Rio Tinto - half year results

2nd Aug 2007 07:02

Rio Tinto PLC02 August 2007 Record cash flow from volume growth in strong markets • Cash flow from operations was at record levels for a first half, at $5,641 million, 11 per cent higher than the first half of 2006. • Underlying EBITDA* was a record $6,613 million, seven per cent above the first half 2006 level of $6,174 million. • Underlying earnings* of $3,529 million were six per cent below the corresponding period of 2006, which included $257 million from recognition of additional net tax assets. • Net earnings* were $3,253 million, down 14 per cent on the 2006 level of $3,796 million, mainly as a result of an impairment of Argyle. • Increased volumes from investment in additional capacity, particularly in iron ore, contributed $302 million to earnings. • Rising prices and strong demand for most products increased underlying earnings by $513 million. • Industry wide cost pressures impacted the business in the first half, reducing underlying earnings by $503 million, adjusted for inflation. • The Group's extensive organic growth pipeline led to record first half capital expenditure of $1.9 billion in 2007. The major iron ore expansions in Western Australia are on track, and studies are underway targeting further significant growth. • The approval in July of a two million tonne per annum expansion of the Yarwun alumina refinery in Queensland will strengthen the Group's position in alumina. • The accelerated expansion of the Hope Downs mine development to 30 million tonnes per annum was approved. • Recommended cash offer for Alcan to create a global aluminium industry leader was announced on 12 July 2007. Six months to 30 June 2007 2006 Change (All dollars are US$ millions unless otherwise stated)Cash flow from operations (incl. dividends from equity accounted units) 5,641 5,085 +11%Underlying EBITDA* 6,613 6,174 +7%Underlying earnings* 3,529 3,751 -6%Net earnings* 3,253 3,796 -14%Underlying earnings per share - US cents 272.6 278.7 -2%Earnings per share - US cents 251.3 282.0 -11% * Net earnings and underlying earnings relate to profit attributable to equityshareholders of Rio Tinto. Underlying earnings is defined and reconciled to netearnings on page 4. Underlying EBITDA excludes the same items that are excludedfrom underlying earnings. Chairman's comments Rio Tinto chairman Paul Skinner said, "Demand for our products strengthenedduring the period, supported by a continued positive growth trend in the globaleconomy and favourable demand conditions in China in particular. On the supplyside, even though the mining industry is now into the fifth year of a broadcyclical upswing, its ability to meet that demand is still constrained by ascarcity of critical mining inputs and, in some cases, a lack of infrastructureand quality orebodies. These constraints are unlikely to ease in the near term. "Against this background, the Group's operations performed well, althoughcontinuing industry-wide cost pressures impacted our margins and we remainfocused on this key area. "Rio Tinto's underlying earnings of $3,529 million in the first half of 2007were our second highest first half results ever recorded. They were slightlybelow the previous half year when we recognised one-off tax benefits in excessof $250 million. The Group generated excellent cash flows of $5.6 billion fromoperations for the period, an average of almost one billion dollars per month,including dividends from equity accounted units. "Our financial position is very strong, and our priority remains to use ourfinancial resources for the value enhancing expansion of the business,consistent with our strategy of investing in large, long life resources capableof sustaining competitive advantage over time. "In line with this strategy, we recently announced a recommended cash offer toacquire Alcan, the leading Canadian aluminium company, with an outstandingcompetitive smelting position based on hydro-power in the provinces of Quebecand British Columbia. We believe that Alcan's assets and culture fit well withour own, and that our offer, while compelling for Alcan shareholders, willcreate a global leader and add value for our own shareholders in the years tocome. Not only does Alcan bring with it some of the world's lowest cost smeltingoperations and sizeable bauxite assets complementary to our own, but it alsoadds considerably to our growth pipeline in aluminium. "The hydro-power assets of Alcan also complement our existing focus onpositioning the Group to compete in a low-carbon environment, which saw theannouncement in May of a major decarbonised energy joint venture with BP -Hydrogen Energy. "Following the Alcan acquisition, which we aim to complete in the fourth quarterof 2007, our balance sheet will be more highly geared than currently, and wehave therefore discontinued our existing capital management programme to focuson reinforcing our financial position. Since the start of 2005, we have returned$6.4 billion to shareholders through buybacks and a special dividend. "We believe that the outlook for aluminium demand, and indeed demand for ourother products, will remain positive while global economic growth remainsstrong. While there are concerns about the state of the credit markets,particularly in the USA, we do not anticipate that these will have a materialshort term impact on our markets." Chief Executive's comments Tom Albanese, Rio Tinto's chief executive, said, "Rio Tinto's long standingstrategy, which is founded on the creation of long term shareholder valuethrough the pursuit and operation of the world's best orebodies, remainsunchanged. "Rio Tinto has an industry leading pipeline of organic growth opportunities within excess of $9 billion of committed projects across our portfolio and furthersignificant projects under consideration. Our record programme of investment inorganic growth continued in the first half of 2007, with particular emphasis onthe expansion of our iron ore business in Australia. We are on target andschedule to reach 220 million tonnes per annum of managed iron ore production inthe Pilbara in 2009, and are now undertaking studies into the potential toincrease annual production capacity to 320 million tonnes. "The long term growth trend in Chinese iron ore import demand will requirecontinuing investment by the Group, and will open up further supplyopportunities outside Australia, such as our high quality resource at Simandouin Guinea, where we are looking at developing a 70 million tonne per annumoperation. "Our portfolio of copper development projects made progress during the year,with the Oyu Tolgoi project moving a step closer to development approval, whenthe Mongolian Government announced its completion of a draft investmentagreement in June. "We are pleased that the Alcan board has recommended our cash offer to itsshareholders. Our position in the global aluminium industry will be transformedby this transaction, which will make us number one global producer of aluminiumand bauxite. We will be a leading alumina producer with the capability to becomenumber one through organic expansion, such as our recently announced two milliontonne per annum expansion of the Yarwun alumina refinery in Queensland. Ourongoing investment in common systems across Rio Tinto will accelerate theintegration of Alcan into the wider Group. "Following completion, we will be a bigger group and will be undertaking astrategic review to determine which of our businesses have the long termcompetitive position to be part of the enlarged Rio Tinto. The proceeds of anydisposals, which are expected to exceed $10 billion, will be used to de-leverageour balance sheet. "Operationally, the first six months of 2007 were demanding, as we again pushedour existing businesses to respond to strong market conditions by maximisingproduction. "At Argyle we have taken an impairment reflecting the impacts of industry costpressures in Western Australia and difficult ground conditions. The revisedcapital budget of the project is now likely to be of the order of $1.5 billion. "On balance, all our businesses have performed well, but we are alert tocontinuing industry-wide cost pressures, notably in Western Australia and inQueensland. Our iron ore business has experienced higher contractor andtransportation costs particularly following the cyclones earlier this year,whilst infrastructure related costs at Rio Tinto Coal Australia have impactedmargins in the Energy group. We are putting in place measures to mitigate thefuture impact of costs through productivity improvements, the sharing of bestpractice and a review of our functional and support costs." Net earnings and underlying earnings To provide insight into the underlying performance of its business, Rio Tintopresents underlying earnings. The differences between underlying earnings andnet earnings are set out in the table below. Six months ended 30 June 2007 2006 US$m US$m Underlying earnings 3,529 3,751 Items excluded from underlying earnings Impairment charges (314) - Other 38 45 Net earnings 3,253 3,796 Commentary on the Group financial results Underlying earnings of $3,529 million and net earnings of $3,253 million were$222 million and $543 million below the comparable measures for the first halfof 2006. The principal factors explaining the movements are set out in thetable below. Six months ended 30 June Underlying Net earnings earnings US$m US$m First half 2006 3,751 3,796 Prices 513 Exchange rates (118) Inflation (85) Volumes 302 Costs (503) Tax (370) Other 39 (222) (222) Impairment charges (314) Other (7) First half 2007 3,529 3,253 Prices and exchange rates Prices for major products were above those experienced in 2006. Compared withthe first half of 2006 average copper prices were 13 per cent higher and averagealuminium prices ten per cent higher. The strength of the global iron oremarket was reflected in the 9.5 per cent increase in the benchmark price, whichwas mainly effective from 1 April 2007. The seaborne thermal and coking coalmarkets were also strong. Higher copper prices contributed $32 million to underlying earnings comparedwith the first half of 2006. This included the impact of changes in the copperprice on the amount realised from provisionally priced sales, mostly atEscondida and Northparkes, which resulted in a contribution of $109 million tounderlying earnings in the first half of 2007. This compared with a contributionof $291 million for the corresponding period of 2006. Molybdenum prices averaged $28 per pound in the first half of 2007, an increaseof 19 per cent compared with the same period of 2006. There was movement in the US dollar in the first half of 2007 relative to thecurrencies in which Rio Tinto incurs the majority of its costs. The averageAustralian dollar rate was nine per cent stronger, the South African rand 14 percent weaker and the Canadian dollar was relatively unchanged. The effect ofthese currency movements was to decrease underlying earnings relative to thefirst half of 2006 by $118 million. Volumes Higher sales volumes increased earnings by $302 million compared with the firsthalf of 2006. The main contributors were the ramp-up of iron ore from thecontinued expansion of the Pilbara mines, in particular Yandicoogina, highervolumes of refined copper following the commissioning of the Escondida sulphideleach plant in the latter half of 2006 and higher gold production from highergrades at Grasberg. Costs Excluding the effects of inflation, higher costs reduced earnings by $503million. Rio Tinto Coal Australia experienced intense cost pressures frominfrastructure constraints and increased contractor and equipment hire chargeswhile cyclones in the Pilbara raised contractor and transportation rates at theiron ore operations. Higher non-cash costs reduced earnings by $76 million. Thiswas mostly attributable to the impairment reversal at Kennecott Utah Copper in2006 which is now being depreciated. Tax The effective tax rate on underlying earnings, excluding equity accounted units,was 32 per cent compared with 22 per cent in the first half of 2006. The taxrate for the first half year of 2006 was reduced by 6.4 percentage pointsfollowing recognition of $211 million of additional deferred tax assets,reflecting improved projections of long term taxable earnings from the Group'sUS operations; and following a $46 million reduction in deferred tax provisionsas a result of a reduction in Canadian tax rates. Items excluded from underlying earnings A further impairment charge of $314 million after tax has been recognised atArgyle. The deterioration in value is mainly due to large increases in theestimated capital cost of the underground project including the effect ofover-heated Western Australian construction industry conditions. In full year 2006, there was a net reversal of impairments of $44 million. Other exclusions from underlying earnings were net gains of $38 million ($45million for the six months to 30 June 2006: $56 million in full year 2006). Cash flow Cash flow from operations, including dividends from equity accounted units, wasa first half record at $5,641 million, 11 per cent higher than the first half of2006. The Group continued to invest at high levels to grow the business. Netexpenditure on property, plant and equipment and intangible assets was a firsthalf record at $1,916 million during the first half of 2007. This included themajor port, rail infrastructure and iron ore mine expansions in WesternAustralia, the ilmenite mine in Madagascar and the Diavik A418 dikeconstruction. Dividends paid in the first half of 2007 of $837 million were $1,187 millionlower than dividends paid in the first half of 2006, which included the specialdividend totalling $1.5 billion. Capital management activity in the first halfof 2007 comprised a $1,417 million buy back of Rio Tinto plc shares from the2006/07 programme (net of $11 million proceeds from the exercise of options). Inthe first half of 2006 capital management totalled $1,098 million through theon-market buy back of Rio Tinto plc shares. Balance sheet The balance sheet remained strong during the period, despite record capitalexpenditure, with net debt increasing from $2,437 million at 31 December 2006 to$2,862 million at 30 June 2007. Debt to total capital remained at 11 per centand interest cover was 77 times. In the first half of 2007, net assets increased by $2,562 million. The Rio Tintoplc share buy back reduced shareholder equity by $1,361 million. International Financial Reporting Standards (IFRS) IFRS require that the profit for the period reported in the income statementshould also include earnings attributable to outside shareholders insubsidiaries. For the first half of 2007, the profit for the period was $3,401million (2006 first half $3,968 million) of which $148 million (2006 first half$172 million) was attributable to outside shareholders, leaving $3,253 million(2006 first half $3,796 million) of net earnings attributable to Rio Tintoshareholders. Both net earnings and underlying earnings, which are the focus ofthe commentary in this report, deal with amounts attributable to equityshareholders of Rio Tinto. Dividends Dividends are determined in US dollars. The interim dividend is set at one halfof the total dividends declared for the previous year excluding any specialdividends. Therefore, interim dividends equivalent to 52 US cents per share(2006: 40 US cents per share) have been declared by Rio Tinto plc and Rio TintoLimited. Rio Tinto plc dividends are declared and paid in pounds sterling and Rio TintoLimited dividends are declared and paid in Australian dollars, converted atexchange rates applicable on Tuesday 31 July 2007. Rio Tinto plc shareholders will be paid an interim dividend of 25.59 pence perordinary share (2006: 21.42 pence per share). Rio Tinto Limited shareholderswill be paid an interim dividend of 60.69 Australian cents per ordinary share(2006: 52.48 Australian cents per share), which will be fully franked. TheBoard expects Rio Tinto Limited to be in a position to pay fully frankeddividends for the reasonably foreseeable future. The respective dividends will be paid on Thursday 6 September 2007 to Rio Tintoplc shareholders on the register at the close of business on Friday 10 August2007 and to Rio Tinto Limited shareholders on the register at the close ofbusiness on Tuesday 14 August 2007. The ex-dividend date for both Rio Tinto plcand Rio Tinto Limited will be Wednesday 8 August 2007. Dividends will be paid toRio Tinto ADR holders on Friday 7 September 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 15 August 2007. Rio Tinto financial information by business unitSix months ended 30 June Rio Tinto Gross sales revenue EBITDA (b) Net earnings (c)US$ millions interest (a) % 2007 2006 2007 2006 2007 2006 Iron OreHamersley (inc. HIsmelt) 100.0 2,564 1,889 1,398 1,088 861 698Robe River 53.0 761 608 460 393 233 197Iron Ore Company of Canada 58.7 379 435 103 168 28 54Rio Tinto Brasil 100.0 32 43 2 14 (1) 6Other - - (22) (11) (22) (11) 3,736 2,975 1,941 1,652 1,099 944 EnergyRio Tinto Energy America 100.0 727 714 139 150 46 90Rio Tinto Coal Australia (d) 1,127 1,149 306 500 177 272Rossing 68.6 215 74 110 20 44 7Energy Resources of Australia 68.4 92 114 25 38 2 8Other - - (34) (3) (24) (3) 2,161 2,051 546 705 245 374 Aluminium (e) 1,749 1,658 739 673 406 369 CopperKennecott Utah Copper 100.0 1,736 1,562 1,267 1,136 785 1,033Escondida 30.0 1,655 1,311 1,364 1,144 835 700Grasberg joint venture (f) 183 149 127 140 63 65Palabora 57.7 352 276 116 105 32 38Kennecott Minerals 100.0 171 101 93 56 56 45Northparkes 80.0 227 245 148 208 93 124Other - - (72) (8) (46) (7) 4,324 3,644 3,043 2,781 1,818 1,998 Diamonds & MineralsDiamonds (g) 445 411 232 230 93 113Iron and Titanium 783 664 247 204 79 83Rio Tinto Minerals (h) 595 588 128 109 60 54Other - - (23) (19) (20) (17) 1,823 1,663 584 524 212 233 Other operations 137 120 (6) 17 (4) 16 Other items (289) (118) (260) (116)Exploration and evaluation 55 (60) 25 (53)Net interest - - (12) (14)Underlying EBITDA / earnings 6,613 6,174 3,529 3,751Items excluded from underlying earnings 10 45 (276) 45Total 13,930 12,111 6,623 6,219 3,253 3,796 Depreciation and amortisation in subsidiaries (865) (706)Impairment charges (449) -Depreciation and amortisation in equity accounted units (140) (122)Taxation and finance items in equity accounted units (507) (427)Profit on ordinary activities before finance items and tax 4,662 4,964 References above are to notes on page 28 Rio Tinto financial information by business unit (continued)Six months ended 30 June Rio Tinto Capital Depreciation Operating assetsUS$ millions interest expenditure & (k) (i) amortisation (j) % 2007 2006 2007 2006 2007 2006 Iron OreHamersley (inc. HIsmelt) 100.0 854 790 153 98 5,530 3,531Robe River 53.0 73 36 49 44 1,805 1,587Iron Ore Company of Canada 58.7 36 37 34 26 755 594Rio Tinto Brasil 100.0 10 11 3 4 112 88 973 874 239 172 8,202 5,800 EnergyRio Tinto Energy America 100.0 104 177 63 56 1,139 1,097Rio Tinto Coal Australia (d) 85 104 85 80 1,592 1,366Rossing 68.6 17 16 5 4 19 64Energy Resources of Australia 68.4 17 19 22 16 192 160Other - - - - 25 - 223 316 175 156 2,967 2,687 Aluminium (e) 120 114 146 125 3,866 3,291 CopperKennecott Utah Copper 100.0 86 119 126 75 1,656 1,421Escondida 30.0 87 103 50 37 1,102 916Grasberg joint venture (f) 26 22 19 26 359 346Palabora 57.7 9 12 19 22 55 (245)Kennecott Minerals 100.0 39 35 12 11 233 162Northparkes 80.0 22 6 15 30 215 137Other 13 10 - - 566 39 282 307 241 201 4,186 2,776 Diamonds & MineralsDiamonds (g) 232 104 81 79 987 1,238Iron and Titanium 188 86 57 55 1,619 1,349Rio Tinto Minerals (h) (5) 63 46 37 1,129 1,122 415 253 184 171 3,735 3,709 Other operations 7 15 - - 213 170Other items 41 75 20 3 324 (344)Less: equity accounted units (145) (171) (140) (122)Total 1,916 1,783 865 706 23,493 18,089Less: net debt (2,862) (2,623)Total shareholders' equity 20,631 15,466 References above are to notes on page 28 REVIEW OF OPERATIONS Comparison of underlying earnings First half 2007 underlying earnings of $3,529 million were $222 million belowthe first half underlying earnings of 2006. The table below shows thedifference by product group. All financial amounts in the tables below are US$millions unless indicated otherwise. US$m First half 2006 underlying earnings 3,751 Iron ore 155 Energy (129) Aluminium 37 Copper (180) Diamonds & Minerals (21) Other operations (20) Exploration and evaluation 78 Interest 2 Other (144) First half 2007 underlying earnings 3,529 All subsequent references to earnings within the business unit section refer tounderlying earnings. Production numbers represent the Rio Tinto share. IRON ORE First half First half Change Full year 2007 2006 2006 Production (million tonnes) 69.4 62.0 +12% 132.8Gross sales revenue ($ millions) 3,736 2,975 +26% 6,938Underlying earnings ($ millions) 1,099 944 +16% 2,251EBITDA ($ millions) 1,941 1,652 +17% 3,936Capital expenditure ($ millions) 973 874 +11% 1,981 Market conditions Global iron ore demand remained extremely strong in all markets during the firsthalf of 2007, with the Chinese market very robust. In light of this continuedstrong demand, Rio Tinto announced its intention to undertake studies into afurther expansion of its Pilbara operations' annual production capacity toaround 320 million tonnes. Hamersley First half 2007 earnings of $861 million were $163 million above the first halfof 2006. Production in the first half of 2007 was at record levels asYandicoogina and other brownfield expansions continued to deliver additionaltonnage. Increased production rates were achieved during the first half, despitescheduled shutdowns associated with the integration of major capacity upgrades.These recently completed major upgrades at Tom Price, Paraburdoo and DampierPort performed well. Hamersley's first half earnings included a net loss of $24 million for HIsmelt(first half 2006 $13 million net loss) due to scheduled pre-production andmarketing costs. Robe River First half earnings of $233 million were $36 million above the first half of2006. Higher prices and volumes were partially offset by higher costs fromincreased demurrage and contractor rates. Iron Ore Company of Canada Earnings of $28 million were $26 million below the first half of 2006.Production of concentrates and pellets was 30 per cent below the first half of2006 as a result of industrial disruption which lasted for approximately 52days, and ended on 25 April. Rio Tinto Brasil Rio Tinto Brasil reported a loss of $1 million in the first half of 2007compared with earnings of $6 million in the first half of 2006, as sales volumeswere affected by low availability of third party transport. Other Iron ore projects are now reported within the product group. Higher expenditurewas reported at the Simandou project in Guinea as the pre-feasibility studyadvanced. ENERGY First half First half Change Full year 2007 2006 2006Production Coal (million tonnes) US 60.7 61.2 -1% 125.3 Hard coking coal 3.1 2.7 +15% 5.9 Other Australian 12.9 15.7 -18% 31.2 Uranium (000 lbs) 6,006 5,525 +9% 12,561Gross sales revenue ($ millions) 2,161 2,051 +5% 4,240Underlying earnings ($ millions) 245 374 -34% 707EBITDA ($ millions) 546 705 -23% 1,366Capital expenditure ($ millions) 223 316 -29% 582 US Coal - Rio Tinto Energy America (RTEA) RTEA's first half 2007 earnings of $46 million were $44 million below the firsthalf of 2006. Improved prices were offset by higher cash costs, notably higherstripping costs, increased haul profiles and higher maintenance costs. In thefirst half of 2006 a $14 million tax credit was recognised as a deferred taxasset. There was no such credit recognised in 2007. US coal production during the first half of 2007 was consistent with the firsthalf of 2006, with unusually wet spring weather slowing rail shipments and coalproduction. Asia Pacific seaborne coal markets Following severe wet weather in the Hunter Valley region of New South Wales inJune 2007, Asian seaborne thermal coal prices rose sharply to peak at $70 pertonne in the first half of 2007. Issues relating to infrastructure controlled byexternal parties are likely to maintain market tightness for the foreseeablefuture. Rio Tinto Coal Australia Earnings of $177 million were $95 million below the first half of 2006, withhigher coking coal volumes unable to compensate for lower thermal coal volumes,which were constrained by infrastructure issues and wet weather. Production of hard coking coal benefited from an improvement in the coking coalmarket but was restricted due to external infrastructure problems in Queensland. The New South Wales operations were impacted by heavy rains in June whichresulted in the declaration of force majeure by Rio Tinto's subsidiary Coal &Allied. Reduced port throughput from infrastructure limitations led to continueddelays in shipping and a resultant decrease in production as the effects werefelt along the Hunter Valley coal chain. Uranium markets The uranium market has softened from its recent price highs of $135 per pound.Market sentiment continues to be positive, with supply disruptions likely topersist for longer than previously expected. Rossing Earnings of $44 million were $37 million above the first half of 2006,reflecting the benefit of higher realised prices. These more than compensatedfor reduced production volumes due to lower grades. Energy Resources of Australia The Rio Tinto share of ERA reported earnings of $2 million in the first half of2007 was $6 million below the first half of 2006, due to lower sales volumes andhigher costs associated with the heavy rains during the first quarter of 2007.The subsequent flooding of the operational pit 3 led to the declaration of forcemajeure on ERA's sales contracts. The full impact of rising uranium prices will only flow through to sales as newcontracts come into effect. Other Energy projects are now reported within the product group. The increased chargein the first half of 2007 includes Rio Tinto's share of expenditure for theHydrogen Energy joint venture. ALUMINIUM First half First half Change Full year 2007 2006 2006 Production Bauxite (000 tonnes) 8,462 7,658 +10% 16,139 Alumina (000 tonnes) 1,346 1,632 -18% 3,247 Aluminium (000 tonnes) 428.2 413.7 +3% 844.7Gross sales revenue ($ millions) 1,749 1,658 +5% 3,493Underlying earnings ($ millions) 406 369 +10% 746EBITDA ($ millions) 739 673 +10% 1,365Capital expenditure ($ millions) 120 114 +5% 236 Prices The average aluminium price of 126 cents per pound was ten per cent above thefirst half 2006 average price. The alumina market remained tight with spotprices trading at around $365 per tonne. Recent supply disruptions have not hadany strong impact on the spot alumina market. The rate of Chinese aluminaimports has decreased, as domestic production continues to grow rapidly. Theseeffects, together with the impacts of other price movements, increased earningsby $79 million. Bauxite Half year bauxite production was ten per cent above the first half of 2006reflecting severe weather conditions that occurred in the prior year and thecommissioning of the second shiploader in late 2006. Alumina Alumina production at the Yarwun alumina refinery in the first half of 2007 wasseven per cent higher than the corresponding period of 2006 due to improvedprocess stability. Rio Tinto's overall share of alumina production in the firsthalf of 2007 was 18 per cent lower than the same quarter of 2006 following thesale of its interest in the Eurallumina refinery in October 2006. Aluminium Production at the aluminium smelters during the first half of 2007 was three percent above the corresponding half of 2006. Much of this improvement wasattributable to the Tiwai Point smelter where production was eight per centhigher than the first half of 2006 when low rainfall in the hydropower catchmentarea resulted in cells being taken out of circuit. Production costs were adversely affected by higher input prices. COPPER First half First half Change Full year 2007 2006 2006 Production Mined copper (000 tonnes) 384.5 410.8 -6% 803.5 Refined copper (000 tonnes) 202.3 169.5 +19% 299.2 Mined molybdenum (000 tonnes) 8.5 7.9 +7% 16.8 Mined gold (000 oz) 606 461 +32% 1,003Gross sales revenue ($ millions) 4,324 3,644 +19% 7,079Underlying earnings ($ millions) 1,818 1,998 -9% 3,538EBITDA ($ millions) 3,043 2,781 +9% 5,118Capital expenditure ($ millions) 282 307 -8% 697 Prices The average copper price of 307 cents per pound was 13 per cent above the firsthalf 2006 average price. This increased earnings by $32 million, net of theeffects of provisional pricing movements, which were a credit to earnings of$109 million in the first half of 2007 compared with a credit of $291 million inthe corresponding period of 2006. Kennecott Utah Copper First half earnings of $785 million were $248 million lower than the first halfof 2006 due to lower volumes of molybdenum sales, higher non-cash costs and theabsence of tax credits. In 2006 the operation benefited from a tax credit of$215 million, following recognition of deferred tax assets. Lower grades of copper and gold at Bingham Canyon, which were in line with theoperation's expectations, resulted in mined copper production declining by 16per cent compared with the first half of 2006. Molybdenum production increasedby seven per cent compared with the corresponding half of 2006 as a result ofhigher recoveries, with molybdenum inventories replenished following a draw downin 2006. The smelter continued to operate at targeted levels with refinedproduction of copper and gold consistent with the first half of 2006. Escondida Earnings of $835 million were $135 million above the first half of 2006. Refinedcopper production increased by 180 per cent compared with the first half of 2006due to the ramp up of sulphide leach production in the latter half of 2006. Grasberg joint venture Earnings of $63 million were $2 million below the first half of 2006. Changes inthe metal sharing rate for 2007 were a major factor in lowering Rio Tinto'sshare of copper production and increasing its share of gold production in thefirst half of 2007, compared with the same half of 2006. Higher gold grades alsocontributed to this positive variance. Kennecott Minerals Earnings of $56 million were $11 million above the first half of 2006. Highervolumes and higher prices were partly offset by the absence of a $10 milliondeferred tax asset recognised in 2006. Palabora Earnings of $32 million were $6 million below the first half of 2006, withimproved volumes offset by higher cash costs. Northparkes Earnings of $93 million were $31 million below the first half of 2006. Copperproduction was 27 per cent below the first half of 2006, in line with anexpected decline in grades in the E26 block cave as this resource nears the endof life ahead of bringing the new E48 block cave into production. Other Copper projects are now reported within the product group. Higher costsassociated with projects including La Granja and Resolution reduced earnings by$39 million compared with the first half of 2006. The Oyu Tolgoi copper-gold project moved a step closer to development approvalwith the Mongolian Government's announcement that it had completed the draftInvestment Agreement on 26 June 2007. The Agreement has been submitted to theMongolian National Parliament. This is expected to be the final step in theGovernment's approval process. Approval will also be needed from the boards ofRio Tinto and Ivanhoe Mines, the Canadian joint venture partner. The agreementprovides for the Mongolian Government to own a 34 per cent stake in the project. DIAMONDS AND MINERALS First half First half Change Full year 2007 2006 2006 Production Diamonds (000 carats) 11,446 15,530 -26% 35,162 Titanium dioxide (000 tonnes) 718 697 +3% 1,415 Borates (000 tonnes) 274 271 +1% 553 Salt (000 tonnes) 2,075 2,650 -22% 5,405 Talc (000 tonnes) 679 727 -7% 1,392Gross sales revenue ($ millions) 1,823 1,663 +10% 3,461Underlying earnings ($ millions) 212 233 -9% 407EBITDA ($ millions) 584 524 +11% 1,062Capital expenditure ($ millions) 415 253 +64% 617 This restructures the previous Diamonds and Industrial Minerals product groupsfrom May 2007. Diamond markets Stocks accumulated by cutting centres in 2006 continued to be drawn down andsome shortages of higher quality rough diamonds are starting to emerge. This isdriving increasingly positive sentiment in the rough market, althoughexpectations for the lower quality product are more subdued. Argyle Earnings of $29 million were $12 million below the first half of 2006. Lowerprices for rough diamonds were only partly compensated by higher sales volumesand lower non-cash costs. Diavik Earnings of $64 million were $6 million below the first half of 2006. Recordproduction at Diavik was achieved during the first half with strong throughputand continued higher grades contributing to the 30 per cent increase inproduction compared with the first half of 2006. 2006 earnings included a $21million release of deferred tax provisions following a reduction in the Canadiancorporate tax rate. Murowa Murowa broke even in the first half of 2007, compared with earnings of $2million for the same period of 2006. Iron & Titanium Earnings of $79 million were $4 million below the first half of 2006. Globaldemand for titanium dioxide feedstocks remained firm in the first half of 2007due to domestic shortages and heightened demand for use in the pigment industry.In 2006, a reduction in the Canadian corporate tax rate resulted in an $18million release of deferred tax provisions. This did not recur in 2007. Rio Tinto Minerals Earnings of $60 million were $6 million above the first half of 2006 with higherprices and property sales offsetting the impact of a stronger Euro, lowervolumes and increased costs. Other Diamonds and Minerals projects are now reported within the product group. Thisincludes the potash project in Argentina which is in the final stages offeasibility study. OTHER OPERATIONS First half First half Change Full year 2007 2006 2006Underlying earnings ($ millions) (4) 16 -125% 33 The sale of the last remaining gold inventories at Kelian generated earnings of$15 million in the first half of 2006, accounting for much of the abovevariance. At Kennecott Land's Project Daybreak, land sales remained constant.During the first half of 2007, over 300 residential lots were sold, in line withthe corresponding period of 2006. OTHER ITEMS First half First half Change Full year 2007 2006 2006Underlying earnings ($ millions) (260) (116) -124% (243) The increase in other items can be attributed to a higher technology spend, ahigher settlement of claims by the captive insurer and the absence of accountingpolicy changes in 2007, compared with a positive impact on the first half of2006. EXPLORATION AND EVALUATION First half First half Change Full year 2007 2006 2006Post-tax credit / (charge) ($ millions) 25 (53) +147% (84) Central exploration and evaluation credits of $25 million, on a post-tax basis,were 147 per cent lower than the first half of 2006. Higher greenfieldexpenditure was offset by increased divestments including the sale of thePenasquito royalty rights. A summary of activity for the period is as follows: Product Group Advanced projects Greenfield programmesAluminium Curua, Brazil: Government-sponsored Brazil, Australia environmental management plans expected to take two to three years.Copper Sulawesi nickel, Indonesia: Contract of Russia (RioNor JV), Kazakhstan, US, Work negotiations continued Mexico, Chile, Peru, Argentina Lakeview nickel-copper, US: resource estimation work underwayDiamonds & Minerals Bunder diamonds, India; India, Canada, Russia, Mauritania and Mali Xai Xai and Inhambane ilmenite, (diamonds); Australia, Canada, US and Mozambique; Turkey (industrial minerals) Jarandol and Jadar borates,Serbia Namekara vermiculite, Uganda:order of magnitude studies underwayEnergy Chapudi thermal coal, South Africa: order Colombia, Canada, US, South Africa and of magnitude study completed Mongolia Whitehorse thermal coal and Sweetwater uranium, US: order of magnitude studies underwayIron Ore Pilbara, Australia: delineation drilling Brazil and Guinea; title applications in underway at several advanced prospects several new countries Capital projects Project Estimated Status/Milestones cost (100%) 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. Pre-stripping commenced in 2006 with production from the A418 pipe expected to begin in late 2007. Construction of the exploratory decline is complete.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. 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. Firstfacilities at QIT. 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 Of the order of Approved in December 2005, theunderground mine, extending the life of the mine to $1.5 billion underground development is2018. transitioning from single exploratory decline to multi-phase tunnelling.Iron ore - Hope Downs development (Rio Tinto share: $980m Construction is well advanced. First50% of mine and 100% of infrastructure). production is 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 Underground development has commenced and is on schedule for May 2009 production start. Project Estimated Status/Milestones cost (100%)Recently approved 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.Alumina - Expansion of Yarwun Alumina Refinery from $1.8bn Approved in July 2007, the expansion1.4 to 3.4 million tonnes per annum. will more than double annual production at Yarwun and is expected to come onstream by 2011.Iron ore - Expansion of Hope Downs South (Rio Tinto $350m Approved in August 2007, theshare 50%) from 22 to 30 million tonnes per annum. expansion will be complete by early 2009. Price & exchange rate sensitivities The following sensitivities give the estimated effect on underlying earningsassuming that each individual price or exchange rate moved in isolation. Therelationship between currencies and commodity prices is a complex one andmovements in exchange rates can cause movements in commodity prices and viceversa. The exchange rate sensitivities quoted below include the effect onoperating costs of movements in exchange rates but exclude the effect due to therevaluation of foreign currency working capital. They should therefore be usedwith care. Average price/exchange rate for Change Effect on full year first half 2007 underlying earnings US$m Copper 307c/lb +/- 31c/lb 436Aluminium 126c/lb +/-13c/lb 198Gold $659/oz +/- $66/oz 43Molybdenum $28/lb +/- $3/lb 69 Australian dollar 81USc +/-8USc 409Canadian dollar 88USc +/-9USc 74South African rand 14USc +/-1USc 22 CAUTIONARY STATEMENT ABOUT FORWARD LOOKING STATEMENTS This document contains certain forward looking statements with respect to thefinancial condition, results of operations and business of the Rio Tinto Group.The words "intend", "aim", "project", "anticipate", "estimate", "plan", "believes", "expects", "may", "should", "will", or similar expressions, commonlyidentify such forward looking statements. Examples of forward looking statementsin this announcement include, without limitation, those regarding anticipatedproduction or construction dates, costs, outputs and productive lives of assetsor similar factors. Forward looking statements involve known and unknown risks,uncertainties, assumptions and other factors set forth in this document that arebeyond the Group's control. For example, future ore reserves will be based inpart on market prices that may vary significantly from current levels. These maymaterially affect the timing and feasibility of particular developments. Otherfactors that could affect the Group's results include the ability to produce andtransport products profitably, demand for our products, the effect of foreigncurrency exchange rates on market prices and operating costs, and activities bygovernmental authorities, such as changes in taxation or regulation, andpolitical uncertainty. In light of these risks, uncertainties and assumptions, actual results could bematerially different from any future results expressed or implied by theseforward looking statements which speak only as at the date of this report.Except as required by applicable regulations or by law, the Group does notundertake any obligation to publicly update or revise any forward lookingstatements, whether as a result of new information or future events. The Groupcannot guarantee that its forward looking statements will not differ materiallyfrom actual results. For further information, please contact:LONDON AUSTRALIA Media Relations Media RelationsChristina Mills Ian HeadOffice: +44 (0) 20 8080 1306 Office: +61 (0) 3 9283 3620Mobile: +44 (0) 7825 275605 Mobile: +61 (0) 408 360 101Nick Cobban Amanda BuckleyOffice: +44 (0) 20 8080 1305 Office: +61 (0) 3 9283 3627Mobile: +44 (0) 7920 041 003 Mobile: +61 (0) 419 801 349 Investor Relations Investor RelationsNigel Jones Dave SkinnerOffice: +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628Mobile: +44 (0) 7917 227 365 Mobile: +61 (0) 408 335 309David Ovington Susie CreswellOffice: +44 (0) 20 7753 2326 Office: +61 (0) 3 9283 3639Mobile: +44 (0) 7920 010 978 Mobile: +61 (0) 418 933 792 Website: www.riotinto.comHigh resolution photographs available at: www.newscast.co.uk Group income statement Six months Six months Year to 31 to 30 June to 30 June December 2007 2006 2006 US$m US$m US$m Gross sales revenue (including share of equity accounted units) (a) 13,930 12,111 25,440 Consolidated sales revenue 12,055 10,621 22,465Net operating costs (excluding items shown separately below) (7,746) (6,344) (13,650)Impairment (charges)/net reversals (449) - 396Exploration and evaluation costs (b) (63) (113) (237) Operating profit 3,797 4,164 8,974Share of profit after tax of equity accounted units 865 800 1,378Profit before finance items and taxation 4,662 4,964 10,352 Finance itemsExchange gains on external net debt and intragroup balances 65 29 46Gains/(losses) on currency and interest rate derivatives notqualifyingfor hedge accounting 23 (18) 35Interest receivable and similar income 46 64 106Interest payable and similar charges (67) (104) (160)Amortisation of discount related to provisions (70) (56) (139) (3) (85) (112) Profit before taxation 4,659 4,879 10,240 Taxation (1,258) (911) (2,373) Profit for the period 3,401 3,968 7,867 - attributable to outside equity shareholders 148 172 429- attributable to equity shareholders of Rio Tinto (Net earnings) 3,253 3,796 7,438 Basic earnings per ordinary share (c) 251.3c 282.0c 557.8cDiluted earnings per ordinary share 250.4c 280.9c 555.6c Dividends paid during the period (US$m) 837 2,024 2,573Dividends per share: paid during the period- ordinary dividend 64.0c 41.5c 81.5c- special dividend - 110.0c 110.0cDividends per share: declared in the announcement of the results for the period- ordinary dividend 52.0c 40.0c 64.0c (a) Gross sales revenue includes the sales revenue of equity accounted unitsof US$1,875 million (half year 2006: US$1,490 million; full year 2006: US$2,975million) in addition to Consolidated sales revenue, which relates only tosubsidiary companies. (b) Exploration and evaluation costs are stated net of gains on disposal ofundeveloped properties totalling US$131 million (half year 2006: US$nil; fullyear 2006: US$46 million). (c) For the purpose of calculating basic earnings per ordinary share, theweighted average number of Rio Tinto plc and Rio Tinto Limited sharesoutstanding during the period was 1,294.4 million, being the weighted averagenumber of Rio Tinto plc shares outstanding (1,008.7 million) plus the weightedaverage number of Rio Tinto Limited shares outstanding not held by Rio Tinto plc(285.7 million). Group cash flow statement Six months Six months Year to 31 to 30 June to 30 June December 2007 2006 2006 US$m US$m US$m Cash flow from consolidated operations 4,950 4,297 9,196 Dividends from equity accounted units 691 788 1,727Cash flow from operations 5,641 5,085 10,923 Net interest paid (69) (49) (128)Dividends paid to outside shareholders (71) (122) (193)Tax paid (1,747) (1,615) (2,799)Cash flow from operating activities 3,754 3,299 7,803 Cash used in investing activities(Acquisitions)/disposals of subsidiaries, joint ventures and (17) 3 (279)associatesPurchase of property, plant and equipment and intangible assets (1,942) (1,778) (3,992)Sales of other financial assets 18 286 293Purchases of other financial assets (197) (30) (167)Other investing cash flows 243 6 56Cash used in investing activities (1,895) (1,513) (4,089) Cash flow before financing activities 1,859 1,786 3,714 Cash used in financing activitiesEquity dividends paid to Rio Tinto shareholders (837) (2,024) (2,573)Own shares purchased from Rio Tinto shareholders (1,417) (1,098) (2,370)Proceeds from issue of ordinary shares in Rio Tinto 10 30 31Proceeds from issue of new borrowings 1,383 38 483Repayment of borrowings (843) (142) (1,102)Other financing cash flows 23 5 142Cash used in financing activities (1,681) (3,191) (5,389)Effects of exchange rates on cash and cash equivalents (10) (3) 30Net increase/(decrease) in cash and cash equivalents 168 (1,408) (1,645)Opening cash and cash equivalents 722 2,367 2,367Closing cash and cash equivalents 890 959 722 Cash flow from consolidated operationsProfit for the period 3,401 3,968 7,867Adjustments for: Taxation 1,258 911 2,373 Finance items 3 85 112 Share of profit after tax of equity accounted units (865) (800) (1,378) Impairment (reversals) less charges 449 - (396) Depreciation and amortisation 865 706 1,509 Provisions 133 (11) 60Utilisation of provisions (116) (148) (271)Change in inventories (77) (269) (454)Change in trade and other receivables 132 (232) (394)Change in trade and other payables (88) 38 116Other items (145) 49 52 4,950 4,297 9,196 Group balance sheet 30 June 30 June 31 December 2007 2006 2006 US$m US$m US$mNon current assetsGoodwill 883 1,022 841Intangible assets 518 247 384Property, plant and equipment 24,045 19,178 22,207Investments in equity accounted units 2,761 2,014 2,235Loans to equity accounted units 123 139 136Inventories 104 82 99Trade and other receivables 1,304 770 983Deferred tax assets 144 281 225Tax recoverable 4 127 135Other financial assets 647 238 374 30,533 24,098 27,619 Current assetsInventories 2,724 2,300 2,540Trade and other receivables 2,840 2,727 2,938Loans to equity accounted units 19 15 15Tax recoverable 79 31 79Other financial assets 252 545 567Cash and cash equivalents 926 989 736 6,840 6,607 6,875 Current liabilitiesBank overdrafts repayable on demand (36) (30) (14)Borrowings (1,793) (2,275) (1,490)Trade and other payables (2,633) (2,169) (2,693)Other financial liabilities (341) (227) (193)Tax payable (676) (642) (1,024)Provisions (407) (301) (366) (5,886) (5,644) (5,780) Net current assets 954 963 1,095 Non current liabilitiesBorrowings (1,957) (1,686) (2,007)Trade and other payables (369) (240) (362)Other financial liabilities (224) (448) (233)Tax payable (38) (91) (86)Deferred tax liabilities (2,453) (2,214) (2,339)Provisions (4,499) (4,043) (4,302) (9,540) (8,722) (9,329) Net assets 21,947 16,339 19,385 Capital and reservesShare capital- Rio Tinto plc 172 172 172- Rio Tinto Limited (excluding Rio Tinto plc interest) 1,178 1,029 1,099Share premium account 1,929 1,918 1,919Other reserves 1,647 (435) 641Retained earnings 15,705 12,782 14,401Equity attributable to Rio Tinto shareholders 20,631 15,466 18,232Attributable to outside equity shareholders 1,316 873 1,153 Total equity 21,947 16,339 19,385 (a) On 12 July 2007, Rio Tinto and Alcan Inc. announced an agreement for RioTinto to make an offer to acquire all of Alcan's outstanding common shares forUS$101 per common share in a recommended all cash transaction. The offerrepresents a total consideration of approximately US$38.1 billion for the equityof Alcan. (b) At 30 June 2007, Rio Tinto plc had 998.8 million ordinary shares inissue and Rio Tinto Limited had 285.7 million shares in issue, excluding thoseheld by Rio Tinto plc. (c) At 30 June 2007, net tangible assets per share amounted to US$14.97 pershare (half year 2006: US$10.64 per share, full year 2006: US$12.99 per share). Group statement of recognised income and expense (SORIE) Attributable Outside Six months Six months to Year to 31 to interests to 30 June 30 June December shareholders 2007 2006 2006 of Rio Tinto Total Total Total US$m US$m US$m US$m US$mCurrency translation adjustment 1,051 80 1,131 170 866Cash flow hedge fair value losses (55) (81) (136) (597) (378)Gains on available for sale securities 54 2 56 14 19Cash flow hedge losses transferred to the incomestatement 29 30 59 42 137Gains on available for sale securities transferredto the income statement (15) - (15) (4) (4)Actuarial gains on post retirement benefit plans 332 15 347 244 373Net tax recognised directly in equity (47) 17 (30) 22 102Net income/(expense) recognised directly in equity 1,349 63 1,412 (109) 1,115Profit after tax for the period 3,253 148 3,401 3,968 7,867Total recognised income for the period 4,602 211 4,813 3,859 8,982 Group statement of changes in equity Attributable Outside Six months Six months to Year to 31 to interests to 30 June 30 June December shareholders 2007 2006 2006 of Rio Tinto Total Total Total US$m US$m US$m US$m US$mOpening balance 18,232 1,153 19,385 15,739 15,739Total recognised income for the year 4,602 211 4,813 3,859 8,982Dividends (837) (71) (908) (2,160) (2,766)Own shares purchased from Rio Tinto -shareholders- Under capital management programme (1,361) - (1,361) (1,098) (2,658)- To satisfy share options (31) - (31) (45) (49)Ordinary shares issued 10 - 10 30 31Subsidiary company share issue - 23 23 8 69Employee share options charged to -the income statement 16 - 16 11 23Other movements - - - (5) 14Closing balance 20,631 1,316 21,947 16,339 19,385 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 eliminated directly against equity in the Group's UK GAAP financialstatements, has not been reinstated. This was permitted under the rulesgoverning the transition to EU IFRS set out in IFRS 1. The equivalentAustralian Standard, AASB 1, does not provide for the netting of goodwillagainst equity. As a consequence, shareholders' funds under Australian IFRSinclude the residue of such goodwill, which amounted to US$736 million at 30June 2007 (half year 2006: US$744 million; full year 2006: US$740 million). Save for the exception described above, the Group's financial statements drawnup in accordance with EU IFRS are consistent with the requirements of AustralianIFRS. Reconciliation of Net earnings to Underlying earnings Pre-tax Taxation Outside Six months Six months Year to 31 interests to 30 June to 30 June December 2007 2006 2006 Net Net Net amount amount amount US$m US$m US$mExclusions from Underlying earningsProfits less losses on disposal of interests in businesses (a) - - - - 10 3Impairment (charges)/net reversals (b) (449) 135 - (314) - 44Exchange differences and derivatives:- Exchange gains/(losses) on external net debt and intragroup balances (c) 65 (59) - 6 12 (16)- Gains/(losses) on currency and interest ratederivatives not qualifying for hedge accounting 23 (8) 4 19 (13) 30(d), (e)Other exclusions (f) 12 1 - 13 36 39Total excluded from Underlying earnings (349) 69 4 (276) 45 100Net earnings 4,659 (1,258) (148) 3,253 3,796 7,438Underlying earnings 5,008 (1,327) (152) 3,529 3,751 7,338 'Underlying earnings' is an additional measure of earnings, which is reported byRio 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) Charges and credits relating to impairment of non-current assets otherthan undeveloped properties. (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. The impairment charge for the six months to 30 June 2007 relates to ArgyleDiamonds and is based on an assessment of fair value less costs to sell. Thedeterioration in value is mainly due to large increases in the estimated capitalcost of the underground project. Consolidated net debt 30 June 30 June 31 December 2007 2006 2006 Net debt Net debt Net debt US$m US$m US$m Analysis of changes in consolidated net debtOpening balance (2,437) (1,313) (1,313)Adjustment on currency translation (163) (24) (56)Exchange gains recognised in the income statement 103 7 38(Losses)/gains on derivatives related to net debt (3) 25 44Cash movement excluding exchange movements (362) (1,300) (1,146)Other movements - (18) (4)Closing balance (2,862) (2,623) (2,437) Analysis of closing balanceBorrowings (3,750) (3,961) (3,497)Bank overdrafts repayable on demand (36) (30) (14)Cash and cash equivalents 926 989 736Other liquid resources 6 6 6Derivatives related to net debt (8) 373 332Consolidated net debt (2,862) (2,623) (2,437) Primary segmental analysis (by product group) Six months Six months Year to 31 to 30 June to 30 June December 2007 2006 2006 US$m US$m US$m Sales revenueIron ore 3,736 2,975 6,938Energy 2,076 1,974 4,070Aluminium 1,749 1,658 3,493Copper 2,593 2,291 4,396Diamonds and Minerals 1,764 1,603 3,339Other 137 120 229Consolidated sales revenue 12,055 10,621 22,465Share of equity accounted units 1,875 1,490 2,975Gross sales revenue 13,930 12,111 25,440 Consolidated profit before finance items and taxationIron ore 1,702 1,480 3,847Energy 348 523 801Aluminium 603 500 1,069Copper 1,472 1,501 3,333Diamonds and Minerals (79) 330 311Exploration and evaluation not attributed to product 55 (60) (101)groupsOther (304) (110) (286)Operating profit (segment result) 3,797 4,164 8,974 Share of profit after tax of equity accounted unitsCopper 842 710 1,271Other product groups 23 90 107Profit before finance items and taxation 4,662 4,964 10,352 (a) The product groups shown above reflect the Group's management structureand are the Group's primary segments in accordance with IAS 14. The analysisdeals with: the sales revenue, profit before finance costs and taxation forsubsidiary companies and proportionally consolidated units. The amountspresented for each product group exclude equity accounted units, but include theamounts attributable to outside equity shareholders. The product groups areconsistent with those identified in the financial information by business unitdata included on pages 7 and 8 of this news release. However, that informationincludes the results of equity accounted units and presents different financialmeasures. (b) The analysis of profit before finance costs and taxation includes theprofit on disposal of interests in businesses (including investments), andimpairment charges/reversals, which are excluded from Underlying earnings. Geographical analysis (by destination) Six months Six months Year to 31 First half First half Year to 30 June to 30 June December 2007 2006 2006 2007 2006 2006 % % % US$m US$m US$m Gross sales revenue 22.2 23.8 21.9 North America 3,093 2,882 5,575 17.0 17.3 17.2 Europe 2,368 2,095 4,378 18.8 19.8 19.6 Japan 2,620 2,396 4,986 17.3 14.1 16.0 China 2,404 1,709 4,062 14.0 13.6 13.5 Other Asia 1,949 1,643 3,438 5.3 6.0 5.8 Australia and New Zealand 739 723 1,477 5.4 5.4 6.0 Other 757 663 1,524 100.0 100.0 100.0 13,930 12,111 25,440 Prima facie tax reconciliation Six months Six months Year to 31 to 30 June to 30 June December 2007 2006 2006 US$m US$m US$m Profit before taxation 4,659 4,879 10,240Deduct: share of profit after tax of equity accounted units (865) (800) (1,378) Parent companies' and subsidiaries' profit before tax 3,794 4,079 8,862Prima facie tax payable at UK and Australian rate of 30% 1,138 1,224 2,659Impact of items excluded in arriving at Underlying earnings 36 8 201 Other permanent differencesAdditional recognition of deferred tax assets (a) - (211) (335)Utilisation of previously unrecognised deferred tax assets - (68) (140)Adjustments to deferred tax liabilities following changes in tax rates (10) (46) (46)(b)Other tax rates applicable outside the UK and Australia 139 122 242Resource depletion and other depreciation allowances (86) (105) (187)Research, development and other investment allowances (8) (9) (21)Other 49 (4) - 84 (321) (487)Total taxation charge (c) (d) (e) 1,258 911 2,373 (a) The 'Additional recognition of deferred tax assets' of US$211 million inhalf year 2006 (full year 2006: US$335 million) reflected improved prospects forfuture earnings from the Group's US operations. (b) The 'Adjustments to deferred tax liabilities following changes in taxrates', totalling US$10 million (2006 half year and full year: US$46 million),resulted from a reduction in Canadian tax rates. (c) This tax reconciliation relates to the parent companies, subsidiariesand proportionally consolidated units. The Group's share of profit of equityaccounted units is net of tax charges of US$478 million (2006 half year: US$403million; 2006 full year: US$770 million). (d) The tax reconciliation for all periods analyses US tax on a regular taxbasis. (e) The total taxation charge includes UK - US$(39) million, Australia -US$596 million and Other - US$701 million (half year 2006: UK - US$33 million,Australia - US$675 million and Other - US$203 million; full year 2006: UK -US$41 million, Australia - US$1,420 million, Other - US$912 million). Other disclosures Capital commitments Capital commitments, including those relating to joint ventures and associates,were US$2,827 million (at 30 June 2006: US$1,846 million; at 31 December 2006:US$2,413 million). Contingent liabilities There were no material changes in contingent liabilities or contingent assetsduring the period. The disagreement with the Australian tax office relating to certain transactionsundertaken in 1997 to acquire franking credits was settled on 14 June 2007,resulting in an additional tax charge of US$46 million for the six months to 30June 2007. Share buyback Between 1 January 2007 and 30 June 2007, Rio Tinto plc bought back 25,510,000 ofits own shares from public shareholders, to be held in treasury, at an averagebuy back price of £29.23. During the year to 31 December 2006, Rio Tinto plcbought back 46,340,000 shares, to be held in treasury, at an average buybackprice of £27.27 per share and 800,000 shares were bought back at an averagebuyback price of £27.36 and cancelled. Between 1 January 2006 and 30 June 2006,Rio Tinto plc bought back 21,965,000 of its own shares from public shareholders,to be held in treasury, at an average buyback price of £28.02. The totalconsideration paid in half year 2007 was US$1,417 million (half year 2006:US$1,098 million; full year 2006: US$2,370 million) after deducting proceeds ofUS$11 million for treasury shares reissued (half year 2006: nil; full year 2006:US$24 million). Related party matters Transactions and balances with equity accounted units are summarised below.Purchases relate largely to amounts charged by equity accounted units for tollprocessing of bauxite and alumina. Sales relate largely to charges for supply ofcoal to jointly controlled marketing entities for onsale to third partycustomers. Six months Six months Year to 31 to 30 June to 30 June December 2007 2006 2006Income statement items US$m US$m US$m Purchases from equity accounted units (719) (645) (1,364)Sales to equity accounted units 692 573 1,497 Balance sheet items US$m US$m US$m Investments in equity accounted units 2,761 2,014 2,235Loans to equity accounted units 142 154 151Loans from equity accounted units (111) (32) (65)Trade and other receivables: amounts due from equity accounted units 722 521 648Trade and other payables: amounts due to equity accounted units (103) (112) (143) Cash flow statement items US$m US$m US$m Funding of equity accounted units (18) (13) (47) Accounting policies The condensed financial information included in this report is unaudited and hasbeen prepared in accordance with International Financial Reporting Standardsadopted by the European Union ('EU IFRS') under the requirements of IAS 34'Interim financial reporting', and an Order under section 340 of the AustralianCorporations Act 2001 issued by the Australian Securities and InvestmentsCommission on 27 January 2006 (as amended on 22 December 2006). 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 2006. Certain prior year information has been reclassified to conform with the currentyear presentation. Exploration and evaluation costs charged against income werepreviously included in 'Cash used in investing activities' but are now includedwithin 'Cash flow from operating activities'. As a result, exploration andevaluation costs expensed of US$117 million and US$273 million have beenreclassified in the comparative figures for half year 2006 and full year 2006respectively, within the Cash flow statement. Status of financial information These interim financial results do not have the status of statutory accountswithin the meaning of Section 240 of the Companies Act 1985. Financial information for the year to 31 December 2006 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 2006 was unqualified anddid not contain statements under section 237(2) of the United Kingdom CompaniesAct 1985 (regarding adequacy of accounting records and returns), or under 237(3)(regarding provision of necessary information and explanations). Directors' declaration In the directors' opinion: The financial statements and notes have been prepared in accordance with theListing Rules of the Financial Services Authority in the United Kingdom,applicable accounting standards and the Australian Corporations Act 2001 (asmodified by an order of the Australian Securities and Investments Commissiondated 27 January 2006) (as amended on 22 December 2006) using the mostappropriate accounting policies for Rio Tinto's business and supported byreasonable and prudent judgements. The financial statements and notes give a true and fair view of the Rio TintoGroup's financial position as at 30 June 2007 and of its performance, asrepresented by the results of its operations, recognised income and expense andits cash flows for the half year then ended. There are reasonable grounds to believe that each of the Rio Tinto Group, RioTinto Limited and Rio Tinto plc, has adequate financial resources to continue inoperational existence for the foreseeable future and to pay its debts as andwhen they become due and payable. By order of the board G R Elliott Finance Director 2 August 2007 Auditors' Independence Declaration As lead auditor for the review of Rio Tinto Limited for the half year ended 30June 2007, I declare that to the best of my knowledge and belief, there havebeen: a) no contraventions of the auditor independence requirements of theCorporations Act 2001 in relation to the review; and b) no contraventions of any applicable code of professional conduct inrelation to the review. This declaration is in respect of Rio Tinto Limited and the entities itcontrolled during the period. Rob Hubbard BrisbanePartner 2 August 2007PricewaterhouseCoopers Independent review report to Rio Tinto plc and Rio Tinto Limited ("the Companies") Introduction We have been instructed by the Companies to review the financial information ofthe Rio Tinto Group (comprising the Companies and their subsidiaries, associatesand joint ventures) for the six months ended 30 June 2007 which comprises theGroup interim balance sheet as at 30 June 2007, the Group interim statements ofincome, cash flows and recognised income and expense for the six months thenended and the related notes (including the financial information by BusinessUnit). We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors of the Companies.The directors are responsible for preparing the interim report in accordancewith the Listing Rules of the Financial Services Authority in the United Kingdomand the Australian Corporations Act 2001 as amended by the Australian Securitiesand Investments Commission Order dated 27 January 2006 (as amended on 22December 2006). The Listing Rules of the London Stock Exchange require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. This interim report has been prepared in accordance with InternationalAccounting Standard 34, 'Interim financial reporting' as adopted by the EuropeanUnion. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with auditing standards and therefore provides a lowerlevel of assurance than an audit. Accordingly we do not express an audit opinionon the financial information. This report, including the conclusion, has beenprepared for and only for Rio Tinto plc for the purpose of the Listing Rules ofthe Financial Services Authority in the United Kingdom and for Rio Tinto Limitedfor the purpose of the Australian Corporations Act 2001 as amended by theAustralian Securities and Investments Commission Order dated 27 January 2006 (asamended on 22 December 2006) and for no other purpose. We do not, in producingthis report, accept or assume responsibility for any other purpose or to anyother person to whom this report is shown or into whose hands it may come savewhere expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. PricewaterhouseCoopers LLP PricewaterhouseCoopersChartered Accountants Chartered AccountantsLondon Brisbane2 August 2007 2 August 2007in respect of Rio Tinto plc in respect of Rio Tinto Limited Notes to financial information by business unit (Pages 7 and 8) The following changes have been made to the presentation of this information.Half year 2006 results have been reclassified accordingly. Product groups/business segments During 2007, Industrial Minerals and Diamonds were combined to form the Diamondsand Minerals product group. Other Project evaluation and other costs specifically attributable to product groupsare now reported as part of product group earnings. Previously, these werereported centrally in 'Exploration and evaluation and Other items',respectively. Capitalised evaluation costs Capital expenditure by product group now includes capitalised evaluation costs. Business units have been classified according to the Group's managementstructure. Generally, this structure has regard to the primary product of eachbusiness unit but there are exceptions. For example, the Copper group includescertain gold operations. (a) Gross sales revenue includes 100 per cent of subsidiaries' sales revenueand the Group's share of the sales revenue of equity accounted units. (b) EBITDA of subsidiaries and the Group's share of equity accounted unitsrepresents profit before: tax, net finance items, depreciation and amortisation. (c) Net earnings represent profit after tax for the period attributable tothe Rio Tinto Group. Earnings of subsidiaries are stated before finance itemsbut after the amortisation of the discount related to provisions. Earningsattributable to equity accounted units include interest charges and amortisationof discount. Earnings attributed to business units exclude amounts that areexcluded in arriving at Underlying earnings. (d) Includes Rio Tinto's 75.7 per cent interest in Coal and Allied, which ismanaged by Rio Tinto Coal Australia, a 100 per cent subsidiary of Rio Tinto. (e) Includes Rio Tinto's interests in Rio Tinto Aluminum (100 per cent) andAnglesey Aluminium (51 per cent). (f) 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. (g) Diamonds includes Rio Tinto's interests in Argyle (100 per cent), Diavik(60 per cent) and Murowa (77.8 per cent). (h) Includes Rio Tinto's interests in Rio Tinto Borax (100 per cent),Dampier Salt (64.9 per cent) and Talc (100 per cent). (i) Capital expenditure comprises the net cash outflow on purchases lessdisposals of property, plant and equipment, capitalised evaluation costs andpurchases less disposals of other intangible assets. The details providedinclude 100 per cent of subsidiaries' capital expenditure and Rio Tinto's shareof the capital expenditure of equity accounted units. Amounts relating to equityaccounted units not specifically funded by Rio Tinto are deducted beforearriving at total capital expenditure for the Group. (j) Depreciation figures include 100 per cent of subsidiaries'depreciation and amortisation and include Rio Tinto's share of the depreciationand amortisation of equity accounted units. Amounts relating to equity accountedunits are deducted before arriving at the total depreciation and amortisationcharge. Depreciation and amortisation includes US$15 million (2006 half year:US$15 million; 2006 full year: US$40 million) relating to deferred strippingcosts. (k) Operating assets of subsidiaries comprise net assets before deductingnet debt, less outside shareholders' interests which are calculated by referenceto the net assets of the relevant companies (i.e. net of such companies' debt).For equity accounted units, Rio Tinto's net investment is shown. Summary financial data in Australian dollars, Sterling and US dollars Six Six Six Six Six Six Year to 31 months months months months months months December to 30 to 30 to 30 to 30 to 30 to 30 2006 June June June June June June 2007 2006 2007 2006 2007 2006 A$m A$m £m £m US$m US$m US$m 17,198 16,366 7,071 6,766 Gross sales revenue 13,930 12,111 25,440 14,883 14,353 6,119 5,934 Consolidated sales revenue 12,055 10,621 22,465 5,752 6,593 2,365 2,726 Profit before taxation 4,659 4,879 10,240 4,199 5,362 1,726 2,217 Profit for the period 3,401 3,968 7,867 4,016 5,130 1,651 2,121 Net earnings attributable to Rio Tinto 3,253 3,796 7,438 shareholders 4,357 5,069 1,791 2,096 Underlying earnings * 3,529 3,751 7,338 310.2c 381.1c 127.6p 157.6p Basic earnings per ordinary share 251.3c 282.0c 557.8c 336.5c 376.6c 138.4p 155.7p Basic underlying earnings per ordinary 272.6c 278.7c 550.3c share * Dividends per share to Rio Tinto shareholders 82.84c 200.28c 32.63p 85.24p - paid (2006 including special dividend) 64.0c 151.5c 191.5c 60.69c 52.48c 25.59p 21.42p - proposed 52.0c 40.0c 64.0c 2,295 2,414 944 998 Cash flow before financing activities 1,859 1,786 3,714 (3,367) (3,545) (1,431) (1,426) Net debt (2,862) (2,623) (2,437) 24,272 20,900 10,316 8,405 Equity attributable to Rio Tinto 20,631 15,466 18,232 shareholders * Underlying earnings for the six months to 30 June 2007 are stated afterexcluding items totalling US$(276) million (half year 2006: US$45 million, fullyear 2006: US$100 million), which are analysed on page 23. The financial data above have been extracted from the primary financialstatements set out on pages 19 to 22. The Australian dollar and Sterlingamounts are based on the US dollar amounts, retranslated at average or closingrates as appropriate, except for the dividends which are the actual amountspayable. Metal prices and exchange rates Six months Six months Change Year to 31 to 30 June to 30 June 1H07 v 1H06 December 2007 2006 2006 Metal prices - average for the period Copper - US cents/lb 307c 271c 13% 306cAluminium - US cents/lb 126c 115c 10% 116cGold - US$/troy oz US$659 US$588 12% US$602Molybdenum - US$/lb US$28 US$23 19% US$25 Average exchange rates in US$ Sterling 1.97 1.79 10% 1.84Australian dollar 0.81 0.74 9% 0.75Canadian dollar 0.88 0.88 - 0.88South African rand 0.14 0.16 (14%) 0.15 Period end exchange rates in US$ Sterling 2.00 1.84 9% 1.96Australian dollar 0.85 0.74 15% 0.79Canadian dollar 0.95 0.90 6% 0.86South African rand 0.14 0.14 - 0.14 Availability of this report This report is available on the Rio Tinto website. IMPORTANT INFORMATION: Rio Tinto Canada Holding Inc. (referred to herein as the "Offeror"), acorporation incorporated under the laws of Canada, and an indirect wholly-ownedsubsidiary of Rio Tinto plc, a public limited company organised under the lawsof England and Wales ("Rio Tinto"), is offering to purchase (the "Offer"), uponthe terms and subject to the conditions set forth in the Offer and in therelated letter of transmittal, each issued and outstanding common share of AlcanInc. ("Alcan"), together with the associated rights (the "Alcan Rights") (and,together with the common shares of Alcan, the "Alcan Common Shares") issued andoutstanding under Alcan's Shareholder Rights Plan which is described in thistake-over bid circular, for U.S.$101 (equivalent to Cdn$105.44 based on the July20, 2007 Bank of Canada Noon Rate) per Alcan Common Share in cash (less anyapplicable withholding taxes and without interest). The Offer will be open for acceptance until 6:00 p.m., Eastern Time, onSeptember 24, 2007, unless extended or withdrawn by the Offeror. This announcement is for information purposes only and does not constitute orform part of any offer or invitation to purchase, otherwise acquire, subscribefor, sell, otherwise dispose of or issue, or any solicitation of any offer tosell, otherwise dispose of, issue, purchase, otherwise acquire or subscribe for,any security. The Offer (as the same may be varied or extended in accordancewith applicable law) is being made exclusively by means of, and subject to theterms and conditions set out in, the take-over bid circular delivered to Alcanand filed with Canadian provincial securities regulators and the United StatesSecurities and Exchange Commission (the "SEC") and mailed to Alcan shareholders. The release, publication or distribution of this announcement in certainjurisdictions may be restricted by law and therefore persons in suchjurisdictions into which this announcement is released, published or distributedshould inform themselves about and observe such restrictions. In connection with the Offer, Rio Tinto has filed with the Canadian securitiesregulatory authorities and the SEC a take-over bid circular as well as ancillarydocuments such as a letter of transmittal and a notice of guaranteed deliveryand Alcan has filed a directors' circular with respect to the Offer. Rio Tintohas also filed with the SEC a Tender Offer statement on Schedule TO (the"Schedule TO") and Alcan has filed with the SEC a Solicitation/RecommendationStatement on Schedule 14D-9 (the "Schedule 14D-9"). SHAREHOLDERS OF ALCAN AREURGED TO READ THE TAKE-OVER BID CIRCULAR (INCLUDING THE LETTER OF TRANSMITTALAND NOTICE OF GUARANTEED DELIVERY), THE SCHEDULE TO (INCLUDING THE OFFER ANDTAKEOVER BID CIRCULAR, LETTER OF TRANSMITTAL AND RELATED TENDER OFFER DOCUMENTS)AND THE SCHEDULE 14D-9 AS THEY CONTAIN IMPORTANT INFORMATION ABOUT THE OFFER. The take-over bid circular as well as other materials filed with the Canadiansecurities regulatory authorities are available electronically without charge atwww.sedar.com. The Schedule TO and the Schedule 14D-9 are availableelectronically without charge at the SEC's website, www.sec.gov. Materials filedwith the SEC or the Canadian securities regulatory authorities may also beobtained without charge at Rio Tinto's website, www.riotinto.com While the Offer is being made to all holders of Alcan Common Shares, thisannouncement does not constitute an offer or a solicitation in any jurisdictionin which such offer or solicitation is unlawful. The Offer is not being made in,nor will deposits be accepted in, any jurisdiction in which the making oracceptance thereof would not be in compliance with the laws of suchjurisdiction. However, Rio Tinto may, in its sole discretion, take such actionas they may deem necessary to extend the Offer in any such jurisdiction. This information is provided by RNS The company news service from the London Stock Exchange

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