2nd Feb 2006 07:00
Rio Tinto PLC02 February 2006 Record earnings advance, record investment and major capital managementprogramme • Underlying earnings* of $4,955 million were $2,683 million or 118 percent above 2004. • Net earnings* were $5,215 million compared with $3,297 million in2004. • Strong operational performance enabled record volumes of most productsto be delivered. Higher volumes increased underlying earnings by $1,140million. • Cashflow from operations was a record $8,257 million, 85 per centhigher than achieved in 2004. • The final dividend under the progressive ordinary dividend policybrings total dividends for the year to US 80 cents per share, an increase offour per cent from 2004. • Investment in the growth of the business continued, with capitalexpenditure at a record of $2,552 million. This is expected to grow further in2006 and 2007. • A major capital management programme totalling $4 billion isannounced, comprising a $1.5 billion special dividend (equivalent to $1.10 pershare), and a share buyback programme totalling $2.5 billion by the end of 2007.This replaces the $0.5 billion remaining from the 2005 programme. • The construction of the first phase of the major port and railinfrastructure expansion for the Australian iron ore operations was completed onschedule and on budget in 2005. • Significant new investments were approved in a further stage of theexpansion of the Australian iron ore operations, in the titanium dioxide projectin Madagascar and Canada, in the Cortez Hills gold joint venture in the USA andin the Argyle Diamonds underground mine development in Australia. • The Group's long term commitment to exploration is underlined by therecent announcement of a significant new exploration joint venture with NorilskNickel in Russia. Full year to 31 December 2005 2004 Change (All dollars are US$ unless otherwise stated)Underlying earnings* 4,955 2,272 +118%Net earnings* 5,215 3,297 +58%Cash flow from operations (incl. dividends from JCE's and associates) 8,257 4,452 +85%Underlying earnings per share - US cents 363.2 164.8 +120%Earnings per share - US cents 382.3 239.1 +60% *Net earnings and underlying earnings relate to profit attributable to equity shareholders of Rio Tinto. Chairman's comments Rio Tinto's chairman Paul Skinner said, "2005 was a very good year for RioTinto. Our high quality asset base, continuing investment in increasedproduction, strong operational performance and high levels of demand in mostmarkets combined to deliver record underlying earnings of $4,955 million andcashflows of $8,257 million, including dividends from equity accounted units. "Notwithstanding high levels of investment in growth and exploration, the 20 percent rebasing of future dividend levels in 2005, and a capital return of $1billion over the course of the year, these very strong cashflows have continuedto reinforce our financial position. "We have announced significant investments in our iron ore, industrialminerals, diamond and copper businesses, reflecting the scope for value addingoptions within our existing portfolio. "Our financial position enables us to fund our current and expanding investmentprogramme, retain sufficient flexibility to take advantage of opportunities asthey arise, and also make a $4 billion capital return to shareholders. We aretherefore announcing, in addition to our regular dividend, a special dividend of$1.5 billion ($1.10 per share) and, depending on market conditions, a furthercapital return of $2.5 billion over two years, replacing the remainder of theinitiative announced in February 2005. This reflects our continuing commitmentto efficient capital management. "Global economic growth in 2005 showed continued resilience and demand fromChina remained strong. The low level of inventories and limited additionalsupply kept markets tight. 2006 has opened strongly and, notwithstanding globaleconomic imbalances, the outlook remains positive." Chief Executive's comments Leigh Clifford, Rio Tinto's chief executive said, "In these strong markets formost of our products, the Group's focus has been on operational and projectdelivery, with the emphasis on maximising production from existing operationsand ensuring our major growth projects are completed effectively. In many casesour operations are producing record volumes, with production records set in ironore, molybdenum, coking coal, bauxite, alumina and upgraded titanium slag in2005. "The first phase of the expansion of our iron ore infrastructure in WesternAustralia was completed on time and budget, and work has already started on thenext phase of the expansion, which will take total capacity to close to 200million tonnes. Over the past two years Rio Tinto has committed $3 billion toexpanding its operations in the Pilbara. "Expansions at Hail Creek and QIT's Upgraded Slag Plant are also progressingwell, and the Comalco Alumina Refinery continues to ramp up. Capital expenditurein 2006 and 2007 is likely to rise further as we undertake the construction ofour Madagascar ilmenite project and the recently approved underground minedevelopment at Argyle Diamonds. Additionally, our commitment to worldwideexploration and the continued search for new areas of opportunity areillustrated by the recent announcement of a major new exploration joint venturewith Norilsk Nickel in Russia. "At a time when cost pressures and supply shortages exist for many miningrelated inputs, the Group is focussed on ensuring that we are well placed tomanage their impact on operations. In addition to the Group's global procurementprogramme, we are seeking to enhance margins by improving our performance acrossall our businesses through leveraging our scale and the spread of best practice.Our aim remains to deliver superior performance in all market conditions." Net earnings and underlying earnings In order to provide insight into the underlying performance of its business, RioTinto presents underlying earnings. The differences between underlying earningsand net earnings are set out in the following table. Year ended 31 December 2005 2004 US$m US$m Underlying earnings 4,955 2,272 Items excluded from underlying earnings Profits on disposal of interests in businesses (including investments) 311 1,175 Impairment reversal/(charge) 4 (321) Adjustment to Kennecott Utah Copper environmental remediation provision 84 - Effect of exchange on external US$ debt and intragroup balances (99) 159 Mark to market of derivatives not qualifying as hedges (40) 12 Net earnings 5,215 3,297 Commentary on the Group financial results Underlying earnings of $4,955 million and net earnings of $5,215 million were$2,683 million and $1,918 million above the comparable measures for 2004. Theprincipal factors explaining the increases are set out in the table below. Year ended 31 December Underlying Net earnings earnings US$m US$m 2004 2,272 3,297 Prices 2,374 Exchange rates (123) Inflation (141) Volumes 1,140 Costs (598) Other 31 2,683 2,683 Profits on disposal of interests in businesses (including (864) investments) Net impairment charge 325 Adjustment to Kennecott Utah Copper environmental provision 84 Effect of exchange on external US$ debt and intragroup balances (258) Mark to market of derivatives not qualifying as hedges (52) 2005 4,955 5,215 Prices and exchange rates The effect of price movements on all major commodities was to increase earningsby $2,374 million. Prices for the major products remained strong throughout theyear and were appreciably higher than those experienced in 2004: average copperprices were 28 per cent higher whilst average aluminium prices were ten per centhigher. The strength of the global iron ore market was reflected in the 71.5per cent increase in the benchmark price, mainly effective from 1 April 2005.The seaborne thermal and coking coal markets were also strong. Molybdenum prices, which have generally been below $5/lb over the last decade,averaged over $30/lb throughout 2005, although they did soften towards the endof the year. The US dollar was generally weaker than in 2004 relative to the currencies inwhich the Group incurs the majority of its costs. The Australian and Canadiandollars strengthened against the US dollar by four per cent and eight per cent,respectively. The effect of this, together with other currency movements, wasto reduce underlying earnings relative to 2004 by $123 million. Volumes Over 40 per cent of the underlying earnings increase year on year came fromhigher sales volumes, resulting in a favourable variance of $1,140 millioncompared with 2004. The West Angelas and Yandicoogina (to 36 million tonnes perannum) mine expansions were completed in 2005 whilst strong operationalperformance led to major production gains at many operations including the IronOre Company of Canada and Argyle Diamonds. To take advantage of the strongmarket for molybdenum, the mine sequencing at Kennecott Utah Copper wasoptimised to maximise molybdenum production. This, together with modificationsto the molybdenum circuit at the concentrator, boosted production volumes by 130per cent. Production of copper and gold from the Grasberg mine was alsosignificantly above that of 2004. Costs Excluding the effects of inflation, higher costs reduced earnings by $598million. Of this, $130 million was due to higher energy costs and $46 millionwas attributable to increased exploration expenditure from brownfieldexploration and further evaluation work on advanced projects. The strong priceenvironment being enjoyed by the mining industry has led to rising mining inputcosts caused by supply constraints for skilled labour, steel, tyres, explosives,freight and other mining related goods and services. Costs at Kennecott UtahCopper were affected by a scheduled 17 day smelter maintenance shutdown in thefirst half of 2005 whilst continued port congestion at Dalrymple Bay,Queensland, fed through to higher demurrage charges. Higher non-cash costs reflected increased depreciation at Utah Copper in linewith the 2004 decision to align these charges with the end of the extended lifeof the open pit in 2017. Further depreciation was incurred for closure costassets. One-off costs reflected restructuring costs relating to the formation ofthe Rio Tinto Minerals organisation. Tax The effective tax rate on underlying earnings, including associates and jointlycontrolled entities, was 29.7 per cent compared with 28.7 per cent in 2004,which includes the effects of increased profits being generated in countrieswith higher marginal tax rates. Other The net after tax interest expense of $44 million was $25 million lower than in2004 due to lower levels of net debt. 2004 underlying earnings includedcontributions totalling $88 million from the operations of businesses that weresold during that year. 2005 earnings reflected lower claims on the captiveinsurers due to the absence of cyclone related damages experienced in 2004. Items excluded from underlying earnings In 2005 the net profit on the disposal of interests in businesses was $311million relating mainly to the sale of Rio Tinto's interests in the LabradorIron Ore Royalty Income Fund and in Lihir Gold. Disposals in 2004, principallythe holding in Freeport-McMoRan Copper & Gold, resulted in gains of $1,175million. 2005 net earnings include a reduction of $84 million in an environmentalremediation provision at Kennecott Utah Copper, reversing part of an exceptionalcharge taken up in 2002. In addition there was a reversal of an impairmentprovision for the Madagascar project following the decision to proceed with thedevelopment, offset by a minor impairment of a technology investment. Net earnings in 2004 included an impairment of $160 million relating to theColowyo coal operation and a provision of $161 million for the write down ofPalabora's copper assets. 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. Cash flow Cash flow from operations, including dividends from jointly controlled entitiesand associates, was a record $8,257 million, 85 per cent higher than in 2004. The Group's investment in the growth of the business was sustained throughoutthe year. Purchase of property, plant and equipment and intangible assets of$2,552 million included the major port and rail infrastructure expansion inWestern Australia, lease payments for coal reserves purchased by KennecottEnergy, the expansion of Hail Creek coking coal and initial expenditure on theconstruction of a new dike at Diavik. Dividends paid in 2005 of $1,141 million were $235 million higher than dividendspaid in 2004, following the 20 per cent increase in the dividend in the previousyear. Shareholders also benefited from the off-market buy back of Rio TintoLimited shares and the commencement of the Rio Tinto plc on-market buybackprogramme. Two thirds of the $1.5 billion capital management programmeannounced on 3 February 2005 had been completed by the end of January 2006. Theremainder of this programme has now been replaced by a new buyback proposaltotalling $2.5 billion to the end of 2007, subject to market conditions. Balance sheet The balance sheet strengthened during the period. Net debt reduced by $2,496million to $1,313 million. Debt to total capital fell to eight per cent andinterest cover strengthened to 59 times. In 2005, net assets increased by $3,148 million. The profit for the year was$4,074 million greater than dividends paid. The share buyback programme hadreduced shareholders' equity by $877 million by the end of December 2005. 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 derivatives andinvestments available for sale, which were not previously recognised. IFRS These financial results have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) adopted for use in the European Union.Presentation materials explaining in detail the effects of the transition toIFRS on the financial reporting of Rio Tinto were released on 5 May 2005 and areavailable on the Rio Tinto website (www.riotinto.com). IFRS require that the profit for the period reported in the income statementshould also include earnings attributable to outside shareholders insubsidiaries. For 2005, the profit for the year was $5,498 million (2004 $3,244million) of which $283 million (2004 $53 million loss) was attributable tooutside shareholders, leaving $5,215 million (2004 $3,297 million) of netearnings attributable to Rio Tinto shareholders. Both net earnings andunderlying earnings, which are the focus of the commentary in this report, dealwith amounts attributable to equity shareholders of Rio Tinto. Dividends Dividends are determined in US dollars. Rio Tinto plc dividends are declaredand paid in pounds sterling and Rio Tinto Limited dividends are declared andpaid in Australian dollars, converted at exchange rates applicable on Tuesday 31January 2006. The interim and final dividends, together with the specialdividend, are summarised below. 2005 2004Ordinary dividendRio Tinto GroupInterim (US cents) 38.50 32.00Final (US cents) 41.50 45.00Total dividend (US cents) 80.00 77.00 Rio Tinto plcInterim (pence) 21.75 17.54Final (pence) 23.35 23.94Total dividends (pence) 45.10 41.48 Rio Tinto LimitedInterim (Australian cents) 50.56 45.53Final (Australian cents) 54.86 58.29Total dividends (Australian cents) 105.42 103.82 Special dividendRio Tinto Group (US cents) 110.00 -Rio Tinto plc (pence) 61.89 -Rio Tinto Limited (Australian cents) 145.42 - The special dividend will be paid to shareholders at the same time as the 2005final dividend. Rio Tinto Limited shareholders will be paid dividends which will be fullyfranked. The Board expects Rio Tinto Limited to be in a position to pay fullyfranked dividends for the reasonably foreseeable future. The respective dividends will be paid on Thursday 6 April 2006 to Rio Tinto plcshareholders on the register at the close of business on Friday 24 February 2006and to Rio Tinto Limited shareholders on the register at the close of businesson Tuesday 28 February 2006. The ex-dividend date for both Rio Tinto plc andRio Tinto Limited will be Wednesday 22 February 2006. Dividends will be paid toRio Tinto ADR holders on Friday 7 April 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 Thursday 16 March 2006. Rio Tinto financial information by business unit Year ended 31 December Rio Gross turnover (a) EBITDA (b) Net earningsUS$ millions Tinto (c) interest % 2005 2004 2005 2004 2005 2004 Iron OreHamersley (inc. HIsmelt(R)) 100.0 3,387 1,858 1,924 772 1,219 430Robe River 53.0 1,113 614 726 318 362 130Iron Ore Company of Canada 58.7 954 428 451 55 148 4Rio Tinto Brasil (d) 43 109 1 31 (7) 1 5,497 3,009 3,102 1,176 1,722 565 EnergyKennecott Energy 100.0 1,197 1,125 257 298 135 180Rio Tinto Coal Australia (e) 2,302 1,585 1,067 536 572 236Rossing 68.6 163 124 24 8 2 (4)Energy Resources of Australia 68.4 205 174 94 70 24 19 3,867 3,008 1,442 912 733 431 Industrial Minerals 2,487 2,126 563 554 187 243 Aluminium (f) 2,744 2,356 855 688 392 331 CopperKennecott Utah Copper 100.0 2,141 1,091 1,436 498 1,037 311Escondida 30.0 1,239 1,003 1,014 699 602 406Freeport (g) - 43 - 7 - (4)Grasberg joint venture (h) 657 159 436 98 232 32Palabora 47.2 371 305 77 (20) 19 (21)Kennecott Minerals 100.0 256 263 119 130 73 82Other Copper (i) 175 169 109 91 57 54 4,839 3,033 3,191 1,503 2,020 860 DiamondsArgyle 100.0 572 322 252 102 117 40Diavik 60.0 460 420 334 316 143 147Murowa 78.0 44 2 31 1 21 1 1,076 744 617 419 281 188 Other Operations 93 167 36 81 2 25 20,603 14,443 9,806 5,333 5,337 2,643Other items 139 87 (284) (250) (164) (174)Exploration and evaluation (190) (142) (174) (128)Net interest (44) (69)Underlying earnings 9,332 4,941 4,955 2,272Items excluded from underlying earnings 407 1,170 260 1,025Total 20,742 14,530 9,739 6,111 5,215 3,297 Depreciation & amortisation in subsidiaries (1,334) (1,171)Impairment reversal/(charge) 3 (548)Depreciation & amortisation in jointly controlled entities and (281) (228)associatesTaxation and finance items in jointly controlled entities and (429) (314)associatesProfit on ordinary activities before finance items and tax 7,698 3,850References above are to notes on page 29 Rio Tinto financial information by business unit (continued)Year ended 31 December DepreciationUS$ millions Rio Capital & Operating Tinto expenditure amortisation assets interest (l) (m) (n) % 2005 2004 2005 2004 2005 2004 Iron OreHamersley (inc. HIsmelt(R)) 100.0 935 757 174 158 2,555 2,234Robe River 53.0 160 109 89 83 1,487 1,640Iron Ore Company of Canada 58.7 98 51 47 41 451 521Rio Tinto Brasil (d) 36 18 5 7 81 50 1,229 935 315 289 4,574 4,445 EnergyKennecott Energy 100.0 204 162 85 86 908 810Rio Tinto Coal Australia (e) 171 73 164 167 1,147 1,282Rossing 68.6 3 2 16 15 66 40Energy Resources of Australia 68.4 34 7 40 35 180 179 412 244 305 303 2,301 2,311 Industrial Minerals 235 248 172 173 2,311 2,209 Aluminium (f) 242 505 274 190 3,361 3,521 CopperKennecott Utah Copper 100.0 164 69 136 90 1,144 1,075Escondida 30.0 229 113 69 54 812 594Freeport (g) - - - 3 - -Grasberg joint venture (h) 45 30 35 43 321 397Palabora 47.2 17 30 32 41 226 360Kennecott Minerals 100.0 34 36 32 27 129 135Other Copper (i) 16 48 33 23 177 192 505 326 337 281 2,809 2,753 DiamondsArgyle 100.0 77 89 78 44 523 639Diavik 60.0 121 49 79 64 548 574Murowa 78.0 5 14 5 - 14 16 203 152 162 108 1,085 1,229 Other Operations 5 13 35 45 143 242 2,831 2,423 1,600 1,389 16,584 16,710 Other items 63 8 12 556 (305) (1,029)Exploration and evaluation 4 (3) 3 2 (18) 5Less: jointly controlled entities and (382) (213) (281) (228)associatesTotal 2,516 2,215 1,334 1,719 16,261 15,686Less: Net debt (1,313) (3,809)Total shareholders' equity 14,948 11,877References above are to notes on page 29 Review of operations Comparison of underlying earnings 2005 underlying earnings of $4,955 million were $2,683 million above 2004underlying earnings. The table below shows the difference by product group.All financial amounts in the tables below are US$ millions unless indicatedotherwise. US$m 2004 underlying earnings 2,272 Iron ore 1,157 Energy 302 Industrial Minerals (56) Aluminium 61 Copper 1,160 Diamonds 93 Other operations (23) Exploration and evaluation (46) Interest 25 Other 10 2005 underlying earnings 4,955 All subsequent references to earnings within the business unit section refer tounderlying earnings. Iron Ore 2005 2004 ChangeProduction (million tonnes - Rio Tinto share) 124.5 107.8 +16%Gross turnover ($ millions) 5,497 3,009 +83%Underlying earnings ($ millions) 1,722 565 +205%EBITDA ($ millions) 3,102 1,176 +164%Capital expenditure ($ millions) 1,229 935 +31% 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 all iron ore products remained strong throughout the year. Thestrength of the market was reflected in the increase in the benchmark price of71.5 per cent for the contract year, mainly effective from 1 April 2005. 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 signed. Further expansions of Hamersley's wholly owned Yandicoogina mine andof the Dampier port in Western Australia were approved in October 2005 to takethe capacity of Rio Tinto's ports in the Pilbara to close to 200 million tonnesby 2008. Hamersley Earnings of $1,219 million were $789 million above 2004. In 2005, Hamersleyachieved record shipments of 90 million tonnes, up 18 per cent on the previousyear. 26 per cent of these sales were delivered on a basis which includedfreight and insurance costs. Commissioning of the major port expansion commencedand the ramp-up of new shiploading facilities at Dampier boosted exportcapacity. Hamersley's 2005 earnings include a net loss of $19 million for HIsmelt (R)(2004 $9 million net loss) due to scheduled pre-production and marketing costs.The hot commissioning phase was completed in October. HIsmelt (R) is currentlyin the ramp up phase. Reflecting the innovative nature of the technology, fullproduction is expected to be reached over a three year ramp-up period. Robe River Earnings of $362 million were $232 million above 2004. Production and sales ofWest Angelas ore reached record levels, following the completion of theexpansion project during the year. Iron Ore Company of Canada Earnings of $148 million were $144 million above 2004. Annual production ofpellets reached record levels, with total saleable production up 40 per cent on2004. Productivity improvements occurred during the year under the newcollective agreement that was put in place following the ten week labour disputein the latter half of 2004. Rio Tinto Brasil Rio Tinto Brasil made a loss of $7 million in 2005 compared with net profit of$1 million in 2004. The major variances related to the sale of Rio Tinto'sinterest in the Morro do Ouro gold mine in December 2004 and an 18 per centstrengthening of the Brazilian real relative to the US dollar during the year. EnergyProduction (Rio Tinto share) 2005 2004 Change Coal (million tonnes) Hard coking coal 7.2 6.8 +6% Other Australian 30.9 32.9 -6% US 115.6 117.7 -2% Uranium (tonnes) 6,582 5,974 +10%Gross turnover ($ millions) 3,867 3,008 +29%Underlying earnings ($ millions) 733 431 +70%EBITDA ($ millions) 1,442 912 +58%Capital expenditure ($ millions) 412 244 +69% Rio Tinto Coal Australia Earnings of $572 million were $336 million above 2004, with higher pricesoffsetting the impact of higher demurrage and energy costs. Available port and rail capacity continued to constrain export shipments fromthe Australian coal operations. A queue management system was successfullyimplemented at Dalrymple Bay, Queensland, from late April 2005 and at the portof Newcastle, New South Wales, a capacity balancing system has been in place forwell over a year. Production volumes reflected both the effects of shipping constraints and thenormal variation in line with the mining sequence. An enhanced Hail Creek expansion project was approved in the first quarter of2005. The expanded capacity of the project will remain at eight million tonnesper annum, but the enhancement will allow further expansions in line with marketdemand and port and rail capacity. The approved capital expenditure for theincrease in annual capacity from six million tonnes to eight million tonnes is$223 million. US Coal - Kennecott Energy US coal production decreased by approximately two per cent in 2005 attributableto maintenance on the externally operated railroad. In addition approximatelyone million tonnes of production at Cordero Rojo was lost due to spoil pilestability issues. Kennecott Energy's (KEC) 2005 earnings of $135 million were $45 million below2004. Two train derailments in May 2005 and the subsequent major railmaintenance programme instituted by the operators of the Joint Rail Lineresulted in disappointing coal volumes shipped from KEC's Powder River Basinoperations in 2005. The rail maintenance programme was completed in earlyDecember. Additional maintenance costs together with higher diesel, explosivesand labour costs reduced earnings compared with 2004. The expansion of the Antelope mine and development of the West Antelope reserveswas approved during the year at a capital cost of US$87 million. This willoptimise the usage of the current facilities and enable production to increasein line with market demand. Asia Pacific seaborne coal markets The global coking coal market was strong, driven largely by increased Chinesesteel production. With export thermal coal volumes from Australia and SouthAfrica constrained by infrastructure and Chinese supply subject to variabilitydue to its own strong internal demand, Indonesian supply increasedsubstantially. Japanese demand fell back somewhat in the latter half of the yearas its nuclear reactors were brought back onstream. Uranium markets The further reduction of excess inventory continued to push spot prices over $30per pound. The lead time for significant new capacity from mines will be five toten years which is expected to keep prices firm in the short to medium term. Asattitudes towards nuclear generation of power begin to change and China commitsto a nuclear generation investment programme, the longer term outlook foruranium demand looks better than it has been for several years. Rossing Earnings of $2 million were $6 million above the $4 million loss incurred in2004. In December, an $82 million project was approved to extend the life ofthe mine at current production levels through to approximately 2016. Energy Resources of Australia Earnings of $24 million were $5 million above 2004 attributable to higher priceswhich more than offset the impact of higher fuel and other costs. In October,ERA announced an increase in total reserves of 6,285 tonnes contained uraniumoxide at its Ranger mine, as a result of a reduction in cut-off grade, addingthree years to its predicted operational life to 2014. Industrial Minerals Production (Rio Tinto share) 2005 2004 Change Titanium dioxide (000 tonnes) 1,312 1,192 +10% Borates (000 tonnes) 560 565 -1% Salt (000 tonnes) 5,507 4,792 +15% Talc (000 tonnes) 1,412 1,443 -2%Gross turnover ($ millions) 2,487 2,126 +17%Underlying earnings ($ millions) Rio Tinto Iron & Titanium 128 116 +10% Rio Tinto Borax 48 93 -48% Dampier Salt 14 13 +8% Luzenac (3) 21 -114% 187 243 -23%EBITDA ($ millions) 563 554 +2%Capital expenditure ($ millions) 235 248 -5% Rio Tinto Minerals During 2005, the decision was taken to combine Borax, Luzenac and Dampier Saltinto a single business, Rio Tinto Minerals, to maximise the benefits that thesebusinesses can bring to each other. This resulted in a restructuring charge inthe second half of the year included against Borax and Luzenac earnings. Rio Tinto Iron & Titanium Earnings of $128 million were $12 million above 2004. Titanium dioxidefeedstock production for the year was 10 per cent higher than the prior yearfollowing the completed ramp-up to 325,000 tonnes per annum of QIT's UpgradedSlag (UGS) expansion in line with the commissioning schedule. Strong demand forfeedstock coupled with higher prices for co-products more than offset theimpacts of a stronger Canadian dollar and higher energy costs. A furthercapacity expansion of the UGS plant to 375,000 tonnes per annum was approved inOctober 2005 at a capital cost of $79 million. This will come onstream in late2006. The construction of a new ilmenite project in Madagascar was approved in August2005. The project will involve the construction of a dredging operation andport 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. Rio Tinto Borax Earnings of $48 million were $45 million below 2004. 2005 earnings include $12million of one-off costs relating to the Rio Tinto Minerals reorganisation.Production in the first quarter was affected by unusually wet weather at theBoron mine which adversely affected mining costs for a prolonged period. Higherdiesel, natural gas, electricity and raw materials prices also impacted earningsfor the year. Sales into Asia, in particular China, continued their recentstrong performance, offsetting some of the cost pressures. Dampier Salt Earnings of $14 million were $1 million above 2004. Strong salt volumes andprices offset higher operating costs and demurrage. Luzenac Luzenac made a loss of $3 million in 2005 compared with a net profit of $21million in 2004. 2005 earnings include $18 million of one-off costs relating tothe Rio Tinto Minerals reorganisation. During 2005 new business was gained inpolymers and coatings applications but margins were squeezed due to higherenergy and other input prices. AluminiumProduction (Rio Tinto share) 2005 2004 Change Bauxite (000 tonnes) 15,474 12,828 +21% Alumina (000 tonnes) 2,963 2,231 +33% Aluminium (000 tonnes) 853.7 836.5 +2%Gross turnover ($ millions) 2,744 2,356 +16%Underlying earnings ($ millions) 392 331 +18%EBITDA ($ millions) 855 688 +24%Capital expenditure ($ millions) 242 505 -52% Prices The average aluminium price of 86 cents per pound was 10 per cent above the 2004average price. The alumina market remained tight and spot prices continued totrade at over $400 per tonne. Bauxite Bauxite production continued to increase due to the successful commissioning ofProject NeWeipa. 2005 production was a record as a result of increases from boththe East Weipa and Andoom mines. Alumina The new Comalco Alumina Refinery (CAR) produced 835,000 tonnes in 2005. Effortscontinued to improve the reliability of the pumps feeding the digestion circuit.Queensland Alumina Refinery continued its strong performance, achieving recordannual production, and Eurallumina's strong performance benefited from plantstability. Costs were adversely affected by higher input prices for causticsoda, internal freight and fuel and the ongoing expensing of CAR stage two studycosts. Aluminium All of the aluminium smelters operated consistently at, or near, capacity. TheBell Bay, Boyne Island and Tiwai Point smelters achieved annual productionrecords for 2005 and Anglesey's production was only marginally below 2004.Earnings were adversely affected by higher average power and other input costs,partly offset by the benefits from stable operations and the Six Sigmaimprovement programme. CopperProduction (Rio Tinto share) 2005 2004 Change Mined copper (000 tonnes) 784.4 753.1 +4% Refined copper (000 tonnes) 314.5 332.6 -5% Mined molybdenum (000 tonnes) 15.6 6.8 +130% Mined gold (000 oz) 1,626 1,164 +40%Gross turnover ($ millions) 4,839 3,033 +60%Underlying earnings ($ millions) 2,020 860 +135%EBITDA ($ millions) 3,191 1,503 +112%Capital expenditure ($ millions) 505 326 +55% Kennecott Utah Copper Earnings of $1,037 million were $726 million higher than 2004. With molybdenumprices remaining strong throughout the year, mine production continued to beoptimised in favour of molybdenum. Copper concentrate volumes therefore reducedin line with lower copper grades compared with 2004. Improved recoveriesfollowing the completion of the molybdenum plant expansion project boostedmolybdenum production further. Annual gold production improved in line with theassociated grade profile. Costs in 2005 were higher at Utah Copper compared with 2004, reflecting theincreased costs associated with extracting the higher grade molybdenum ore,increased maintenance, including a 17 day scheduled smelter shutdown, and higherexploration and development expenditure. Escondida Earnings of $602 million were $196 million above 2004. Year on year productionat Escondida benefited from the commissioning of the Norte crusher and orehandling system in September and continued improvements in mill performance. Grasberg joint venture Earnings of $232 million were $200 million above 2004, excluding the earningsattributable to Rio Tinto's holding in Freeport-McMoRan Copper & Gold prior toits disposal in March 2004. Copper and gold production benefited significantlyfrom increased access to the high grade ore in 6 South and improvements in millthroughput. There was a minor revision to the metal strip, which determines theallocation of volumes between the joint venture partners, resulting in anadditional 8,500 tonnes of copper being attributed to Rio Tinto during thefourth quarter. Kennecott Minerals Earnings of $73 million were $9 million below 2004. The effects of higher goldprices were offset by higher input costs and lower sales volumes from Cortez dueto lower grades. Rio Tinto approved its share of the development costs of the Cortez Hills goldproject during the third quarter of 2005. Cortez Hills is part of the CortezJoint Venture property in Nevada, which is 40 per cent owned by Rio Tinto. Palabora Earnings of $19 million compare with a loss of $21 million in 2004. 2005production was 12 per cent higher than 2004, as a result of higher overallthroughput rates and improved recoveries, with continued efforts being made toenhance performance. Northparkes Earnings of $57 million were $32 million above 2004. Copper production was 80per cent above the previous year. The successful ramp up of Lift 2 has providedhigher copper feed grades and allowed increased throughput. Other Rio Tinto's interests in Somincor, Morro do Ouro and Zinkgruvan, which werereported in the Copper product group, were sold during 2004. Rio Tinto Brasiland Kennecott Land, which previously reported in the Copper product group nowreport in the Iron Ore product group and Other Operations respectively.Comparative data has been adjusted accordingly. DiamondsProduction (Rio Tinto share) 2005 2004 Change Diamonds (000 carats) Argyle 30,476 20,620 +48% Diavik 4,963 4,545 +9% Murowa 195 36 +442%Gross turnover ($ millions) 1,076 744 +45%Underlying earnings ($ millions) 281 188 +49%EBITDA ($ millions) 617 419 +47%Capital expenditure ($ millions) 203 152 +34% Diamond markets Demand for rough diamonds remained strong. This was reflected in price risesfor Argyle and, to a lesser extent, Diavik production. Wholesale polishedprices continued to increase. Diavik Earnings of $143 million were $4 million below 2004. Higher prices and volumeswere offset by a stronger Canadian dollar and increased energy costs. Argyle Earnings of $117 million were $77 million above 2004. Production at Argylereturned to more normal levels in 2005 following the tight mining conditionsexperienced in 2004. In December, Rio Tinto announced its decision to develop a $760 million blockcave underground project at the Argyle diamond mine, with an additional $150million to be spent on a related open pit cutback. This will extend the life ofthe operation to 2018. Murowa Earnings from Murowa, which commenced production in the second half of 2004,were $21 million. Other operations 2005 2004 ChangeUnderlying earnings ($ millions) 2 25 -92% 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 contracted for closeto 600 lots. In November Rio Tinto sold its 14.5 per cent investment in Lihir Gold forapproximately $295 million. Exploration and evaluation 2005 2004 ChangePost-tax charge - centrally reported ($ millions) 174 128 +36% Exploration drilling continued on copper targets in Chile, Mexico and in Turkey.Diamond exploration continued in Canada, Botswana, Mauritania, India andBrazil. Iron ore exploration continued in West Africa and in Western Australiawith a significant tonnage of additional iron mineralisation discovered in thePilbara. Exploration for thermal and coking coal opportunities continued insouthern Africa, Australia, Mongolia and Canada. At La Sampala (nickel,Indonesia), negotiations for a Contract of Work continued. In December Rio Tinto won two tenders. The first was the award of the La Granjacopper project located in the Region of Cajamarca in northern Peru. The secondwas a successful bid for the Jarandol concession hosting the Piskanja boratedeposit located in southern Serbia. Both projects will now enter a period ofexploration and evaluation. Evaluation work continued at Eagle (nickel/copper, US), Sari Gunay (gold, Iran),Resolution (copper/gold, US) and Simandou (iron ore, Guinea). At Potasio RioColorado (potash, Argentina) prefeasibility studies were completed with thesuccessful validation of the solution mining concept. Capital projects Project Estimated Status/Milestones cost (100%)Completed in 2005 Iron ore - HIsmelt (R) (Rio Tinto 60%) direct iron $200m Construction was completed and thesmelting technology. Construction of an 800,000 commissioning began in April 2005.tonne capacity plant in Kwinana, Western Australia. Iron ore - Expansion of Yandicoogina mine (Rio $200m Expansion was completed in the thirdTinto 100 %) from 24 million tonnes per annum to 36 quarter.million tonnes per annum. Iron ore - Expansion of West Angelas mine (Rio $105m Project was completed in the thirdTinto 53%) from 20 million tonnes per annum to 25 quarter.million tonnes per annum. Titanium dioxide - Expansion of Rio Tinto Iron & $76m Commissioning started in March 2005Titanium's (Rio Tinto 100%) upgraded slag plant and the plant has been operating at(UGS) from 250,000 tonnes per annum to 325,000 full capacity since the thirdtonnes per annum. quarter. Copper - Escondida Norte (Rio Tinto 30%). $400m The Norte crusher and ore handlingSatellite deposit will provide mill feed to keep system were commissioned in SeptemberEscondida's annual capacity above 1.2 million 2005.tonnes to the end of 2008. Iron ore - Expansion of Hamersley's (Rio Tinto $685m Construction is complete with the100%) port capacity to 116 million tonnes per focus now on production ramp up inannum. the coming months. Ongoing Iron ore - Expansion of Hamersley's (Rio Tinto $290m Approved in April 2005, commissioning100%) Tom Price and Marandoo mines and construction is expected to commence from earlyof new mine capacity at Nammuldi. 2006. Iron ore - Expansion by Robe River (Rio Tinto 53%) $200m Project is on schedule and due toof rail capacity including completion of dual complete in the second quarter oftracking of 100 km mainline section. 2006. Coking coal - Hail Creek (Rio Tinto 82%) Expansion $223m Project is on track and on budgetof annual capacity from 6 million tonnes to 8 with the new dragline planned for themillion tonnes per annum. second quarter of 2006. 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. 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. Waste movements have beenfurther underground or open pit mining thereafter. impacted by higher haul truck profiles. Commissioning of the pebble crusher is expected 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. Project Estimated Status/Milestones cost (100%)Recently approved Iron ore - Brownfields mine expansion of $530m Both projects were approved inHamersley's (Rio Tinto 100%) Yandicoogina mine from October 2005 and are due to be36 million tonnes per annum to 52 million tonnes commissioned at the end of 2007per annum with progressive ramp up during Iron ore - Expansion of Hamersley's (Rio Tinto $803m 2008.100%) Dampier port from 116 million tonnes perannum to 140 million tonnes per annum capacity andadditional rolling stock and infrastructure. Titanium dioxide - Construction by QMM (Rio Tinto $585m The project was approved in August80%) of a greenfield ilmenite operation in 2005 and the first beach landing ofMadagascar and associated upgrade of processing + equipment took place in December.facilities at QIT. First production is expected in $190m late 2008.Titanium dioxide - further expansion of capacity at $79m The expansion was approved inthe UGS plant from 325,000 tonnes to 375,000 tonnes October 2005 and is due to beper annum. completed in the second half 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 comethe life of the mine to 2018. onstream from the end of 2008. Copper - Big Gossan at Freeport (Rio Tinto 40%) $245m Construction of the access portal has been completed. Gold - Development of Cortez Hills (Rio Tinto 40%) $455m Approved in September 2005, the project is currently focussed on permitting requirements. Energy - Rossing (Rio Tinto 68.6%) uranium mine $82m Approved in December 2005life extension to 2016 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. Rio Tinto sold its 14.5 per cent interest in Lihir Gold for approximately $295million during the fourth quarter. Price & exchange rate sensitivities The following sensitivities give the estimated effect on underlying earningsassuming that each individual price or exchange rate moved in isolation. Therelationship between currencies and commodity prices is a complex one andmovements in exchange rates can cause movements in commodity prices and viceversa. The exchange rate sensitivities quoted below include the effect onoperating costs of movements in exchange rates but exclude the effect of therevaluation of foreign currency working capital. They should therefore be usedwith care. Average price/exchange rate for 10 per cent change Effect on full 2005 year net earnings US$m Copper 166c/lb +/- 16.6c/lb 215Aluminium 86c/lb +/-8.6c/lb 114Gold $444/oz +/- $44.4/oz 54Molybdenum $31/lb +/- $3.1/lb 40 Australian dollar 76USc +/-7.6USc 242Canadian dollar 83USc +/-8.3USc 58South African rand 16USc +/-1.6USc 23 The numbers of shares in issue held by the public at 31 December were asfollows: 2005 2004 Change Number (m) Number (m)Rio Tinto plc 1,068.42 1,068.02 +0.04%Rio Tinto Limited 285.74 311.90 -8.39% For further information, please contact: LONDON AUSTRALIA Media Relations Media RelationsMaria Darby Walker Ian HeadOffice: +44 (0) 20 7753 2305 Office: +61 (0) 3 9283 3620Mobile: +44 (0) 7725 036 544 Mobile: +61 (0) 408 360 101 Investor Relations Investor RelationsNigel Jones Dave SkinnerOffice: +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628Mobile: +44 (0) 7917 227 365 Mobile: +61 (0) 408 335 309David Ovington Susie CreswellOffice: +44 (0) 20 7753 2326 Office: +61 (0) 3 9283 3639Mobile: +44 (0) 7920 010 978 Mobile: +61 (0) 418 933 792 Website: www.riotinto.comHigh resolution photographs available at: www.newscast.co.uk Group income statementYears ended 31 December 2005 2004 US$m US$m Gross turnover (including share of jointly controlled entities and associates) 20,742 14,530 Share of jointly controlled entities' and associates' turnover (1,709) (1,576) Consolidated turnover 19,033 12,954 Operating costs (excluding impairment charges) (a) (12,436) (10,249)Net impairment reversals/(charges) (b) 3 (558)Profit on disposal of interests in businesses (including investments) (c) 322 1,180Operating profit 6,922 3,327Share of profit after tax of jointly controlled entities and associates 776 523Profit before finance items and taxation 7,698 3,850 Finance itemsExchange (losses)/gains on external debt and intragroup balances (128) 204(Losses)/gains on currency and interest rate derivatives not qualifying for hedge (51) 16accountingInterest receivable 82 28Interest payable and similar charges (173) (148)Amortisation of discount related to provisions (116) (87) (386) 13 Profit before taxation 7,312 3,863 Taxation (b), (c) (1,814) (619)Profit for the year 5,498 3,244- attributable to outside equity shareholders (b) 283 (53) - attributable to equity shareholders of Rio Tinto (Net earnings) 5,215 3,297 (a) Operating costs benefit from a reduction of US$84 million inenvironmental provisions at Kennecott Utah Copper, which reverses part of anexceptional charge taken up in 2002. (b) No tax credits or charges arose from impairment charges and reversalsfor the year ended 31 December 2005 (2004: US$108 million), and the net chargeattributable to outside equity shareholders was US$1 million (2004: US$129million). (c) The net tax charge resulting from profit on disposal of interests inbusinesses (including investments) for the year ended 31 December 2005 was US$11million (2004: US$9 million), and there was no amount attributable to outsideequity shareholders (2004: US$4 million). Basic earnings per ordinary share 382.3c 239.1cDiluted earnings per ordinary share 381.1c 238.7c For the purposes of calculating basic earnings per share, the weighted averagenumber of Rio Tinto plc and Rio Tinto Limited shares outstanding during the yearwas 1,364.1 million, being the average number of Rio Tinto plc sharesoutstanding (1,069.1 million) plus the average number of Rio Tinto Limitedshares outstanding not held by Rio Tinto plc (295.0 million). Dividends per share: paid during the year 83.5c 66.0c Dividends per share: proposed in the announcement of the results for the year - final dividend 41.5c 45.0c - special dividend 110.0c Group cash flow statementYears ended 31 December 2005 2004 US$m US$m Cash flow from consolidated operations 7,657 3,974Dividends from jointly controlled entities and associates 600 478Cash flows from operations 8,257 4,452 Interest received 51 28Interest paid (179) (179)Dividends paid to outside shareholders (169) (56)Tax paid (1,017) (865)Cash flow from operating activities 6,943 3,380 Cash used in investing activitiesDisposals of subsidiaries, joint ventures & associates (less acquisitions) 321 1,507Purchase of property, plant & equipment and intangible assets (2,552) (2,256)Funding of jointly controlled entities and associates 17 9Exploration and evaluation expenditure (264) (190)Proceeds from sale of property, plant & equipment and intangible assets 36 41Sales of other investments 133 261Purchases of other financial assets (231) (30)Government grants received 26 -Cash flows from non-hedge derivatives not related to net debt 31 77Cash used in investing activities (2,483) (581) Cash flow before financing activities 4,460 2,799 Cash used in financing activitiesEquity dividends paid to Rio Tinto shareholders (1,141) (906)Own shares purchased from Rio Tinto shareholders (877) -Proceeds from issue of ordinary shares in Rio Tinto 100 26Proceeds from issue of ordinary shares in subsidiaries to outside shareholders 4 7Finance lease principal payments (86) (20)Proceeds from issue of new borrowings 388 206Repayment of borrowings (807) (2,041)Cash flows from non-hedge derivatives related to net debt 2 -Cash flows relating to liquid resources not classified as cash and cash equivalents 6 23Cash used in financing activities (2,411) (2,705)Effects of exchange rates on cash and cash equivalents (8) (9)Net increase in cash and cash equivalents 2,041 85Opening cash and cash equivalents 326 241Closing cash and cash equivalents 2,367 326 Cash flow from consolidated operationsProfit for the year 5,498 3,244Adjustments for: Taxation 1,814 619 Net interest payable and amortisation of discount 207 207 Share of profit after tax of jointly controlled entities and associates (776) (523) Profit on disposals of interests in businesses (including investments) (322) (1,180) Depreciation and amortisation 1,334 1,171 Impairment (reversals)/charges (3) 558 Exploration and evaluation charged against profit 250 190 Provisions 277 192Utilisation of provisions (336) (220)Change in inventories (249) (217)Change in trade and other receivables (530) (97)Change in trade and other payables 279 234Losses/(gains) on currency and interest rate derivatives not qualifying as hedges 51 (16)Exchange losses/(gains) on external debt and intragroup balances 128 (204)Other items 35 16 7,657 3,974 Group balance sheetAt 31 December 2005 2004 US$m US$m Non-current assetsGoodwill 1,020 1,075Intangible assets 220 189Property, plant and equipment 17,620 16,721Investments in jointly controlled entities and associates 1,829 2,016Loans to jointly controlled entities 159 130Inventories 141 68Trade and other receivables 703 770Deferred tax assets 55 52Tax recoverable 122 125Derivatives related to net debt 254 494Other financial assets 199 156 22,322 21,796 Current assetsInventories 2,048 1,952Loans to jointly controlled entities - 46Trade and other receivables 2,488 1,832Tax recoverable 30 29Derivatives related to net debt 62 29Other financial assets 469 218Other liquid resources 5 14Cash and cash equivalents 2,379 392 7,481 4,512 Current liabilitiesBank overdrafts repayable on demand (12) (66)Borrowings (1,190) (789)Trade and other payables (2,190) (1,753)Derivatives related to net debt (8) -Other financial liabilities (78) -Tax payable (987) (142)Provisions (321) (193) (4,786) (2,943) Net current assets 2,695 1,569 Non-current liabilitiesBorrowings (2,783) (3,883)Trade and other payables (269) (910)Derivatives related to net debt (20) -Other financial liabilities (93) -Tax payable (51) (87)Deferred tax liabilities (2,197) (2,135)Provisions (3,865) (3,759) (9,278) (10,774) Net assets 15,739 12,591 Capital and reservesShare capital- Rio Tinto plc 172 172- Rio Tinto Limited (excl. Rio Tinto plc interest) 1,019 1,133Share premium account 1,888 1,822Other reserves (24) 353Retained earnings 11,893 8,397Equity attributable to Rio Tinto shareholders 14,948 11,877Attributable to outside equity shareholders 791 714Total equity 15,739 12,591 At 31 December 2005, Rio Tinto plc had 1,068.4 million ordinary shares in issueand Rio Tinto Limited had 285.8 million shares in issue, excluding those held byRio Tinto plc. At 31 December 2005, net tangible assets per share amounted to US$10.12 (31December 2004: US$7.69). Group statement of recognised income and expense Attributable Outside Year to 31 Year to 31 to Interests December December shareholders 2005 2004 of Rio Tinto Total Total US$m US$m US$m US$m Currency translation adjustment (401) (44) (445) 410Cash flow hedge fair value losses (116) (26) (142) -Gains on available for sale securities 32 5 37 -Cash flow hedge losses transferred to the income statement - 1 1 -Gains on available for sale securities transferred totheincome statement (88) - (88) -Actuarial gains/(losses) on post retirement benefit 179 (1) 178 (203)plansTax recognised directly in equity 56 1 57 48 Net (expense)/income recognised directly in equity (338) (64) (402) 255 Profit after tax for the year 5,215 283 5,498 3,244 Total recognised income for the year 4,877 219 5,096 3,499 Adjustment for adoption of IAS39 (net of tax) to:- retained earnings (9) (2) (11) -- other reserves 99 21 120 - 90 19 109 - Group statement of changes in equity Attributable Outside Year to 31 Year to 31 to Interests December December shareholders 2005 2004 of Rio Tinto Total Total US$m US$m US$m US$m Opening balance 11,877 714 12,591 10,023Adjustment for adoption of IAS39 (net of tax) to:- retained earnings (9) (2) (11) -- other reserves 99 21 120 -Opening balance as restated 11,967 733 12,700 10,023 Total recognised income for the year 4,877 219 5,096 3,499Employee share options charged to income statement 24 - 24 29Dividends (1,143) (169) (1,312) (966)Disposals of interests in subsidiaries - 4 4 (27)Own shares purchased from Rio Tinto shareholders (877) - (877) -Ordinary shares issued 100 4 104 33 Closing balance 14,948 791 15,739 12,591 The adoption of IAS 39 resulted in a US$90 million increase in equityattributable to Rio Tinto shareholders at 1 January 2005. This was net ofconsequential increases in deferred tax liabilities of US$24 million, andoutside equity shareholders' interests of US$19 million. This represents thenet gain on marking to market of qualifying hedges, embedded derivatives,available for sale investments and certain derivatives that do not qualify ashedges, which was not previously recognised under IFRS. The major balance sheet line items affected were financial assets: increase ofUS$287 million, financial liabilities: increase of US$66 million, andborrowings: increase of US$69 million. The net impact on other balance sheetitems was a reduction in total assets of US$19 million. Reconciliation with Australian IFRSYears ended 31 December 2005 2004 US$m US$m Consolidated profit for the year under EU IFRS 5,498 3,244Increase/(decrease) net of tax in respect of:Goodwill - relating to sold operations - (129)Consolidated profit for the year under Australian IFRS 5,498 3,115 2005 2004 US$m US$m Total recognised income for the year under EU IFRS 5,096 3,499Increase/(decrease) net of tax in respect of:Goodwill - relating to sold operations - (129) Total recognised income for the year under Australian IFRS 5,096 3,370 At 31 December 2005 2004 US$m US$m Total consolidated equity under EU IFRS 15,739 12,591Increase/(decrease) in respect of:Goodwill 743 741 Total consolidated equity under Australian IFRS 16,482 13,332 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, which amounted to US$743 million at 31 December 2005. Also, theprofit on disposal of certain operations in 2004 is reduced by US$129 millionunder Australian IFRS as a result of the balance of goodwill relating to thoseoperations. Reconciliation of Net earnings to Underlying earnings Pre-tax Taxation Outside Net Net interests amount amount 2005 2004Exclusions from underlying earnings US$m US$mGains relating to disposal of interests in businesses (including investments) 322 (11) - 311 1,175Net impairment reversals/(charges) 3 - 1 4 (321)Adjustment to environmental remediation provision 84 - - 84 -Exchange differences and derivatives- Exchange (losses)/gains on external debt andintragroup balances (128) 31 10 (87) 159- (Losses)/gains on currency and interest ratederivatives not qualifying for hedge accounting (51) 13 (2) (40) 8- Gains/(losses) on external debt and derivatives notqualifying as hedges in jointly controlled entities andassociates (net of tax) (12) - - (12) 4Total excluded from underlying earnings 218 33 9 260 1,025 Net earnings 7,312 (1,814) (283) 5,215 3,297 Underlying earnings 7,094 (1,847) (292) 4,955 2,272 '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,excluding those related to current year exploration expenditure. (c) Exchange gains and losses on US dollar debt and intragroup balances. (d) Valuation changes on currency and interest rate derivatives which areineligible for hedge accounting, other than those embedded in commercialcontracts. (e) The currency revaluation of embedded US dollar derivatives contained incontracts held by entities whose functional currency is not the US dollar. (f) Other credits and charges that, individually, or in aggregate if of asimilar type, are of a nature or size to require exclusion in order to provideadditional insight into underlying business performance. Consolidated net debtAt 31 December Cash and Other Borrowings 2005 2004 cash liquid Net debt Net debt equivalents resources US$m US$mAnalysis of changes in consolidated net debtAt 1 January 326 14 (4,149) (3,809) (5,710)Adjustment on adoption of IAS39 - - (10) (10) -Opening balance as restated 326 14 (4,159) (3,819) (5,710)Adjustment on currency translation (8) (3) 107 96 (203)Exchange gains/(losses) charged to theincome statement - - 13 13 161(Losses) on derivatives related to net debt - - (85) (85) -Exchange gains/(losses) recognised in equity - - - - 5Subsidiaries disposed of - - - - 12Finance leases raised less repaid - - 22 22 20Cash flows excluding exchange movements 2,049 (6) 417 2,460 1,906Closing balance 2,367 5 (3,685) (1,313) (3,809) Reconciliation to balance sheet categoriesNon-current - - (2,783) (2,783) (3,883)Current 2,379 5 (1,190) 1,194 (383)Bank overdrafts repayable on demand (12) - - (12) (66)Derivatives related to net debt - - 288 288 523Consolidated net debt 2,367 5 (3,685) (1,313) (3,809) Commodity analysisYears ended 31 December 2005 2004 2005 2004 % % US$m US$m Gross turnover 14.3 15.4 Copper 2,968 2,233 3.6 4.4 Gold (all sources) 754 634 26.5 20.2 Iron ore 5,497 2,931 16.9 18.6 Coal 3,499 2,709 13.2 16.0 Aluminium 2,744 2,320 12.2 15.0 Industrial minerals (b) 2,535 2,175 5.2 5.1 Diamonds 1,076 744 8.1 5.3 Other products 1,669 784 100.0 100.0 20,742 14,530 Net earnings 37.4 32.6 Copper, gold and by-products 1,997 862 32.3 21.4 Iron ore 1,722 565 13.2 15.7 Coal 707 416 7.3 12.5 Aluminium 392 331 3.7 9.7 Industrial minerals (b) 200 256 5.3 7.1 Diamonds 281 188 0.8 1.0 Other products 38 25 100.0 100.0 5,337 2,643 Exploration and evaluation (174) (128) Net interest (44) (69) Other items (164) (174) Underlying earnings 4,955 2,272 Items excluded from Underlying earnings 260 1,025 Net earnings 5,215 3,297 (a) This analysis is strictly by commodity. In this regard it differs fromthe financial information by Business Unit on pages 7 and 8, which is based onthe Group's management structure. (b) This category includes by-products arising from the production oftitanium dioxide. Geographical analysis (by country of origin)Years ended 31 December 2005 2004 2005 2004 % % US$m US$m Gross turnover 30.8 31.5 North America 6,397 4,571 51.2 48.3 Australia and New Zealand 10,613 7,023 6.3 7.8 South America 1,302 1,131 5.5 5.8 Africa 1,149 850 3.4 2.2 Indonesia 702 314 2.8 4.4 Europe and other countries 579 641 100.0 100.0 20,742 14,530 Net earnings 31.7 35.4 North America 1,584 829 53.2 48.3 Australia and New Zealand 2,659 1,130 10.5 15.5 South America 526 364 2.1 0.1 Africa 103 2 4.6 1.9 Indonesia 230 44 (2.1) (1.2) Europe and other countries (103) (28) 100.0 100.0 4,999 2,341 Net interest (44) (69) Underlying earnings 4,955 2,272 Items excluded from underlying earnings 260 1,025 Net earnings 5,215 3,297 Geographical analysis (by destination)Years ended 31 December 2005 2004 2005 2004 % % US$m US$m Gross turnover 21.7 24.7 North America 4,499 3,588 20.5 20.6 Europe 4,260 2,991 19.1 17.9 Japan 3,954 2,597 15.0 10.1 China 3,112 1,471 12.8 13.1 Other Asia 2,663 1,906 6.7 8.5 Australia and New Zealand 1,400 1,235 4.2 5.1 Other 854 742 100.0 100.0 Total 20,742 14,530 (a) The above analyses include Rio Tinto's share of the results of jointlycontrolled entities and associates including interest. (b) The amortisation of discount is included in the applicable productcategory and geographical area. All other financing costs of subsidiaries areincluded in 'Net interest'. Prima facie tax reconciliation 2005 2004 US$m US$m Profit before taxation 7,312 3,863Deduct: share of profit after tax of jointly controlled entities and associates (776) (523) Parent companies' and subsidiaries' profit before tax 6,536 3,340 Prima facie tax payable at UK and Australian rate of 30% 1,961 1,002 Impact of items excluded from underlying earnings (a) (102) (309) Other permanent differencesOther tax rates applicable outside the UK and Australia (b) (23) (33)Resource depletion and other depreciation allowances (22) (25)Research, development and other investment allowances (21) (7)Exchange differences relating to deferred tax balances - (12)Other 21 3 (45) (74) Total taxation charge (c) 1,814 619 (a) Items excluded from Underlying earnings are analysed in thereconciliation of net earnings to Underlying earnings above. The difference ofUS$102 million (2004: US$309 million) between the prima facie tax charge and theactual tax credit on items excluded from Underlying earnings comprises US$86million (2004: US$336 million) related to disposals not subject to tax, plusUS$1 million (2004: less US$50 million) in respect of impairment charges andreversals, plus US$26 million (2004: nil) in respect of the adjustment toenvironmental remediation provision, less US$11 million (2004: plus US$23million) net impact of differing tax rates and non-deductibility of certaingains and losses on external debt, intragroup balances and derivatives notdesignated as hedges. (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) Of the total taxation charge, a benefit of US$10 million (2004: US$2million) relates to the UK, and a charge of US$1,056 million (2004: US$471million) relates to Australia. (d) This tax reconciliation relates to the parent companies andsubsidiaries. The Group's share of profit of jointly controlled entities andassociates is net of tax charges of US$361 million (2004: US$262 million). Accounting policies and prior year financial information The financial information included in this report has been prepared inaccordance with International Financial Reporting Standards as adopted for usein the EU ('EU IFRS') and an Order under section 340 of the AustralianCorporations Act 2001 issued by the Australian Securities and InvestmentsCommission on 27 January 2006. Financial information for the year to 31 December 2004, presented as comparativefigures in this report, has been restated in accordance with EU IFRS and on thebasis set out in the Accounting principles section of the announcement of theresults for the six months ended 30 June 2005. This 'EU IFRS restated'information was first published in a News release issued on 5 May 2005. The EU IFRS restated information for the year to 31 December 2004 was derived byrestatement of information extracted from the full financial statements preparedunder United Kingdom generally accepted accounting principles ('UK GAAP') on thehistorical cost basis. These full financial statements under UK GAAP were filedwith the Registrar of Companies and the Australian Securities and InvestmentsCommission. In preparing the financial information presented in this report, certainexchange gains and losses, which were included in the income statement in theannouncement of results for the six months ended 30 June 2005 published on 3August 2005, have been reclassified to equity. In December 2005, the IASBissued a clarification to IAS 21, 'The effects of changes in foreign exchangerates', relating to the treatment of exchange gains and losses on balancesbetween fellow subsidiary companies. The clarification means that, in certaincircumstances, such loans can now be included as part of the reporting entity'snet investment in foreign operations. For the year ended 31 December 2004, theamount reclassified was a net exchange loss of US$85 million (US$79 million netof tax). Net exchange gains of US$25 million (US$25 million net of tax) havebeen reclassified in respect of the six months ended 30 June 2005. The Auditors' report on the full financial statements under UK GAAP for the yearended 31 December 2004 was unqualified and did not contain statements undersection 237(2) of the United Kingdom Companies Act 1985 (regarding adequacy ofaccounting records and returns), or under section 237(3) (regarding provision ofnecessary information and explanations). Financial information This preliminary announcement does not constitute the Group's full financialstatements for 2005, which will be approved by the Board and reported on by theauditors on 24 February 2006 and subsequently filed with the Registrar ofCompanies and the Australian Securities and Investments Commission. Accordingly,the financial information for 2005 is unaudited. Notes to financial information by business unit (Pages 7 and 8) (a) Gross turnover includes 100 per cent of subsidiaries' turnover and theGroup's share of the turnover of jointly controlled entities and associates. (b) EBITDA of subsidiaries and the Group's share of jointly controlledentities and associates represents profit before: tax, net finance items,depreciation and amortisation. (c) Net earnings represent profit after tax for the year attributable to theRio Tinto Group. Earnings of subsidiaries are stated before finance items butafter the amortisation of the discount related to provisions. Earningsattributable to jointly controlled entities and associates include interestcharges and amortisation of discount. Earnings attributed to business unitsexclude amounts that are excluded in arriving at Underlying earnings. (d) In 2004, Rio Tinto owned a 51 per cent interest in Morro do Ouro, whichwas sold on 31 December 2004. (e) Includes Rio Tinto's 75.7 per cent interest in Coal & Allied, which ismanaged by Rio Tinto Coal Australia, a 100 per cent subsidiary of Rio Tinto. (f) Includes Rio Tinto's interests in Anglesey Aluminium (51 per cent) andComalco (100 per cent). (g) On 30 March 2004 Rio Tinto sold its 13.1 per cent shareholding inFreeport-McMoRan Copper & Gold Inc. The sale of the shares does not affect theterms of the Grasberg joint venture referred to below. (h) Under the terms of a joint venture agreement, Rio Tinto is entitled to40 per cent of additional material mined as a consequence of expansions anddevelopments of the Grasberg facilities since 1998. (i) During July 2004, Rio Tinto sold its interests in Somincor andZinkgruvan. (j) Business units have been classified according to the Group'smanagement structure. Generally, this structure has regard to the primaryproduct of each business unit but there are exceptions. For example, the Coppergroup includes certain gold operations. This summary differs, therefore, fromthe Commodity analysis in which the contributions of individual business unitsare attributed to several products as appropriate. (k) Certain items which were reported in the 2004 financial statements ascentral items have been allocated to the Business Units to which they relate. (l) Capital expenditure comprises the net cash outflow on purchases lessdisposals of property, plant and equipment. The details provided include 100per cent of subsidiaries' capital expenditure and Rio Tinto's share of thecapital expenditure of jointly controlled entities and associates. Amountsrelating to jointly controlled entities and associates not specifically fundedby Rio Tinto are deducted before arriving at total capital expenditure for theGroup. (m) Depreciation figures include 100 per cent of subsidiaries' depreciationand amortisation and include Rio Tinto's share of the depreciation andamortisation of jointly controlled entities and associates. Amounts relating tojointly controlled entities and associates are deducted before arriving at thetotal depreciation and amortisation charge. (n) Operating assets of subsidiaries comprise net assets before deductingnet debt, less outside shareholders' interests which are calculated by referenceto 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 isshown. Summary financial data in Australian dollars, Sterling and US dollars 2005 2004 2005 2004 2005 2004 A$m A$m £m £m US$m US$m 27,195 19,786 11,390 7,938 Gross turnover 20,742 14,530 24,954 17,639 10,451 7,077 Consolidated turnover 19,033 12,954 9,587 5,260 4,015 2,110 Profit before taxation 7,312 3,863 7,208 4,417 3,019 1,772 Profit for the year 5,498 3,244 6,837 4,490 2,864 1,801 Net earnings attributable to Rio 5,215 3,297 Tinto shareholders 6,497 3,094 2,721 1,241 Underlying earnings (a) 4,955 2,272 501.2c 325.6c 209.9p 130.6p Basic earnings per ordinary share 382.3c 239.1c 476.2c 224.4c 199.4p 90.0p Basic Underlying earnings per ordinary share (a) 363.2c 164.8c Dividends per share to Rio Tinto shareholders 108.85c 90.21c 45.69p 36.22p - paid 83.5c 66.0c 200.28c 58.29c 85.24p 23.94p - proposed (including special dividend) 151.5c 45.0c 5,848 3,811 2,449 1,529 Cash flow before financing activities 4,460 2,799 (1,793) (4,893) (760) (1,977) Net debt (1,313) (3,809) 20,407 15,258 8,650 6,164 Equity attributable to Rio Tinto shareholders 14,948 11,877 (a) Underlying earnings exclude items totalling US$260 million (2004:US$1,025 million), which are analysed on page 25. (b) The financial data above have been extracted from the primary financialstatements set out on pages 20 to 23. The Australian dollar and Sterlingamounts are based on the US dollar amounts, retranslated at average or closingrates as appropriate, except for the dividends which are the actual amountspayable. Metal prices and exchange rates 2005 2004 Change Metal prices - average for the period Copper - US cents/lb 166c 130c 28%Aluminium - US cents/lb 86c 78c 10%Gold - US$/troy oz US$444 US$409 9% Average exchange rates in US$ Sterling 1.82 1.83 (1%)Australian dollar 0.76 0.73 4%Canadian dollar 0.83 0.77 8%South African rand 0.157 0.155 1% Period end exchange rates in US$ Sterling 1.73 1.93 (10%)Australian dollar 0.73 0.78 (6%)Canadian dollar 0.86 0.83 4%South African rand 0.158 0.177 (11%) 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:
Rio Tinto