (b) 98 875 1,180 Operating profit 2,946 1,887 3,327Share of profit after tax of jointly controlled entities and associates 275 276 523Profit before finance items and taxation 3,221 2,163 3,850 Finance itemsExchange (losses)/gains on external debt and intragroup balances (14) (191) 119(Losses)/gains on currency and interest rate derivatives not qualifyingfor hedge accounting (27) (9) 16Interest receivable 23 11 28Interest payable and similar charges (84) (82) (148)Amortisation of discount related to provisions (55) (41) (87) (157) (312) (72)Profit before taxation 3,064 1,851 3,778 Taxation (a),(b) (801) (228) (613) Profit for the period 2,263 1,623 3,165 - attributable to outside equity shareholders (a) 98 12 (53)- attributable to equity shareholders of Rio Tinto (Net earnings) 2,165 1,611 3,218 Basic earnings per ordinary share 157.6c 116.8c 233.3cDiluted earnings per ordinary share 157.3c 116.7c 232.9cRelated Shares:
Rio Tinto