1st Feb 2007 07:01
Rio Tinto PLC01 February 2007 Record growth in earnings, investment and dividend • Underlying earnings of $7,338 million were 48 per cent above 2005. • Net earnings were $7,438 million, 43 per cent above 2005. • Cashflow from operations rose 36 per cent to $11,196 million. • The full year ordinary dividend increased 30 per cent to 104 US cents. • Record production volumes in several product groups, including iron ore, alumina, US coal and molybdenum. • Capital expenditure was $3.9 billion, reflecting continuing investment in growth based on a quality portfolio of assets. • Capital projects continued to progress well, with the major expansion of the Group's iron ore business on schedule and on budget. • Approval for the expansion of annual capacity at the Cape Lambert port in the Pilbara region of Western Australia from 55 million tonnes to 80 million tonnes at a capital cost of $860 million is announced today. • The return of $4 billion cash to shareholders over 2006 and 2007 was completed almost a year ahead of schedule. In October 2006, an additional $3 billion share buy back was announced. • Rio Tinto's pipeline of growth opportunities was enhanced during the year through targeted investment, including a joint venture for exploration in Russia and investment in a copper-gold project in Mongolia. • Tom Albanese appointed as new chief executive to succeed Leigh Clifford in May 2007. Full year to 31 December 2006 2005 Change (All dollars are US$ millions unless otherwise stated)Underlying earnings* 7,338 4,955 +48%Net earnings* 7,438 5,215 +43%Cash flow from operations (incl. dividends from equity accounted units) 11,196 8,257 +36%Underlying earnings per share - US cents 550.3 363.2 +52%Earnings per share - US cents 557.8 382.3 +46%Ordinary dividends per share - US cents 104.0 80.0 +30% *Net earnings and underlying earnings relate to profit attributable to equity shareholders of Rio Tinto. Underlying earnings is defined and reconciled to net earnings on page 23. Chairman's comments Rio Tinto's chairman Paul Skinner said, "Another year of strong global economicgrowth in 2006 resulted in continued strong demand for most commodities.Combined with supply side constraints, this led to tight markets and strongprices for most Rio Tinto products. "These conditions, along with a sound operational performance in a challengingenvironment, combined to deliver record underlying earnings of $7.3 billion andcashflows of $11.2 billion, including dividends from equity accounted units. "Rio Tinto is investing heavily in future growth options from our broadportfolio of assets. Our recent investment in Ivanhoe Mines, to participate inthe Oyu Tolgoi project in Mongolia, reinforced future options in the coppergroup. "When we announced our 2005 results, we stated our intention to return $4billion to shareholders. Our strong financial position has enabled us tocomplete that programme almost a year ahead of schedule, as well as fund arecord level of capital investment in the business. In October 2006, weannounced a $3 billion increase in our capital management programme, taking thetotal programme to $7 billion over 2006 and 2007. We have also increased ourordinary dividend by 30 per cent to 104 US cents, reflecting our confidence inthe future outlook of the business. "Looking to 2007, there are a number of uncertainties in the global economy, notleast the direction of inflation and interest rates in major economies. Weexpect some moderation of global economic growth, although confidence in Japanand Europe is increasing. Growth in China, which is critical to the demandoutlook for many of our products, remains strong and well balanced. "We continue to view the overall outlook for commodities as positive, withprices remaining well above their long run averages in 2007. "Finally, Tom Albanese will be succeeding Leigh Clifford as chief executive inMay, 2007. We have planned for an orderly succession and are confident that,with a strong executive leadership team, we will retain momentum in pursuing RioTinto's long term strategy of delivering value to shareholders." Chief executive's comments Leigh Clifford, Rio Tinto's chief executive said, "In 2006, the Group achievedrecord production volumes in a number of products, including iron ore, alumina,US coal and molybdenum. Operations generally recovered well from the effect ofadverse weather conditions early in the year, particularly the cyclones whichhit northern Australia. "The operating and project environment for mining companies remains challenging,with shortages in key mining supplies and skills leading to continued industrywide cost pressures and delays. We remain focused on meeting these challengesthrough improving productivity and the spread of best practice across the Group,and are alert to the need not to lock in today's cost levels for the future. "Our substantial investment programme of value enhancing projects remains ontrack, including a major expansion of our iron ore business in the Pilbararegion of Western Australia. The capacity expansions of the Yandicoogina minefrom 36 million tonnes to 52 million tonnes and of the Dampier port from 116million tonnes to 140 million tonnes are on budget and on or ahead of schedule.The development of the Hope Downs project is well under way, with firstproduction anticipated in the first quarter of 2008. "We have also announced today a commitment to expand annual capacity at the CapeLambert port from 55 million tonnes to 80 million tonnes at a capital cost of$860 million. Once complete, the Group's infrastructure in the Pilbara will beable to handle 220 million tonnes of annual production. "With substantial and increasing resources of iron ore as well as an establishedinfrastructure and market presence, we are committed to this high marginbusiness, which has an excellent long term growth outlook. "We continue to invest across all our product groups. Progress continues atother projects including thermal coal expansions in the US, the Madagascartitanium dioxide project and the Argyle and Diavik diamond mine developmentprojects. "Our commitment to exploration and evaluation activities increased again in2006. The establishment of the RioNor joint venture in Russia early in the yearand our investment in the Oyu Tolgoi copper gold project in Mongolia bearwitness to the Group's willingness to take measured risks to secure, at an earlystage, the next generation of world class ore bodies." Net earnings and underlying earnings In order to provide insight into the performance of its business, Rio Tintopresents underlying earnings. The differences between underlying earnings andnet earnings are set out in the following table. Year ended 31 December 2006 2005 US$m US$m Underlying earnings 7,338 4,955 Items excluded from underlying earnings Profits less losses on disposal of interests in business 3 311 Impairment reversals less charges 44 4 Adjustment to Kennecott Utah Copper environmental remediation provision 37 84 Exchange differences and derivatives 16 (139) Net earnings 7,438 5,215 Commentary on the Group financial results Underlying earnings of $7,338 million and net earnings of $7,438 million were$2,383 million and $2,223 million respectively above the comparable measures for2005. The principal factors explaining the increases are set out in the tableoverleaf. Year ended 31 December Underlying Net earnings earnings US$m US$m 2005 4,955 5,215 Prices 3,068 Exchange rates (35) General inflation (174) Volumes (135) Costs (741) Other 400 2,383 2,383 Profits less losses on disposal of interests in business (308) Impairment reversals less charges 40 Adjustment to Kennecott Utah Copper environmental provision (47) Exchange differences and derivatives 155 2006 7,338 7,438 Prices and exchange rates The effect of price movements on all major commodities was to increase earningsby $3,068 million. Prices for the major products remained strong throughout theyear and were considerably higher than those experienced in 2005: average copperprices were 84 per cent higher whilst average aluminium prices were 35 per centhigher. The strength of the global iron ore market was reflected in the 19 percent increase in the benchmark price, mainly effective from 1 April 2006. Theseaborne thermal coal market was also strong, although it weakened in the secondhalf. Molybdenum prices averaged $25/lb throughout 2006, a decline of 20 per centcompared with the prior year. There was movement in the US dollar in 2006 relative to the currencies in whichRio Tinto incurs the majority of its costs. The Australian dollar was one percent weaker, the Canadian dollar was seven per cent stronger and the SouthAfrican rand six per cent weaker. The effect of these currency movements was todecrease underlying earnings relative to 2005 by $35 million. Volumes Lower sales volumes decreased underlying earnings by $135 million compared with2005. As anticipated, significantly reduced volumes from lower grades atGrasberg impacted earnings by $355 million year on year. This more than offsethigher volumes at other operations. The ramp up of new projects in iron ore(including the Yandicoogina and brownfields expansions), higher copper inconcentrate volumes from improved grades and throughput at Northparkes, higherore grades and the commencement of sulphide leach production at Escondida, alongwith higher molybdenum and gold production at Kennecott Utah Copper, were themain contributors. Record volumes of thermal coal at Rio Tinto Energy Americaand alumina at Yarwun (formerly Comalco Alumina Refinery), also contributed tohigher volumes. Lower sales volumes were recorded at Argyle from the build up ofdiamond inventories due to softer market conditions, at Kennecott Minerals fromlower grades at Cortez, and at Hail Creek from lower coking coal volumes inresponse to lower customer demand. Costs Excluding the effects of general inflation, higher costs reduced earnings by$741 million, of which $77 million was the result of higher energy costs.Ongoing acute shortages in the mining industry, in particular in the Pilbara,have continued to put pressure on costs. Costs at Kennecott Utah Copper wereaffected by an extended, scheduled smelter maintenance shutdown whilst Escondidaexperienced higher wages, following the strike in August. Significant shippingcongestion at the port of Newcastle affected coal sales in the latter half ofthe year with a resulting impact on costs at Rio Tinto Coal Australia, throughhigher demurrage and a higher unit cost of sale. Tax The effective tax rate on underlying earnings, excluding equity accounted units,was 24.2 per cent compared with 29.2 per cent in 2005, following the recognitionof $335 million of US Alternative Minimum Tax (AMT) credits expected to beutilised in future years. This reflected improved projections of long termtaxable earnings from our US operations. Additionally, the high levels of profitgenerated by the Group's US operations in 2006 resulted in the realisation of$140 million of previously unrecognised deferred tax assets in the year.Deferred tax provisions decreased by $46 million as a result of a reduction inCanadian tax rates. Items excluded from underlying earnings In 2006 a $3 million gain was realised from disposals of interests in non-corebusinesses, compared with gains from disposals of $311 million in 2005. Net earnings in 2006 included net impairment reversals totalling $44 million.Impairments were reversed at Kennecott Utah Copper and the Iron Ore Company ofCanada which more than offset impairment charges at Argyle and Tarong Coal. Cash flow Cash flow from operations, including dividends from equity accounted units, wasa record $11,196 million, 36 per cent higher than in 2005. The Group invested at record levels, in particular in expansion projects.Expenditure on property, plant and equipment and intangible assets was $3,920million in 2006, an increase of $1,368 million over 2005. This included thesecond phase of the Dampier port and Yandicoogina iron ore mine expansions, aswell as construction of the Hope Downs iron ore mine in Western Australia, theA418 dike construction at the Diavik diamond mine, the Madagascar ilmenite mineand the capacity increases at Rio Tinto Energy America. Dividends paid in 2006 of $2,573 million were $1,432 million higher thandividends paid in 2005. These included the special dividend totalling $1,470million which was paid to shareholders in April 2006. Capital managementactivity also included the on market buy back of Rio Tinto plc shares in 2006,comprising $2,299 million from the 2006/07 programme and $95 million in Januaryfrom the 2005/06 programme (before deducting $24 million proceeds from theexercise of options). In 2005 an off market buy back of Rio Tinto Limited sharesreturned $774 million to shareholders and an on market buy back of Rio Tinto plcshares returned $103 million. Balance sheet The balance sheet remained strong during the period, although record capitalexpenditure and the increased capital management activity resulted in anincrease in net debt of $1,124 million to $2,437 million at 31 December 2006.Debt to total capital rose to 11 per cent and interest cover strengthened to 89times. International Financial Reporting Standards (IFRS) IFRS require that the profit for the period reported in the income statementshould also include earnings attributable to outside shareholders insubsidiaries. For 2006, the profit for the year was $7,867 million (2005 $5,498million) of which $429 million (2005 $283 million) was attributable to outsideshareholders, leaving $7,438 million (2005 $5,215 million) of net earningsattributable to Rio Tinto shareholders. Net earnings and underlying earnings,which are the focus of the commentary in this report, deal with amountsattributable 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 30January 2007. The interim and final dividends, together with the specialdividend, paid in April 2006, are summarised below. 2006 2005Ordinary dividend per shareRio Tinto GroupInterim (US cents) 40.00 38.50Final (US cents) 64.00 41.50Total dividend (US cents) 104.00 80.00 Rio Tinto plcInterim (pence) 21.42 21.75Final (pence) 32.63 23.35Total dividends (pence) 54.05 45.10 Rio Tinto LimitedInterim (Australian cents) 52.48 50.56Final (Australian cents) 82.84 54.86Total dividends (Australian cents) 135.32 105.42 Special dividend per shareRio Tinto Group (US cents) - 110.00Rio Tinto plc (pence) - 61.89Rio Tinto Limited (Australian cents) - 145.42 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 to all shareholders on Friday 13 April2007. This will apply to Rio Tinto plc and ADR shareholders on the register atthe close of business on Friday 9 March 2007 and to Rio Tinto Limitedshareholders on the register at the close of business on Wednesday 14 March2007. The ex-dividend date for Rio Tinto plc, Rio Tinto Limited and Rio TintoADR shareholders will be Wednesday 7 March 2007. 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 21 March 2007. Rio Tinto financial information by business unit Year ended 31 December Rio Gross sales revenue EBITDA (b) Net earnings (c) (a)US$ millions Tinto interest % 2006 2005 2006 2005 2006 2005 Iron OreHamersley (inc. HIsmelt) 100.0 4,416 3,387 2,594 1,924 1,660 1,219Robe River 53.0 1,379 1,113 902 726 461 362Iron Ore Company of Canada 58.7 1,051 954 441 451 145 148Rio Tinto Brasil 100.0 92 43 27 1 13 (7) 6,938 5,497 3,964 3,102 2,279 1,722 EnergyRio Tinto Energy America 100.0 1,428 1,197 302 257 177 135Rio Tinto Coal Australia (d) 2,344 2,302 920 1,067 490 572Rossing 68.6 229 163 71 24 27 2Energy Resources of Australia 68.4 239 205 79 94 17 24 4,240 3,867 1,372 1,442 711 733 Industrial Minerals 2,623 2,487 624 563 243 187 Aluminium (e) 3,493 2,744 1,365 855 746 392 CopperKennecott Utah Copper 100.0 2,829 2,141 2,103 1,436 1,804 1,037Escondida 30.0 2,575 1,239 2,105 1,014 1,250 602Grasberg joint venture (f) 373 657 258 436 122 232Palabora 57.7 588 371 203 77 52 19Kennecott Minerals 100.0 277 256 139 119 105 73Northparkes 80.0 437 175 346 109 229 57 7,079 4,839 5,154 3,191 3,562 2,020 DiamondsArgyle 100.0 345 572 167 252 64 117Diavik 60.0 460 460 297 334 131 143Murowa 77.8 33 44 19 31 10 21 838 1,076 483 617 205 281 Other Operations 229 232 39 81 33 40 25,440 20,742 13,001 9,851 7,779 5,375Other items (289) (329) (261) (202)Exploration and evaluation (188) (190) (163) (174)Net interest (17) (44)Underlying earnings 12,524 9,332 7,338 4,955Items excluded from underlying earnings 42 407 100 260Total 25,440 20,742 12,566 9,739 7,438 5,215 Depreciation & amortisation in subsidiaries (i) (1,509) (1,334)Impairment reversal/(charge) 396 3Depreciation & amortisation in equity accounted units (275) (281)Taxation and finance items in equity accounted units (826) (429)Profit on ordinary activities before finance items and tax 10,352 7,698 References above are to notes on page 26 Rio Tinto financial information by business unit (continued) Year ended 31 December DepreciationUS$ millions Rio Capital & Operating Tinto expenditure amortisation assets interest (h) (i) (j) % 2006 2005 2006 2005 2006 2005 Iron OreHamersley (inc. HIsmelt) 100.0 1,696 935 231 174 4,321 2,555Robe River 53.0 104 160 90 89 1,593 1,487Iron Ore Company of Canada 58.7 151 98 58 47 651 451Rio Tinto Brasil 100.0 18 36 8 5 97 81 1,969 1,229 387 315 6,662 4,574 EnergyRio Tinto Energy America 100.0 262 204 116 85 1,097 908Rio Tinto Coal Australia (d) 251 171 170 164 1,397 1,147Rossing 68.6 38 3 6 16 68 66Energy Resources of Australia 68.4 31 34 32 40 201 180 582 412 324 305 2,763 2,301 Industrial Minerals 360 235 189 172 2,682 2,311 Aluminium (e) 236 242 266 274 3,607 3,361 CopperKennecott Utah Copper 100.0 295 164 151 136 1,789 1,144Escondida 30.0 155 229 96 69 792 812Grasberg joint venture (f) 45 45 43 35 412 321Palabora 57.7 18 17 40 32 104 226Kennecott Minerals 100.0 111 34 26 32 198 129Northparkes 80.0 16 12 48 33 89 152 640 501 404 337 3,384 2,784 DiamondsArgyle 100.0 120 77 68 78 405 523Diavik 60.0 105 121 109 79 639 548Murowa 77.8 4 5 4 5 12 14 229 203 181 162 1,056 1,085 Other Operations 48 31 3 34 551 167 4,064 2,853 1,754 1,599 20,705 16,583 Other items 169 41 27 13 (152) (304)Exploration and evaluation 5 4 3 3 116 (18)Less: equity accounted units (322) (382) (275) (281)Total 3,916 2,516 1,509 1,334 20,669 16,261Less: Net debt (2,437) (1,313)Total Rio Tinto shareholders' equity 18,232 14,948 References above are to notes on page 26 Review of operations Comparison of underlying earnings 2006 underlying earnings of $7,338 million were $2,383 million above 2005underlying earnings. The table below shows the difference by product group.All financial amounts in the tables below are US$ millions unless indicatedotherwise. US$m 2005 underlying earnings 4,955 Iron ore 557 Energy (22) Industrial Minerals 56 Aluminium 354 Copper 1,542 Diamonds (76) Other operations (7) Exploration and evaluation 11 Interest 27 Other (59) 2006 underlying earnings 7,338 All subsequent references to earnings within the business unit section refer tounderlying earnings. Production numbers represent the Rio Tinto share. Iron Ore 2006 2005 ChangeProduction (million tonnes - Rio Tinto share) 132.8 124.5 +7%Gross sales revenue ($ millions) 6,938 5,497 +26%Underlying earnings ($ millions) 2,279 1,722 +32%EBITDA ($ millions) 3,964 3,102 +28%Capital expenditure ($ millions) 1,969 1,229 +60% Market conditions Global iron ore demand remained strong in all markets during 2006. This strengthis reflected in Hamersley's 9.5 per cent increase in the price of lump and fineores supplied to China's Baosteel for the 2007 contract year, announced on 22December. The same increases were subsequently obtained with other Asiancustomers. An $860 million expansion of the Cape Lambert port was approved in January 2007,which will increase capacity from 55 to 80 million tonnes per annum by the firsthalf of 2009. Hamersley Earnings of $1,660 million were $441 million above 2005. In 2006, Hamersleyachieved record shipments of 98 million tonnes, up nine per cent on the previousyear, attributable to strong customer demand. Hamersley also achieved recordproduction, despite experiencing five tropical cyclones in the first half of theyear. The additional supply came from the recently completed first phase mine,port and rail expansions. Continued shortages of equipment and skilled peopleput growing pressure on costs in the Pilbara during the year. Construction ofthe $1 billion Hope Downs mine commenced in April and the second phase of theDampier port and Yandicoogina mine expansions progressed on schedule and budget. Hamersley's 2006 earnings include a net loss of $30 million for HIsmelt (2005:$19 million net loss). In 2006, 89,000 tonnes of pig iron were produced (2005:9,000 tonnes) and the first shipments of pig iron occurred. The plant is not yetoperating at capacity resulting in a high unit cost of production. Fullproduction is expected to be reached over a three year ramp-up period. Robe River Earnings of $461 million were $99 million above 2005 attributable to higherprices. Robe production was heavily impacted by a severe cyclone season in thefirst half of the year, which resulted in slightly lower sales volumes in 2006due to low stock availability. The additional production from the West Angelasmine, following the completion of the expansion project, partially offset someof the cyclone related losses. Strong market conditions in the Pilbara regionhave resulted in increased labour, contractor and maintenance costs. Iron Ore Company of Canada Earnings of $145 million were $3 million below 2005. A stronger Canadiandollar, slightly weaker pellet prices and increased maintenance and contractorcosts were only partly mitigated by higher concentrate prices and increasedlevels of pellet and concentrate sales. Rio Tinto Brasil Record production and higher prices turned the 2005 loss of $7 million intoearnings of $13 million. EnergyProduction (Rio Tinto share) 2006 2005 Change Coal (million tonnes) US 125.3 115.6 +8% Hard coking coal 5.9 7.2 -18% Other Australian 31.2 30.9 +1% Uranium (tonnes) 5,698 6,582 -13%Gross sales revenue ($ millions) 4,240 3,867 +10%Underlying earnings ($ millions) 711 733 -3%EBITDA ($ millions) 1,372 1,442 -5%Capital expenditure ($ millions) 582 412 +41% US Coal - Rio Tinto Energy America Earnings of $177 million were $42 million above 2005, benefiting from higherrealised prices for Powder River Basin coal and increased volumes. US coalproduction increased by eight per cent in 2006 attributable to expansions atAntelope and Spring Creek and the commissioning of the new dragline at JacobsRanch. Rail availability improved significantly during the year following thecompletion of maintenance activity in 2005. Asia Pacific seaborne coal markets The coking coal market suffered from short term weakness in 2006, particularlyas a result of displacement within China of higher quality imports byintermediate quality domestic coals. In export thermal coal, China has continuedto partially divert supply to meet domestic demand. With Australian andIndonesian producers constrained by infrastructure in the short term this hasresulted in continued tightness in the Asia Pacific export market. Rio Tinto Coal Australia Earnings of $490 million were $82 million below 2005, with higher prices unableto offset the impact of higher demurrage and energy costs, as well as lowercoking coal sales. Production of Australian thermal and other coal was marginally higher year onyear, in part due to higher output from Mount Thorley/Warkworth and Tarong. Thishelped to compensate for lower production at the Hunter Valley Operations andBengalla. At the port of Newcastle significant congestion resulted in delayedshipments and impacts throughout the production process. Uranium markets Low uranium global stockpile levels and strong demand pushed spot prices above$70 per pound during 2006. Mined supply has been unable to respond quickly togrowing demand from new reactors, notably in China, and higher utilisation ratesin the nuclear industry. In addition, sources of secondary supply continue to berun down. These factors have contributed to tighter markets and an improvementin the longer term outlook for uranium demand. Rossing Earnings of $27 million, which were $25 million above 2005, benefited frombuoyant market conditions and improved pricing. The $82 million Life of MineExtension project approved in December 2005 is proceeding on schedule. Thisproject will extend the life of Rossing to 2016. Energy Resources of Australia Earnings of $17 million were $7 million below 2005. Prices continued to benefitfrom the gradual replacement of legacy contracts with newer contracts written inan environment of higher prices. Higher costs for consumables, particularlylime, imported acid and diesel, and the impact of the cyclones in the first halfof the year pushed earnings below the prior year level. In October, ERA announced an increase in total reserves of 11,100 tonnescontained uranium oxide at its Ranger mine, as a result of screening andprocessing stockpiled material with a lower grade than previously processed,adding six years to its predicted operational life to 2020. Industrial MineralsProduction (Rio Tinto share) 2006 2005 Change Titanium dioxide (000 tonnes) 1,415 1,312 +8% Borates (000 tonnes) 553 560 -1% Salt (000 tonnes) 5,405 5,507 -2% Talc (000 tonnes) 1,392 1,364 +2%Gross sales revenue ($ millions) 2,623 2,487 +5%Underlying earnings ($ millions) Rio Tinto Iron & Titanium 152 128 +19% Rio Tinto Minerals 91 59 +54% 243 187 +30%EBITDA ($ millions) 624 563 +11%Capital expenditure ($ millions) 360 235 +53% Rio Tinto Iron & Titanium Earnings of $152 million were $24 million above 2005. Demand for titaniumdioxide chloride feedstock strengthened during the year whilst demand formetallic and zircon co-products remained firm, leading to improved prices forthe year. Higher volumes, in line with the recently completed capacity expansionof the Upgraded Slag (UGS) plant in Quebec from 325,000 tonnes to 375,000 tonnesper annum, offset the impact of a stronger Canadian dollar. In addition, areduction in Canadian tax rates resulted in an $18 million release of deferredtax provisions in the first half of the year. Rio Tinto Minerals Earnings of $91 million were $32 million above 2005. Rio Tinto Mineralsbenefited from enhanced pricing and from the new organisational structureimplemented in 2005, when a charge of $30 million was taken. The recognition ofa $9 million deferred tax asset and higher prices offset the impact of higherenergy and raw material costs. AluminiumProduction (Rio Tinto share) 2006 2005 Change Bauxite (000 tonnes) 16,139 15,474 +4% Alumina (000 tonnes) 3,247 2,963 +10% Aluminium (000 tonnes) 844.7 853.7 -1%Gross sales revenue ($ millions) 3,493 2,744 +27%Underlying earnings ($ millions) 746 392 +90%EBITDA ($ millions) 1,365 855 +60%Capital expenditure ($ millions) 236 242 -2% Prices The average aluminium price of 116 cents per pound was 35 per cent above the2005 average price. Chinese demand for alumina has been increasingly met bydomestic supply and prices declined significantly from their highs earlier in2006. The net effect of price movements increased earnings by $451 million. Bauxite Bauxite production was four per cent higher than 2005 due to the successfulcommissioning of the Andoom mine and processing plant which form part of theNeWeipa project. The new shiploader was successfully installed in December. Alumina Production at Yarwun (formerly Comalco Alumina Refinery) was 48 per cent higherthan 2005, as the plant reached, and then exceeded design capacity during thefourth quarter, in line with the original development schedule. Overall aluminaproduction was up ten per cent compared with 2005. Production costs wereadversely affected by higher oil, energy and other input prices, as well ashigher maintenance costs. During the second half of 2006 Rio Tinto sold its 56.2 per cent interest in theEurallumina refinery in Sardinia. Aluminium All of the aluminium smelters operated consistently at, or near, capacity. TheBell Bay smelter achieved an annual production record for 2006, whilst the NZASsmelter was marginally lower due to production cutbacks earlier in the yearfollowing low rainfall affecting hydro-electricity supplies. Earnings wereadversely affected by higher electricity, labour and raw material costs, partlyoffset by the benefit of stable operational performance and the Lean Six Sigmaimprovement programme. CopperProduction (Rio Tinto share) 2006 2005 Change Mined copper (000 tonnes) 803.5 784.4 +2% Refined copper (000 tonnes) 299.2 314.5 -5% Mined molybdenum (000 tonnes) 16.8 15.6 +8% Mined gold (000 oz) 1,003 1,626 -38%Gross sales revenue ($ millions) 7,079 4,839 +46%Underlying earnings ($ millions) 3,562 2,020 +76%EBITDA ($ millions) 5,154 3,191 +62%Capital expenditure ($ millions) 640 501 +28% Prices The average copper price of 306 cents per pound was 84 per cent above the 2005average price. The gold price averaged $602 per ounce, an increase of 36 percent on the prior year, whilst the average molybdenum price was $25 per pound, adecline of 20 per cent compared with 2005. The total impact of price changes,net of the effects of provisional pricing movements, increased earnings by$1,705 million. Kennecott Utah Copper Earnings of $1,804 million were $767 million higher than 2005, with theoperation benefiting from improved prices and volumes and a tax credit of $289million, following recognition of deferred tax assets. These offset higher costsassociated with increased haulage profiles, higher consumable prices andadditional stripping costs. KUC continued to demonstrate operating flexibilityby delivering record molybdenum production. Mined copper and gold volumes alsoincreased as a result of higher grades. Smelter and refinery production was six per cent lower in 2006 compared with theprior year, attributable to the scheduled major shutdown of the smelter thattook place during the second half of the year and lasted 63 days. The smelterwas successfully brought back on line following the shutdown. Escondida Earnings of $1,250 million were $648 million above 2005. The benefit of higherprices and additional volumes from the commissioning of the Norte pit inSeptember 2005 and the commencement of sulphide leaching in 2006 counterbalancedhigher labour costs from the wage settlement following the strike in August andincreased costs for contractors. Grasberg joint venture Earnings of $122 million were $110 million below 2005. Lower grades for copper,gold and silver as a result of mine sequencing led to significantly lowerproduction for all three metals compared with 2005. Grades for copper and goldfor the full year were 25 per cent and 49 per cent respectively below those of2005 resulting in lower production for 2006, despite higher throughput. Kennecott Minerals Earnings of $105 million were $32 million above 2005. The effects of highergold and zinc prices and the recognition of a $14 million deferred tax assetwere offset by higher costs and lower sales volumes from Cortez due to lowergrades. Palabora Earnings of $52 million were $33 million above the prior year, benefiting fromhigher copper prices and sales volumes, the sale of some smelter stocks and lowgrade concentrate, and the revaluation of the remaining smelter stocks. Northparkes Earnings of $229 million were $172 million above 2005. Higher grades, increasedthroughput and improved recoveries all contributed to a 54 per cent rise inproduction of copper contained in concentrate for 2006 compared with the prioryear, setting an annual record. In November the $160 million E48 block cave project was approved which willextend the mine life to 2016. Provisional pricing At the end of 2006 the Group had 324 million pounds of copper sales that wereprovisionally priced at US 287 cents per pound. The final price of these saleswill be determined in 2007. The net effect of the provisional pricing movementsin 2006 resulted in a benefit to earnings of $224 million compared with anearnings benefit of $98 million in 2005. DiamondsProduction (Rio Tinto share) 2006 2005 Change Diamonds (000 carats) Argyle 29,078 30,476 -5% Diavik 5,897 4,963 +19% Murowa 187 195 -4%Gross sales revenue ($ millions) 838 1,076 -22%Underlying earnings ($ millions) 205 281 -27%EBITDA ($ millions) 483 617 -22%Capital expenditure ($ millions) 229 203 +13% Diamond markets In the diamond market, consumer demand for diamond jewellery remains strong, butthe supply chain has been affected by high levels of indebtedness, risinginterest rates and flood related factory closures in the main Indian cuttingcentres. Argyle Earnings of $64 million were $53 million below 2005. As a result of softermarkets, Argyle held in excess of $100 million of surplus rough diamonds ininventory at the end of 2006. This was partially offset by higher prices forrough diamonds and lower depreciation due to the inclusion of undergroundreserves. Diavik Earnings of $131 million were $12 million below 2005. The effect of thestronger Canadian dollar together with an adverse sales mix and the impact ofhigher costs from the early closure of the ice road were partly compensated forby record production and a reduction in Canadian tax rates which led to a $21million release of deferred tax provisions. Murowa Earnings from Murowa of $10 million were $11 million below 2005, attributable toan adverse sales mix, with the extraction of smaller stones as mining movedbelow the enriched surface layer. Other operations 2006 2005 ChangeUnderlying earnings ($ millions) 33 40 -18% The sale of the last remaining gold inventories at Kelian generated earnings of$13 million, compared with zero earnings in 2005. At Kennecott Land's Project Daybreak, land sales increased steadily. During2006, over 900 residential lots were sold. This compared with sales of just over450 lots during 2005. Exploration and evaluation 2006 2005 ChangePost-tax charge - centrally reported ($ 163 174 -6%millions) The post-tax centrally reported exploration charge is net of the profit ondisposal of exploration properties. During 2006 Rio Tinto's shares in AshtonMining of Canada were sold, realising a profit on disposal of $37 million. The following exploration projects and programmes were progressed during theperiod: Commodity Projects of note Greenfield programmesIron ore Pilbara projects including West Africa and Western Australia Caliwingina North: drilling continuedThermal and coking Chapudi project, South Africa: Colombia, North America, South Africa and Mongoliacoal definition drilling continuedIndustrial Jarandol project, Serbia (borates): Many areas worldwide including Europe, southernminerals drilling commenced Africa and South AmericaBauxite Brazil and AustraliaCopper US, Mexico, Canada, Chile, Peru and ArgentinaDiamonds Bunder project, India: bulk sampling India, Brazil, Canada, Botswana, Russia, Mauritania and order of magnitude study underway and Mali Exploration in Russia continues as part of the RioNor Joint Venture.Prioritisation of prospects is underway. In December, a purchase agreement wassigned for the Namekara vermiculite deposit in Uganda. Brownfield exploration is underway at a number of Rio Tinto businesses,including the Pilbara, Kennecott Utah Copper, the Freeport and Cortez JointVentures, Greens Creek and Northparkes. Evaluation work continued on a number of projects including Eagle (nickel/copper, US), Resolution (copper/gold, US), Potasio Rio Colorado (potash,Argentina), La Granja (copper, Peru) and Simandou (iron ore, Guinea). Rio Tintois monitoring the work by Northern Dynasty Minerals at the Pebblecopper-gold-molybdenum deposit in Alaska. Contract of Work negotiations continueat La Sampala nickel in Indonesia. Rio Tinto is engaging with Ivanhoe Mines in negotiating an investment agreementwith the government of Mongolia. Capital projects Project Estimated Status/Milestones cost (100%)Completed in 2006 Iron ore - Expansion of Hamersley's (Rio Tinto $290m The Marandoo and Nammuldi components100%) Tom Price and Marandoo mines and construction are complete and Tom Price isof new mine capacity at Nammuldi. scheduled for completion by the first quarter of 2007. Iron ore - Expansion by Robe River (Rio Tinto 53%) $200m The project was completed on budgetof rail capacity including completion of dual and ahead of schedule.tracking of 100 km mainline section. Copper - Escondida sulphide leach (Rio Tinto 30%). $925m The first cathode production from theThe project will produce 180,000 tonnes per annum sulphide leach plant occurred in Juneof copper cathode for more than 25 years. 2006. Titanium dioxide - expansion of annual capacity at $79m The project was completed in OctoberUGS plant from 325,000 tonnes to 375,000 tonnes. three months ahead of schedule and under budget Boric Acid - Phase 2 of Rio Tinto Minerals Boric $50m The project was completed on scheduleAcid Expansion and under budget Coking coal - Hail Creek (Rio Tinto 82%) Expansion $223m The new dragline was commissionedof annual capacity from 6 million tonnes to early in the third quarter of 2006.nameplate 8 million tonnes per annum, with washingplant increased to 12 million tonnes per annum. Ongoing Copper - Kennecott Utah Copper (Rio Tinto 100%) $170m The project was approved in FebruaryEast 1 pushback. The project extends the life of 2005 and work on the pushbackthe open pit to 2017 while retaining options for continues. The pebble crushing unitfurther underground or open pit mining thereafter. was commissioned 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 late 2005the viability of underground mining, including the with dewatering completed in 2006.construction of an exploratory decline. The dike will be finished in 2007 with production from the A418 pipe commencing in 2008. Construction of the exploratory decline is progressing well and scheduled for completion by end March 2007. Iron ore - Brownfields mine expansion of $530m The project was approved in OctoberHamersley's (Rio Tinto 100%) Yandicoogina mine from 2005 and completion is expected by36 million tonnes per annum to 52 million tonnes the end of the third quarter of 2007per annum ahead of schedule and on budget. Project Estimated Status/Milestones cost (100%)Ongoing (continued) Iron ore - Expansion of Hamersley's (Rio Tinto $803m This project was also approved in100%) Dampier port (Phase B) from 116 million October 2005 and completion istonnes per annum to 140 million tonnes per annum expected by the end of 2007 oncapacity and additional rolling stock and schedule and on budget.infrastructure. Titanium dioxide - Construction by QMM (Rio Tinto $850m Basic infrastructure is being put in80%) of a greenfield ilmenite operation in place and the port constructionMadagascar and associated upgrade of processing contract was awarded in 2006. Capitalfacilities at QIT. reflects budget revisions. First production is scheduled for 2008. Gold - Development of Cortez Hills (Rio Tinto 40%) $504m Approved in September 2005, the project continues to focus on permitting requirements. The project is on time and on budget. Energy - Rossing (Rio Tinto 68.6%) uranium mine $82m Approved in December 2005, works arelife extension to 2016 on schedule and on budget to prolong the life of the mine to 2016 and beyond. Diamonds - Argyle (Rio Tinto 100%) development of $910m Approved in December 2005, theunderground mine and open pit cutback, extending underground development isthe life of the mine to 2018. progressing with the mine due to start ramping up from 2008. Recently approved Iron ore - Hope Downs development (Rio Tinto share: $980m Construction is under way. First50% of mine and 100% of infrastructure). production expected in early 2008.Construction of 22 million tonnes per annum mineand related infrastructure. Copper - Northparkes (Rio Tinto 80%) E48 block cave $160m Approved in November 2006.project extending mine life to 2016 Energy - Clermont (Rio Tinto 50.1%) will produce $750m Approved in January 2007, first12.2 million tonnes per annum, replacing Blair shipments are expected in the secondAthol. quarter of 2010 with full capacity being reached in 2013. Iron ore - Cape Lambert port expansion (Rio Tinto $860m Approved in January 2007, the projectshare 53%) from 55 to 80 million tonnes per annum. is forecast to be complete by the end of 2008, with progressive capacity ramp up in the first half of 2009. Divestments Divestments during 2006 included Rio Tinto's 56.2 per cent interest in theEurallumina refinery in Sardinia and its shares in Ashton Mining of Canada. Price & exchange rate sensitivities The following sensitivities give the estimated effect on underlying earningsassuming that each individual price or exchange rate moved in isolation. Therelationship between currencies and commodity prices is a complex one andmovements in exchange rates can cause movements in commodity prices and viceversa. The exchange rate sensitivities quoted below include the effect onoperating costs of movements in exchange rates but exclude the effect of therevaluation of foreign currency working capital. They should therefore be usedwith care. Average price/exchange rate for Change Effect on full year 2006 underlying earnings US$m Copper 306c/lb +/- 10c/lb 138Aluminium 116c/lb +/-10c/lb 144Gold $602/oz +/- $50/oz 38Molybdenum $25/lb +/- $5/lb 61 Australian dollar 75USc +/-5USc 187Canadian dollar 88USc +/-5USc 45South African rand 15USc +/-2USc 29 For further information, please contact: LONDON AUSTRALIAMedia Relations Media RelationsNick Cobban Ian HeadOffice: +44 (0) 20 8080 1305 Office: +61 (0) 3 9283 3620Mobile: +44 (0) 7920 041 003 Mobile: +61 (0) 408 360 101 Christina MillsOffice: +44 (0) 20 8080 1306Mobile: +44 (0) 7825 275 605 Investor Relations Investor RelationsNigel Jones Dave SkinnerOffice: +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628Mobile: +44 (0) 7917 227 365 Mobile: +61 (0) 408 335 309 David Ovington Susie CreswellOffice: +44 (0) 20 7753 2326 Office: +61 (0) 3 9283 3639Mobile: +44 (0) 7920 010 978 Mobile: +61 (0) 418 933 792 Website: www.riotinto.com High resolution photographs available at: www.newscast.co.uk Group income statement Years ended 31 December 2006 2005 US$m US$mGross sales revenue (including share of equity accounted units) (a) 25,440 20,742 Consolidated sales revenue 22,465 19,033 Operating costs (excluding impairment reversals less charges) (13,892) (12,436)Impairment reversals less charges 396 3Profits less losses on disposal of interests in businesses 5 322Operating profit 8,974 6,922Share of profit after tax of equity accounted units 1,378 776Profit before finance items and taxation 10,352 7,698 Finance itemsExchange gains / (losses) on external debt and intragroup balances 46 (128)Gains / (losses) on currency and interest rate derivatives not qualifying for hedge 35 (51)accountingInterest receivable and similar income 106 82Interest payable and similar charges (160) (173)Amortisation of discount related to provisions (139) (116) (112) (386) Profit before taxation 10,240 7,312 Taxation (2,373) (1,814)Profit for the year 7,867 5,498- attributable to outside equity shareholders 429 283 - attributable to equity shareholders of Rio Tinto (Net earnings) 7,438 5,215 (a) Gross sales revenue includes the sales revenue of equity accounted unitsof US$2,975 million (2005: US$1,709 million) in addition to Consolidated salesrevenue, which relates only to subsidiary companies. Basic earnings per ordinary share 557.8c 382.3cDiluted earnings per ordinary share 555.6c 381.1c For the purposes of calculating basic earnings per share, the weighted averagenumber of Rio Tinto plc and Rio Tinto Limited shares outstanding during the yearwas 1,333.4 million, being the average number of Rio Tinto plc sharesoutstanding (1,047.7 million) plus the average number of Rio Tinto Limitedshares outstanding not held by Rio Tinto plc (285.7 million). Dividends paid during the year (US$m) 2,573 1,141Dividends per share: paid during the year - regular dividends 81.5c 83.5c - special dividend 110.0c -Dividends per share: proposed in the announcement of the results for the year - final dividend 64.0c 41.5c - special dividend - 110.0c Group cash flow statement Years ended 31 December 2006 2005 US$m US$m Cash flow from consolidated operations 9,469 7,657Dividends from equity accounted units 1,727 600Cash flows from operations 11,196 8,257 Net interest paid (128) (128)Dividends paid to outside shareholders of subsidiaries (193) (169)Tax paid (2,799) (1,017)Cash flow from operating activities 8,076 6,943 Cash used in investing activities(Acquisitions) / disposals of subsidiaries, joint ventures & associates (279) 321Purchase of property, plant & equipment and intangible assets (3,920) (2,552)Exploration and evaluation expenditure (345) (264)Sales of financial assets 293 133Purchases of financial assets (167) (231)Other investing cash flows 56 110Cash used in investing activities (4,362) (2,483) Cash flow before financing activities 3,714 4,460 Cash used in financing activitiesEquity dividends paid to Rio Tinto shareholders (2,573) (1,141)Own shares purchased from Rio Tinto shareholders (2,370) (877)Proceeds from issue of ordinary shares in Rio Tinto 31 100Proceeds from issue of new borrowings 483 388Repayment of borrowings (1,102) (893)Other financing cash flows 142 12Cash used in financing activities (5,389) (2,411)Effects of exchange rates on cash and cash equivalents 30 (8)Net (decrease) / increase in cash and cash equivalents (1,645) 2,041Opening cash and cash equivalents 2,367 326Closing cash and cash equivalents 722 2,367 Cash flow from consolidated operationsProfit for the year 7,867 5,498Adjustments for: Taxation 2,373 1,814 Finance items 112 386 Share of profit after tax of equity accounted units (1,378) (776) Profits less losses on disposals of interests in businesses (5) (322) Depreciation and amortisation 1,469 1,334 Impairment reversals less charges (396) (3) Exploration and evaluation charged against profit 237 250 Provisions 60 202Utilisation of provisions (271) (261)Change in inventories (454) (249)Change in trade and other receivables (394) (530)Change in trade and other payables 152 279Other items 97 35 9,469 7,657 Group balance sheet At 31 December 2006 2005 US$m US$m Non-current assetsGoodwill 841 1,020Intangible assets 384 220Property, plant and equipment 22,207 17,620Investments in equity accounted units 2,235 1,829Loans to equity accounted units 136 159Inventories 99 141Trade and other receivables 983 703Deferred tax assets 225 55Tax recoverable 135 122Other financial assets 374 453 27,619 22,322 Current assetsInventories 2,540 2,048Trade and other receivables 2,938 2,488Loans to equity accounted units 15 -Tax recoverable 79 30Other financial assets 567 536Cash and cash equivalents 736 2,379 6,875 7,481 Current liabilitiesBank overdrafts repayable on demand (14) (12)Borrowings (1,490) (1,190)Trade and other payables (2,693) (2,190)Other financial liabilities (193) (86)Tax payable (1,024) (987)Provisions (366) (321) (5,780) (4,786) Net current assets 1,095 2,695 Non-current liabilitiesBorrowings (2,007) (2,783)Trade and other payables (362) (269)Other financial liabilities (233) (113)Tax payable (86) (51)Deferred tax liabilities (2,339) (2,197)Provisions (4,302) (3,865) (9,329) (9,278) Net assets 19,385 15,739 Capital and reservesShare capital- Rio Tinto plc 172 172- Rio Tinto Limited (excl. Rio Tinto plc interest) 1,099 1,019Share premium account 1,919 1,888Other reserves 641 (24)Retained earnings 14,401 11,893Equity attributable to Rio Tinto shareholders 18,232 14,948Attributable to outside equity shareholders 1,153 791Total equity 19,385 15,739 At 31 December 2006, Rio Tinto plc had 1,023.6 million ordinary shares in issueand Rio Tinto Limited had 285.7 million shares in issue, excluding those held byRio Tinto plc. At 31 December 2006, net tangible assets per share amounted to US$12.99 (31December 2005: US$10.12). Group statement of recognised income and expense Attributable Outside Year to 31 Year to 31 to Interests December December shareholders 2006 2005 of Rio Tinto Total Total US$m US$m US$m US$m Currency translation adjustment 820 42 862 (445)Cash flow hedge fair value losses (178) (200) (378) (142)Gains on available for sale securities 14 5 19 37Cash flow hedge losses transferred to the income statement 63 74 137 1Gains on revaluation of available for sale securitiestransferred to the income statement (4) - (4) (88)Currency translation reclassified on disposals 4 - 4 -Actuarial gains on post retirement benefit plans 338 35 373 178Tax recognised directly in equity 19 83 102 57 Net income/(expense) recognised directly in equity 1,076 39 1,115 (402) Profit after tax for the year 7,438 429 7,867 5,498 Total recognised income for the year 8,514 468 8,982 5,096 Group statement of changes in equity Attributable Outside Year to 31 Year to 31 to Interests December December shareholders 2006 2005 of Rio Tinto Total Total US$m US$m US$m US$m Opening balance 14,948 791 15,739 12,700 Total recognised income for the year 8,514 468 8,982 5,096Dividends (2,573) (193) (2,766) (1,312)Own shares purchased from Rio Tinto shareholders-Under capital management programme (2,658) - (2,658) (877)-To satisfy share options (49) - (49) -Ordinary shares issued 31 - 31 100Subsidiary company share issues - 69 69 4Employee share options charged to income statement 23 - 23 24Other movements (4) 18 14 4Closing balance 18,232 1,153 19,385 15,739 Reconciliation with Australian IFRS The Group's financial statements have been prepared in accordance with IFRS asadopted by the European Union ('EU IFRS'), which differs in certain respectsfrom the version of IFRS that is applicable in Australia ('Australian IFRS'). Prior to 1 January 2004, the Group's financial statements were prepared inaccordance with UK GAAP. Under EU IFRS, goodwill on acquisitions prior to 1998, which was eliminateddirectly against equity in the Group's UK GAAP financial statements, has notbeen reinstated. This was permitted under the rules governing the transition toEU IFRS set out in IFRS 1. The equivalent Australian Standard, AASB 1, does notprovide for the netting of goodwill against equity. As a consequence,shareholders' funds under Australian IFRS include the residue of such goodwill,which amounted to US$740 million at 31 December 2006 (US$743 million at 31December 2005). Save for the exception described above, the Group's financial statements drawnup in accordance with EU IFRS are consistent with the requirements of AustralianIFRS. Reconciliation of Net earnings to Underlying earnings Pre-tax Taxation Outside Net Net interests amount amount 2006 2005Exclusions from underlying earnings US$m US$mProfits less losses on disposal of interests in businesses (a) 5 (2) - 3 311Impairment reversals less charges (b) 396 (276) (76) 44 4Exchange differences and derivatives- Exchange gains/(losses) on external debt andintragroup balances (c) 46 (70) 8 (16) (87)- Gains/(losses) on currency and interest ratederivatives not qualifying for hedge accounting (d), (e) 35 (9) 4 30 (40)- Gains/(losses) on external debt and derivatives not qualifying as hedges in equity accounted units (net of tax) (c), (d), (e) 2 - - 2 (12)Adjustment to environmental remediation provision (f) 37 - - 37 84Total excluded from underlying earnings 521 (357) (64) 100 260 Net earnings 10,240 (2,373) (429) 7,438 5,215 Underlying earnings 9,719 (2,016) (365) 7,338 4,955 'Underlying earnings' is an alternative measure of earnings, which is reportedby Rio Tinto to provide greater understanding of the underlying businessperformance of its operations. Underlying earnings and Net earnings bothrepresent amounts attributable to Rio Tinto shareholders. Items (a) to (f)below are excluded from Net earnings in arriving at Underlying earnings. (a) Gains and losses arising on the disposal of interests in businesses. (b) Credits and charges relating to impairment of non-current assets other than undeveloped properties. (c) Exchange gains and losses on US dollar debt and intragroup balances. (d) Valuation changes on currency and interest rate derivatives which are ineligible for hedge accounting, other than those embedded in commercial contracts. (e) The currency revaluation of embedded US dollar derivatives contained in contracts held by entities whose functional currency is not the US dollar. (f) Other credits and charges that, individually, or in aggregate if of a similar type, are of a nature or size to require exclusion in order to provide additional insight into underlying business performance. The "adjustment to environmental remediation provision" of US$37 million (2005:US$84 million) relates to the obligations of Kennecott Utah Copper. It reversespart of an exceptional charge taken up in 2002, which was excluded from Adjustedearnings at that time. This reversal is therefore excluded in arriving atUnderlying earnings. The Group frequently sells undeveloped properties as an alternative todevelopment, and such activities are a component of the Group's regular businessactivities. For this reason, the above definition of Underlying earnings hasbeen amended in 2006 to include gains and losses on sales of undevelopedproperties; also impairment charges and reversals relating to these. This changein definition resulted in an increase of $46 million in the Group's Underlyingearnings for 2006 but has no impact on Underlying earnings for 2005. Consolidated net debt At 31 December 2006 2005 Net debt Net debt US$m US$mAnalysis of changes in consolidated net debtOpening balance (1,313) (3,819)Adjustment on currency translation (56) 96Exchange gains charged to the income statement 38 13Gains/(losses) on derivatives related to net debt 44 (85)Cash flows excluding exchange movements (1,146) 2,546Other movements (4) (64)Closing balance (2,437) (1,313) Analysis of closing balanceBorrowings (3,497) (3,973)Bank overdrafts repayable on demand (14) (12)Cash and cash equivalents 736 2,379Other liquid resources 6 5Derivatives related to net debt 332 288Consolidated net debt (2,437) (1,313) Geographical analysis (by country of origin) Years ended 31 December 2006 2005 2006 2005 % % US$m US$m Gross sales revenue 29.6 30.8 North America 7,529 6,397 50.0 51.2 Australia and New Zealand 12,703 10,613 10.5 6.3 South America 2,679 1,302 5.7 5.5 Africa 1,461 1,149 1.6 3.4 Indonesia 396 702 2.6 2.8 Europe and other countries 672 579 100.0 100.0 25,440 20,742 Net earnings 31.7 31.7 North America 2,331 1,584 49.2 53.2 Australia and New Zealand 3,618 2,659 16.4 10.5 South America 1,205 526 2.1 2.1 Africa 157 103 1.8 4.6 Indonesia 133 230 (1.2) (2.1) Europe and other countries (89) (103) 100.0 100.0 7,355 4,999 Net interest (17) (44) Underlying earnings 7,338 4,955 Items excluded from underlying earnings 100 260 Net earnings 7,438 5,215 Geographical analysis (by destination) Years ended 31 December 2006 2005 2006 2005 % % US$m US$m Gross sales revenue 21.9 21.7 North America 5,575 4,499 17.2 20.5 Europe 4,378 4,260 19.6 19.1 Japan 4,986 3,954 16.0 15.0 China 4,062 3,112 13.5 12.8 Other Asia 3,438 2,663 5.8 6.7 Australia and New Zealand 1,477 1,400 6.0 4.2 Other 1,524 854 100.0 100.0 Total 25,440 20,742 (a) The above analyses include Rio Tinto's share of the results of equity accounted units including interest. (b) The amortisation of discount is included in the applicable product category and geographical area. All other financing costs of subsidiaries are included in 'Net interest'. Prima facie tax reconciliation 2006 2005 US$m US$m Profit before taxation 10,240 7,312Deduct: share of profit after tax of equity accounted units (1,378) (776) Parent companies' and subsidiaries' profit before tax 8,862 6,536 Prima facie tax payable at UK and Australian rate of 30% 2,659 1,961 Impact of items excluded from underlying earnings 201 (102) Other permanent differencesAdditional recognition of deferred tax assets (a) (335) -Utilisation of previously unrecognised deferred tax assets (140) (83)Adjustments to deferred tax liabilities following changes in tax rates (b) (46) -Other tax rates applicable outside the UK and Australia 242 214Resource depletion and other depreciation allowances (187) (164)Research, development and other investment allowances (21) (21)Other items - 9 (487) (45)Total taxation charge (c) (d) (e) 2,373 1,814 (a) The "Additional recognition of deferred tax assets" of US$335 million reflects improved prospects for future earnings from the Group's US operations. (b) The "Adjustments to deferred tax liabilities following changes in tax rates", totalling US$46 million, result from a reduction in Canadian tax rates. (c) This tax reconciliation relates to the parent companies and subsidiaries. The Group's share of profit of equity accounted units is net of tax charges of US$770 million (2005: US$361 million). (d) The tax reconciliations for both years analyse US tax on a regular tax basis. Previously, US taxes were analysed on an AMT basis. The presentation for 2005 has been restated accordingly. (e) The total taxation charge includes UK - US$41 million, Australia - US$1,420 million and Other - US$912 million (2005 full year: UK - US$(19) million, Australia - US$1,056 million and Other - US$777 million). Accounting policies The financial information included in this report has been prepared on the basisof all IFRSs and Interpretations adopted by the European Union that aremandatory for periods ending 31 December 2006 and in accordance with: applicableUnited Kingdom law, applicable Australian law as amended by the AustralianSecurities and Investments Commission Order dated 27 January 2006 (as amended on22 December 2006); and Article 4 of the European Union IAS regulation. The EU IFRS financial information has been drawn up on the basis of accountingpolicies consistent with those applied in the financial statements for the yearto 31 December 2005, except for the following: - the adoption of IFRIC 4 'Determining whether an arrangement contains a lease'. - a change to the Group's policy on accounting for exploration and evaluationexpenditure. Previously, the Group capitalised exploration expenditure onacquisition of a beneficial interest or option in mineral rights. Full provisionwas made for impairment unless there was a high degree of confidence in theproject's viability and hence it was considered probable that future economicbenefits would flow to the Group. If, as a result of developments in subsequentperiods, the expenditure was considered to be recoverable, such provisions werereversed. Under the Group's revised policy, exploration expenditure is notcapitalised until the point is reached at which there is a high degree ofconfidence in the project's viability and it is considered probable that futureeconomic benefits will flow to the Group. - a change to the Group's presentation of variances relating to provisionallypriced sales contracts. These are now recorded in revenue, having previouslybeen included in net operating costs. The effect of the above changes is not material to Group earnings or toshareholders' funds in the current or prior periods. Therefore, prior periodinformation has not been restated. Status of financial information This preliminary announcement does not constitute the Group's full financialstatements for 2006, which will be approved by the Board and reported on by theauditors on 23 February 2007 and subsequently filed with the Registrar ofCompanies and the Australian Securities and Investments Commission. Accordingly,the financial information for 2006 is unaudited. Financial information for the year to 31 December 2005 has been extracted fromthe full financial statements prepared under the historical cost convention, asmodified by the revaluation of certain derivative contracts and financialassets, as filed with the Registrar of Companies. The Auditors' report on thefull financial statements for the year to 31 December 2005 was unqualified anddid not contain statements under section 237(2) of the United Kingdom CompaniesAct 1985 (regarding adequacy of accounting records and returns), or under 237(3)(regarding provision of necessary information and explanations). Notes to financial information by business unit (Pages 7 and 8) (a) Gross sales revenue includes 100 per cent of subsidiaries' turnover and the Group's share of the turnover of equity accounted units. (b) EBITDA of subsidiaries and the Group's share of equity accounted units represents profit before: tax, net finance items, depreciation and amortisation. (c) Net earnings represent profit after tax for the year attributable to the Rio Tinto Group. Earnings of subsidiaries are stated before finance items but after the amortisation of the discount related to provisions. Earnings attributable to equity accounted units include interest charges and amortisation of discount. Earnings attributed to business units exclude amounts that are excluded in arriving at Underlying earnings. (d) Includes Rio Tinto's 75.7 per cent interest in Coal & Allied, which is managed by Rio Tinto Coal Australia, a 100 per cent subsidiary of Rio Tinto. (e) Includes Rio Tinto's interests in Anglesey Aluminium (51 per cent) and Rio Tinto Aluminium (100 per cent). (f) Under the terms of a joint venture agreement, Rio Tinto is entitled to 40 per cent of additional material mined as a consequence of expansions and developments of the Grasberg facilities since 1998. (g) Business units have been classified according to the Group's management structure. Generally, this structure has regard to the primary product of each business unit but there are exceptions. For example, the Copper group includes certain gold operations. (h) Capital expenditure comprises the net cash outflow on purchases less disposals of property, plant and equipment. The details provided include 100 per cent of subsidiaries' capital expenditure and Rio Tinto's share of the capital expenditure of equity accounted units. Amounts relating to equity accounted units not specifically funded by Rio Tinto are deducted before arriving at total capital expenditure for the Group. (i) Depreciation figures include 100 per cent of subsidiaries' depreciation and amortisation and include Rio Tinto's share of the depreciation and amortisation of equity accounted units. Amounts relating to equity accounted units are deducted before arriving at the total depreciation and amortisation charge. Depreciation and amortisation includes US$40 million relating to deferred stripping costs which are included in 'Other items' in the Group cash flow statement. (j) Operating assets of subsidiaries comprise net assets before deducting net debt, less outside shareholders' interests which are calculated by reference to the net assets of the relevant companies (i.e. net of such companies' debt). For equity accounted units, Rio Tinto's net investment is shown. Summary financial data in Australian dollars, Sterling and US dollars 2006 2005 2006 2005 2006 2005 A$m A$m £m £m US$m US$m 33,810 27,195 13,818 11,390 Gross sales revenue 25,440 20,742 29,856 24,954 12,203 10,451 Consolidated sales revenue 22,465 19,033 13,609 9,587 5,562 4,015 Profit before taxation 10,240 7,312 10,455 7,208 4,273 3,019 Profit for the year 7,867 5,498 Net earnings attributable to Rio 9,885 6,837 4,040 2,864 Tinto shareholders 7,438 5,215 9,752 6,497 3,986 2,721 Underlying earnings (a) 7,338 4,955 741.3c 501.2c 303.0p 209.9p Basic earnings per ordinary share 557.8c 382.3c 731.3c 476.2c 298.9p 199.4p Basic Underlying earnings per ordinary share (a) 550.3c 363.2c Dividends per share to Rio Tinto shareholders 252.76c 108.85c 106.66p 45.69p - paid 191.5c 83.5c 82.84c 200.28c 32.63p 85.24p - proposed (2005 including special dividend) 64.0c 151.5c 4,936 5,848 2,017 2,449 Cash flow before financing activities 3,714 4,460 (3,084) (1,793) (1,241) (760) Net debt (2,437) (1,313) 23,069 20,407 9,283 8,650 Equity attributable to Rio Tinto shareholders 18,232 14,948 (a) Underlying earnings exclude items totalling US$100 million (2005: US$260 million), which are analysed on page 23. (b) The financial data above have been extracted from the financial statements set out on pages 19 to 22. The Australian dollar and Sterling amounts are based on the US dollar amounts, retranslated at average or closing rates as appropriate, except for the dividends which are the actual amounts payable. Metal prices and exchange rates 2006 2005 Change Metal prices - average for the period Copper - US cents/lb 306c 166c 84%Aluminium - US cents/lb 116c 86c 35%Gold - US$/troy oz US$602 US$444 36%Molybdenum - US$/lb US$25 US$31 (20%) Average exchange rates in US$ Sterling 1.84 1.82 1%Australian dollar 0.75 0.76 (1%)Canadian dollar 0.88 0.83 7%South African rand 0.148 0.157 (6%) Period end exchange rates in US$ Sterling 1.96 1.73 13%Australian dollar 0.79 0.73 8%Canadian dollar 0.86 0.86 (0%)South African rand 0.143 0.158 (9%) 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